Bitcoin is poised to lose a quarter of its value – making it more expensive to create than to sell
The cost of producing the cryptocurrency bitcoin may soon become more expensive than the price investors are willing to pay for it, experts warn.
The value of digital currencies has crashed as investor confidence plummeted after the FTX exchange filed for bankruptcy on Thursday and its former CEO, Sam Bankman-Fried, dubbed the King of Crypto, was forced to step down.
FTX’s rapid dissolution this week has left tens of thousands of customers wondering if they will ever see their money again.
The exchange was one of the biggest players in the industry and considered a safe haven after the wider market crash in which several high-profile crypto firms have also collapsed this year.
The collapse further undermined confidence in the troubled crypto market, prompting millions of investors to sell their holdings.
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Bitcoin, the first cryptocurrency, has struggled since reaching a peak near $69,000 (£58,000) in November 2021. It has since lost almost 60 percent of its value.
Analysts at US bank JP Morgan have warned that if the price continues to fall, it could become more expensive to produce or “mine” than people are willing to pay for it. They have warned that the price could fall by a further 25 per cent.
The cost of bitcoin production is mainly the electricity needed to operate the powerful computers that create or “mine” a single coin and run the bitcoin network.
“This is currently at $15,000, but it is likely to recover to the low of $13,000 seen over the summer months,” said JP Morgan’s Nikolaos Panigirtzoglou.
The analyst noted that bitcoin rarely falls below its production price, but in a note to clients, he warned of the possibility of a new “cascade of margin calls, deleveraging and crypto company/platform failures beginning”.
He said the collapse of FTX would result in investor and regulatory pressure on crypto entities to disclose more information about their balance sheets, to protect clients’ assets and limit asset concentration, is likely to increase.
Crypto market participants “are likely to adopt more careful risk management, including counterparty risk management,” he wrote.
FTX, he said, has been favored over rival exchange Binance by institutional clients such as hedge funds, so the collapse “is likely to change the way institutional investors interact with exchanges to ensure their assets are protected”.
Digital currency traders believe that when bitcoin is mined at a price higher than they could sell it on the market, the “miners” or the companies that produce it are more likely to hold on to their coins rather than sell them to cover only parts of their coins. expenditure. Shortages will push up the price they argue for.
