Why Bitcoin manufacturing costs are a very likely bottom

The price of Bitcoin is just over $ 20,000 per coin – a shock to most new and long-standing holders of the cryptocurrency. The sale took the cryptocurrency back to the cost of production, which has served as a bottom in the past.

In this article, we will take a closer look at the cost of producing each BTC and its relationship to price action. We will also examine why the scarce digital resource can in all probability find a bottom at such levels.

Bitcoin falls to production costs, according to previous ATH retests

Bitcoin is unlike any other asset before it, and since its inception, an entire industry has been created in hopes of mimicking the success of the network. Investors are piling into altcoins in hopes of finding the next Bitcoin and profits.

The cryptocurrency relies on an energy-intensive proof-of-work process to generate new coins. Mining is not cheap, otherwise everyone would do it. In fact, according to the production cost indicator designed by Bitcoin expert Charles Edwards, it costs about $ 20,260 per BTC at the low end.

Related reading | Coinbase considers Bitcoin Creator a risk for the business, here’s why

It does not take a mathematician with Satoshi’s skills to know that it is barely a few hundred dollars away from today’s prices. Interestingly, sales fell directly to production costs. Looking back, significant bottoms such as December 2018 and March 2020 both affected the lower limit.

The high end of the metric is around $ 33,766, which once broken may be a sign that the downside is over. Like Black Thursday, it is even more bullish to test it again.

BTC Production Cost Indicator could call the bottom | Source: BTCUSD on TradingView.com

How Satoshi called the bottom 12 years ago

Assessing a bottom after such a brutal sale and in the midst of the background of the most bearish macro environment Bitcoin has ever encountered, may seem hard to believe or even too good to be true. But there is a reason for this type of base-building behavior in scarce assets.

Scarce assets such as raw materials tend to build a base and bottom out around production costs. Even Satoshi discussed this earlier, dating as far back as 2010. The mysterious founder is quoted as saying that “the price of any commodity tends to move toward the cost of production. If the price is below cost price, production is reduced. If the price is above the cost, profit can be made by generating and selling more. “

Related reading | Why Bitcoin does not need Musk, Saylor or anyone else

What Satoshi describes is the revenue model that BTC miners follow. They produce new coins at as profitable a rate as they can, and sell them as the price deviates higher than the production costs. Returning to such levels often cleanses the market of less efficient operations, leaving only the strongest.

BTC miners are capitulating | Source: BTCUSD on TradingView.com

Is this what is happening now with Bitcoin? And what happens when only the strongest have survived? Could Satoshi really have predicted the bottom so far in advance?

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Featured image from iStockPhoto, Charts from TradingView.com