The cost of mining one bitcoin (BTC) has fallen to its lowest level in ten months as mining hardware becomes more efficient, and the difficulty has fallen by 6.7% since its peak in May.
On Wednesday, JPMorgan strategists led by Nikolaos Panigerzoglu told investors that bitcoin production costs had fallen to around $13,000 from $24,000 at the beginning of June.
This is the lowest level since September 2021, according to analysts citing a chart from Bitinfocharts, and comes with mining difficulty dropping from its May highs of 31.25 trillion to 29.15 trillion.
Lower bitcoin production costs can relieve miner selling pressure and improve profitability. However, the strategists were still bearish, saying that “the decline in the cost of production may be seen as negative for the future bitcoin price outlook,” according to Bloomberg.
They added that the production cost is seen by some analysts as the bottom line of the BTC price range in a bear market. Many analysts expected Bitcoin to drop to around $13,000, which would be in line with the 80%+ decline in the two previous bear markets. Bitcoin is currently trading down 70% from its high in November.
The cost of bitcoin production peaked right after the price hike in April-November 2021 and declined as did the markets, so it is correlated but lags in price action.
The lower production cost was associated with lower electricity consumption.
The University of Cambridge Bitcoin Energy Consumption Index currently puts the estimated daily power demand of the grid at 9.59 gigawatts. That’s a 33% drop over the past month and a 40% drop from peak demand in 2022 of nearly 16 gigawatts in February.
Source: Cambridge University
In addition, a large number of miners have shut down older and more efficient mining rigs as they have become unprofitable to operate due to rising energy prices and the collapse in Bitcoin prices.
According to Asicminervalue, the Bitmain Antminer E9, which was recently released this month, is one of the most efficient modules on the market, with a maximum hash rate of 2.4GHz/s for a power consumption of 1,920W.
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On the other hand, miners suffered a double whammy of increasing global energy prices and lowering bitcoin prices. This has reduced mining profitability by 63% since the beginning of the year. Bitinfocharts reports that mining profitability is currently at its lowest since October 2020 at $0.095 per day per terahash per second.
However, lower production cost may prevent a further decline in profitability and may reverse this trend in the coming months.