Though it may only be temporary, bitcoin’s value has dropped so significantly that bitcoin mining is no longer profitable, according to Fundstrat’s Thomas Lee. Despite remaining bullish about the cryptocurrency, he feels miners are likely to feel more pain than gain for a little while.
Where is Bitcoin at Now?
At press time, bitcoin is trading at around $8,200 USD. While a spike above yesterday’s low of $7,800, it remains significantly shy of its price only last week, when it was hovering around $11,000. And it is bitcoin miners that are suffering the most. Lee explained:
“Bitcoin currently trades essentially at the break-even cost of mining a bitcoin based on a mining model developed by our data science team.”
How the Bitcoin Mining Process Works
The model he refers to was released in a new report last Thursday. The data is based on three individual factors: electricity, the cost of equipment, and overhead costs such as maintaining cooling facilities.
Miners earn coins by using equipment to solve complex equations in ways agreed to by the mining network they are working with. The process occurs to build blockchain transactions, and if the equations are solved appropriately, the miners are rewarded with new coins.
The only problem is that bitcoin mining can be an expensive process, and if the monetary rewards in the end are overpowered by overhead costs, miners ultimately lose out.
Right now, the equipment necessary for bitcoin mining can range from anywhere between a few hundred to a few thousand dollars. Combined with the rising costs of electricity, totals come to about where bitcoin’s price currently stands, which means miners aren’t earning any money – they’re simply “getting their money back.”
With Earnings Halved, Miners Are Switching Off
Co-founder and president of Blockchain Intelligence Group Shone Anstey says:
“In some cases, the miners may simply turn off their machines until the prices comes back a bit. Right now, it’s got to be getting to the point that some of them may be losing money.”
Miners’ earnings have dropped by roughly half since bitcoin’s highs of $19,000+ last December. For the most part, myths surrounding the amount of energy necessary to engage in mining have been debunked. But that doesn’t change the fact that the coin remains volatile and vulnerable to sudden price slumps.
Electricity Costs and Governments Add Further Complications
Additionally, mining environments tend to vary around the world. In China, for example, electricity prices are typically lower than they are in the U.S.
The problem, however, is that China is now trying to limit mining operations by reducing miners’ access to cheap electricity, so it is difficult to pinpoint when (and ultimately where) miners can begin to see profits again.
Will bitcoin mining become popular again if the prices rise? Post your comments below.
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