Bitcoin has moved above JPMorgan's estimated $85,000 production cost after spending 280 days below it, according to the bank's analysts. The bank said a sustained move above that level could ease forced selling by miners, who have also been shifting capacity toward AI computing as mining profitability stayed weak.
Bitcoin's recent move above JPMorgan's estimated production cost of around $85,000 could relieve pressure on miners and cut the risk of forced selling if the rally holds, the bank's analysts said.
Bitcoin spent 280 days below the estimated average cost of producing one BTC before rising above it during this week's rally, the JPMorgan analysts led by Nikolaos Panigirtzoglou said in a report Wednesday. The price has since eased slightly and currently trades around $84,100.
According to JPMorgan: "To the extent it is sustained, this new backdrop should provide relief to bitcoin miners", the analysts said, adding that production cost has historically acted as a soft floor for bitcoin's price. When the price trades below that level for a long stretch, miners with higher electricity and equipment costs can become unprofitable, and they may then sell more bitcoin, shut down machines, or leave the market.
Relief for bitcoin miners
Miners have managed the extended stretch of weak profitability by moving machines to regions with cheaper electricity, selling older rigs, and placing some equipment on standby, the analysts said, adding that miners have also scrapped or recycled less efficient machines.
The last time bitcoin stayed below its estimated production cost for a comparable period was in 2018, when it remained under that level for about 224 days, the analysts noted. Back then, falling prices pushed higher-cost miners to shut down, which cut the network's hash rate and mining difficulty. The mining industry is now larger and more industrialized than it was in 2018, but the analysts said the same adjustment mechanism still applies as higher-cost miners retreat.
Miners shift toward AI as hash rate falls
Bitcoin mining is also undergoing a broader shift toward artificial intelligence, the analysts said. As miners move some or all of their operations toward AI computing, growth in the network's hash rate has slowed: hash rate has fallen about 19% from its peak last October, while mining difficulty has declined roughly 15%, the analysts said.
Many publicly traded miners have lowered their hash rate growth forecasts as long-term AI contracts accelerate the shift away from bitcoin mining. The analysts said AI companies are paying significant premiums for electricity and data centers already equipped for intensive computing, and with bitcoin prices subdued for much of the year, miners have been drawn to AI revenue that is more predictable, more stable, and higher per megawatt than mining income. As a result, publicly listed miners are losing share of mining activity to privately owned and sovereign miners, the analysts said.
The analysts said this structural shift can reduce excess hash rate growth and help prevent the network from becoming too concentrated, and that it implies bitcoin's production cost would rise more slowly going forward, outside halving events.
Source: The Block
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