The recent exit of unprofitable bitcoin miners from the network following the halving has come as a relief to those who remain. This exodus has made it less expensive to produce a single bitcoin. However, the profitability of miners heavily depends on the price of bitcoin, which is currently facing various near-term challenges. According to JPMorgan, the current hashrate and power consumption indicate a bitcoin production cost of around $45,000, significantly lower than the current trading price of about $66,000. The bank does not foresee any upside for bitcoin prices in the immediate future and anticipates headwinds.
Near-Term Headwinds for Bitcoin Prices
JPMorgan’s global market strategist highlighted several factors contributing to the potential downward pressure on bitcoin prices. The bank’s CME bitcoin futures position proxy suggests an overbought market, while bitcoin prices remain above JPMorgan’s volatility-adjusted comparison to gold of $45,000. Moreover, despite a resurgence in crypto prices, venture capital funding to crypto companies has been subdued this year. Additionally, limited inflow into bitcoin ETFs following a significant outflow in April points to lackluster demand. Hong Kong’s approval of spot bitcoin and ether ETFs has also failed to drive substantial interest.
The exit of some miners from the Bitcoin network has led to a reduction in the network’s hash rate, which represents the combined computational power required by miners for mining bitcoin and processing transactions. This decline was expected post-halving in April, which reduced a crucial revenue source for miners. Although there was a brief surge in transaction fees, unsustainable miners were eventually forced out. This development underscores the ongoing challenge faced by miners to generate consistent revenue, particularly in the post-halving environment.
Bitcoin miners rely on two main incentives to continue mining: transaction fees paid voluntarily by senders for faster settlement and mining rewards. The halving slashed mining rewards from 6.25 to 3.125 newly created bitcoins, with the incentive originally starting at 50 bitcoins. The price of bitcoin plays a vital role in this ecosystem, creating a feedback loop that impacts miners’ profitability. As the landscape of bitcoin mining continues to evolve, miners must adapt to maintain sustainable revenue streams.