"Bitcoin currently trades essentially at the break-even cost of mining a bitcoin," Fundstrat's Thomas Lee said in a note on Thursday, as reported on CNBC. (See also: Bitcoin Is a $15,000 Beanie Baby, Says John Oliver.)
Miners’ earnings have nearly halved this month from December due to a surge of interest in bitcoin mining, according to the report. The cost of mining bitcoin, accounting for factors such as the cost of equipment, electricity and other overhead costs such as maintaining cooling facilities, is about $8,038, wrote Lee.
Bitcoin, the world's largest cryptocurrency by market capitalization, hit a low near $7,700 earlier this week, its furthest plunge since Feb. 8, before rising back to levels near $8,500 as of Friday morning.
Bitcoin mining is an energy-intensive process which utilizes high computing power to solve complex mathematical equations. A miner is then rewarded with a newly-minted bitcoin when other miners are beat out in a race to package up the latest block of bitcoin transactions and add it to the bitcoin's blockchain, or its shared ledger.
Falling Prices, Surge In Competition and Lower Transaction Fees
In mid-December, when the price of the popular digital coin was surging fast towards $20,000, miners weren't at all worried about profitability. Recently, falling bitcoin prices and heightened competition in the space have coincided with falling transaction fees, taking a bite out of miners' earnings. While bitcoin enthusiasts often highlight lower fees as an advantage of the digital coins over traditional financial networks, the median fee for a transaction has dropped from $34 in late December to below $0.50 currently, according to BitInfoCharts.
"In some cases, the miners may simply turn off the machines until the price comes back a bit," said Shone Anstey, co-founder and president of Blockchain Intelligence Group. "It's got to be getting to the point that some of them may be losing money."
Yet unlike traditional commodities such as gold, wherein speculators often take a breakeven cost of production and signaling a forthcoming bottom as supply lets up, the implications for bitcoin mining are more complex. This is partially due to the differing costs that miners face around the world.
For example, in China, miners incur electricity costs of about $0.04 or less per kilowatt, compared to Fundstrat's break-even model assuming an average of $0.06 globally. Miners around the world may also overlook costs, driven instead by a desire to evade their government's capital controls when sending money abroad. Due to various factors, Fundstrat indicates that miners would begin shutting down at a bitcoin price around $3,000 to $4,00 per coin. (See also: Crypto-Trading and ICOs Now Allowed in South Korea.)
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