Mining bitcoin, the world's largest cryptocurrency by market capitalization, is not as profitable as once thought, according to one team of analysts on the Street who views this as a negative headwind for the price of the volatile digital asset.
If bitcoin fails to break past $8,600 soon, analysts at Morgan Stanley expect cryptocurrency mining demand to fall significantly, weighing on component makers who have received a boost from the high-growth business amid the crypto frenzy, including Asian chipmaker Taiwan Semiconductor (TSM).
At a price of $8,507 at 4:37 p.m. UTC, BTC reflects an approximate 57% fall from highs reached near $20,000 in December, and a near 600% gain over the most recent 12 months. The digital coin's stellar run, compared to the benchmark S&P 500's 13.4% gain over a year, led many once on the sidelines to get into crypto investing due to fear of missing out on the next big thing in tech. While initial coin offerings (ICOs) in 2018 have already raked in more money than the entirety of last year, fears of heightened regulation on the red-hot cryptocurrency markets has put bitcoin's rally to a halt and drove a series of sell-offs this year. (See also: Bitcoin Miners No Longer Turning a Profit Creating Cryptocurrency.)
Hardware Demand Weighing on TSM
“We estimate the break-even point for big mining pools should be US$8,600, even if we assume a very low electricity cost (US$0.03 kW/h)," wrote Morgan Stanley equity analyst Charlie Chan in a research note Thursday. "Therefore, we think the Bitcoin mining hardware demand and price will decline further and affect [Taiwan Semiconductor]'s wafer demand.”
On Thursday, shares of Taiwan Semiconductor plummeted on weaker-than-expected 2018 revenue guidance which management attributed to a decline in demand from the mobile sector as well as uncertainty in cryptocurrency mining demand. Morgan Stanley estimates that the semiconductor company now attributes 10% of its revenue to cryptocurrency mining demand.
"We think the injection of new mining capacity will further increase the mining difficulty in 2H18," added Chan. "Even if the Bitcoin price stays the same in 2H18, we believe mining profits would drop rapidly, according to our simulation."
The investment bank expects companies that sell specialized mining chips to break even over two years if bitcoin trades near $5,000. (See also: Already More ICOs in 2018 Than All of 2017: $6.3B.)
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