How much does it cost to mine 1 Bitcoin?

In a recent report seen by Decryptthe investment bank JPMorgan estimates that the production costs to extract a Bitcoin has fallen from $24,000 at the beginning of June to just $13,000.

Bitcoin’s production cost is an estimate of the average cost of mining one Bitcoin per day. This cost depends primarily on the electricity costs miners incur to power their machines, but there are other variables.

As long as the price of Bitcoin stays above this cost, a mining operation remains profitableand many market observers suggest that production costs could also serve “as the lower bound of Bitcoin’s price range in a bear market.”

According to the New York-based bank, Bitcoin’s bottom could very well be $13,000, marking a 45% drop from today’s prices.

“While clearly helping miners’ profitability and potentially reducing the pressure on miners to sell Bitcoin holdings to raise liquidity or for deleveraging, the decline in production costs could be perceived as negative for the Bitcoin price outlook going forward,” JPMorgan strategist, led by Nikolaos Panigirtzoglou , wrote.

They based their estimates primarily on the decline in electricity use as miners deploy more power-efficient mining rigs.

Still, other metrics paint a slightly different picture for the leading cryptocurrency.

According to data obtained from MacroMicro, for example, the cost of production is still at just over $17,700. “When mining costs are lower than Bitcoin’s market value, more miners will join. When mining costs are higher than miner earnings, the number of miners will decrease, the data provider’s website explains.

Both devices calculate Bitcoin’s production cost using the Cambridge Bitcoin Electricity Consumption Index (CBECI) data. However, the data provided by CBECI depends on the average electricity costs of the miner, which can vary widely and affect the calculations.

Other costs, including infrastructure, hardware and hiring staff to maintain mining operations, can also vary.

“Production costs vary greatly based on the type of rigs, and the cost of power, but also labor costs and facility maintenance,” confirmed Zach Bradford, CEO of Bitcoin mining company CleanSpark. Decrypt.

Bradford added that his team’s analysis puts production costs even lower than JPMorgan’s.

“With the majority of public miners running the last [generation] rigs, and with strategic power management contracts in place, our internal research puts the number closer to $12,000 for public miners,” he said. “But even within a company, it will vary from facility to facility. CleanSpark, for example, has facilities that are lower than that.”

That means as long as Bitcoin stays above $12,000, public miners will still make money.

Bitcoin miners capitulate

Regardless of the differences in production costs, almost all miners have come under pressure following Bitcoin’s catastrophic fall since November.

Glassnode has outlined this stress by using something called Puell Multiple.

This mathematical model measures the aggregate income of Bitcoin miners; when the calculation is particularly low, miners earn less on average and are more likely to either sell Bitcoin holdings or close some machines. These days they certainly earn a lot less than in the past.

“Bitcoin miners earn only 49% as much as the 12-month average. This implies that miner income stress is a likely factor,” Glassnode wrote in a recent report.

Events such as COVID crashChina’s crypto prohibitand recent price action all correlate with a low Puell multiple as well as wider miner capitulation.

Recent headlines also confirm this.

Last month, publicly traded Bitcoin miner Core Scientific Inc. sold nearly 7,000 Bitcoin at an average price of $23,000. Similarly, Algo Blockchain also sold approximately $15.6 million in the leading cryptocurrency to cover its costs.

From a quick glance at their stock prices, public mining companies have also been hugely impacted by the brutal cryptocurrency bear market.

Marathon Digital Holdings is down 73% year-to-date, Riot Blockchain Inc. is down 73% year-to-date, and Core Scientific Inc. has lost 81% year-to-date. And if Bitcoin continues to fall, these numbers could fall as well.