JPMorgan Estimates Bitcoin Production Cost Down to $13,000 but Could Harm Price

Wall Street giant JPMorgan Chase said Bitcoin’s cost of production plunged to $13,000 from $24,000 since the start of June. The decline comes mostly due to cheaper electricity prices. While it is seen as a good thing for Bitcoin miners, the drop could impede the cryptocurrency’s future price gains, the bank’s strategists wrote to clients.

50% Drop in Bitcoin’s Cost of Production Could Harm Price Growth

While the cheaper cost of production is expected to help miners maintain profitability by boosting the efficiency of mining equipment, the drop is likely to represent a large obstacle to future price gains in the world’s largest cryptocurrency. The strategists said the drop in electricity prices is the primary reason behind the drop in the cost of production, citing data from the Cambridge Bitcoin Electricity Consumption Index.

“While clearly helping miners’ profitability and potentially reducing pressures on miners to sell Bitcoin holdings to raise liquidity or for deleveraging, the decline in the production cost might be perceived as negative for the Bitcoin price outlook going forward. The production cost is perceived by some market participants as the lower bound of the Bitcoin’s price range in a bear market.”

the bank’s strategists wrote.

The largest cryptocurrency by market cap has plummeted significantly since skyrocketing to nearly $69,000 in November 2021. A combination of different factors such as inflation, supply chain constraints, aggressive interest rate hikes, and the war in Ukraine have triggered a bear market in capital markets, driving investors away from risky assets.

Moreover, other headwinds such as the crash of the algorithmic stablecoin TerraUSD (UST) and its sister token LUNA, as well as the collapse of the crypto broker Voyager Digital, disrupted the crypto industry, pushing prices further down. Today, troubled crypto lender Celsius Network filed for bankruptcy after facing a myriad of challenges amid the ongoing bear market, over-leveraged bets, and aggressive lending throughout the DeFi space.

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Bitcoin Miners Facing Almost $4B in Loans

Earlier this month, The Tokenist reported that private and publicly-listed crypto mining firms have piled up to $4 billion in debt, which was used to build mining facilities across the United States. Multiple miners could now potentially face margin calls mainly because of the sharp sell-off in the crypto market which has pushed token prices to new lows.

The crypto bull run last year has fueled crypto prices to new all-time highs, encouraging crypto miners to take substantial loans to take advantage of the market opportunities. But the decline in Bitcoin and other crypto prices has also hurt the prices of the mining equipment, forcing miners to offload their crypto holdings and sell rigs.

Bitcoin continues to trade around the $20,000 range. The cryptocurrency is down nearly 60% this year.

Do you think Bitcoin’s price will continue depreciating? Let us know in the comments below.