According to a study conducted by Wall Street analyst, Tom Lee’s agency, Fundstrat, BTC prices below the $8K range make it awfully difficult for miners to gain revenue. Lee details that at a global average rate of six cents per kilowatt-hour, some BTC miners are either breaking even right now or mining the cryptocurrency at a loss.
Break Even Revenues and Losses
The price of bitcoin and several hundred other cryptocurrencies are suffering from the largest drop in value in well over a year. 2017 turned out to be a phenomenal run the entire year but after the new year, things started looking quite bearish. BTC’s value, in particular, is hovering just above the $7,500 zone at the time of writing and at that global average some miners are mining bitcoin at break-even costs or even running operations at a loss.
Fundstrat’s Tom Lee explains his team has devised a model that incorporates multiple factors including equipment cost and performance, electric costs, and other types of overhead. The Fundstrat research report explains:
Bitcoin currently trades essentially at the break-even cost of mining a bitcoin, currently at $8,038 based on a mining model developed by our data science team.
Competing With China Means 4 Cents or Less
The research model is based on a global average of six cents per kilowatt-hour. There are definitely some areas in the world such as China that offer far cheaper electric rates. China’s rates for power can be 4 cents or less per kilowatt-hour. Other regions in the world that offer cheaper methods of power production like hydropower can also offer competitive rates as well.
There are also other reasons involved with the loss of BTC mining revenue besides the 60 percent drop in value. Fees have dropped per transaction as well which is another form of revenue for miners. Back when the price was around $18-19K fees were also astronomical as the average median transaction fees were upwards of $30-40 USD per 226-byte transaction. The average BTC fee has been relatively lower as today on March 17 is $1 per transaction according to Bitinfocharts. According to Blockchain.info charts mining revenue peaked on December 15 one day before BTC touched a global average of $19,600 USD.
25 Exahash: Far More Miners Have Skin in the Game
The last time BTC miners suffered from break-even prices and even losses was around January 2015 when the cryptocurrency started climbing above $200 per coin. Coincidently it marked the end of the year-long 2014 bear run when BTC was named “worst currency of the year.”
Things were a lot different then as there weren’t as many miners vested in the game back then as the network was operating at less than 1 exahash per second. Lots of miners have skin in the game now as the BTC network has exceeded 25 exahash and the average lately is usually 20. Lee’s model details that if miners see prices around $3-4K per BTC then a lot of miners will likely be forced to shut machines down.
What do you think about miners breaking even or suffering losses? Let us know what you think about this subject in the comments below.
Images via Pixabay, Bitinfocharts, Blockchain.info, and GDAX.
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Author: Jamie Redman