Blood on the Streets: Bitcoin Miners Hurting and Operating at a Loss
- BTC price remains above $7,000 but trading volume is extremely low at below $200 million
- Miner price and electricity cost puts Bitcoin production cost at $8,941
- Bitcoin miners are struggling at present with most operating at a loss
- Bitcoin production price will double at halving, putting it at $17,800
We are almost in the middle of December and Bitcoin continues to trade above $7,000 level. We haven’t dropped below this level, not even once but it’s to be seen what will happen to BTC price once this accumulation phase is over.
At the time of writing, BTC/USD has been trading at $7,270 with 24 hours gains of 1.04%, as per Coincodex while managing the daily trading volume of just $193 million.
Just like the price which is trading sideways, the hash rate is behaving the same way. Ever since hitting the all-time high at 110 Th/s on October 23, the Bitcoin hash rate has been oscillating between 80 to 100 Th/s.
Recently, a report found that the majority (66%) of Bitcoin mining is still dominated in China. However, the mining is predominantly hydro-electric powered, so that's good.
“Mining is highly encouraged in China now. They hope to control bitcoin by having all the miners in the country (ie, under their control),” said Binance founder and CEO Changpeng Zhao.
Bitcoin Miners Taking Short-Term Losses
According to Bitinfocharts, Bitcoin mining difficulty has been declining since June when Bitcoin hit 2019 high at $13,900. Currently, at 0.133, the profitability is close to hitting a new low of 2019 at 0.118 reached on Oct. 24.
Charles Edwards of Capriole Investments says,
“Bitcoin miners are hurting. The last 12 months has been the least profitable in all of the prior 5 years to be a Bitcoin miner. There's blood on the streets.”
In the blog post, the company points out that Bitcoin’s production cost and miner prices together suggest that Bitcoin miners are struggling and potentially taking short-term losses.
The current Bitcoin production cost in terms of the miner price is at $7,399 and electricity cost is at $5,365. This puts the total cost at $8,941.
Price dropped below the Bitcoin Production Cost, however, tends to be short-lived as high-cost miners go out of business, the hash rate plateaus and then falls, and miners are less inclined to sell at a loss.
Over shorter periods, bitcoin miners can operate at a loss. Bitcoin price however never quite reaches the electricity cost to produce a Bitcoin, despite coming close in November in 2018.
Historically, the electricity to produce a Bitcoin represents a price floor.
This suggests Bitcoin miners are struggling at present with most operating at a loss. In 2019, miners had average daily profitability of 10%. The year has been actually the least profitable for Bitcoin mining in all of the last 5 years, notes the firm.
However, because several of miner costs are sunk, meaning already paid for such as hardware and locked in such as rent, they can operate at a loss over short periods.
With Bitcoin reward halving less than five months away, estimated to occur in May 2020, the Bitcoin Production Cost will double. On this basis, if the hash rate and mining hardware efficiency were to remain unchanged, the Bitcoin production price at halving would be at $17,800.
But with halving, the inflation rate will drop from 3.7% to 1.8%, as such miner influence on supply and demand is dropping.