Part of the Stock Digest group of websites: Visit Small Cap Stock Digest  

Bitcoin Is Worth Less Than the Cost to Mine It, JPMorgan Says

The production-weighted cash cost to create one Bitcoin averaged around $4,060 globally in the fourth quarter, according to analysts with JPMorgan Chase & Co.

With Bitcoin itself currently trading below $3,600, that doesn’t look like such a good deal. However, there’s a big spread around the average, meaning that there are clear winners and losers.

Low-cost Chinese miners are able to pay much less -- the estimate is around $2,400 per Bitcoin -- by leveraging direct power purchasing agreements with electricity generators such as aluminum smelters looking to sell excess power generation, JPMorgan analysts led by Natasha Kaneva said in a wide-ranging Jan. 24 report about cryptocurrencies spearheaded by Joyce Chang. Electricity tends to be the biggest cost for miners, needed to run the high-powered computer rigs used to process data blocks to earn Bitcoin.

“The drop in Bitcoin prices from around $6,500 throughout much of October to below $4,000 now has increasingly pushed margins further and further negative for just about every region except low-cost Chinese miners,” the analysts said, offering the caveat that their cost estimates may be skewed to the high side due to spotty data and conservative efficiency assumptions. The cost figures exclude equipment.

Another Leg Down

With margins negative, it’s expected more high-cost producers will be forced to drop out, the analysts said. That hasn’t happened yet, and production shares of miners based in the Czech Republic, U.S. and Iceland have actually grown slightly over the past year or so, JPMorgan said.

If there is capitulation, the remaining miners may actually see their costs fall as they would win a greater share of Bitcoins for the same amount of energy consumption. If only low-cost Chinese miners remain, the marginal cost could drop to less than $1,260 per Bitcoin, the analysts said.

Click here to continue reading...

Subscribe to the SCSD email list and get the latest small cap stock activity directly to your inbox, for free.

Part of the Stock Digest family of websites

Resource Stock Digest

MARKET SUMMARY

INDICES

Name Last Change
DOW 25628.90 2.43%
S&P 500 2847.11 2.66%
NASDAQ 7751.77 3.09%
TSX 16037.58 1.35%
TSX-V 581.95 0.00%
RTY 1459.49 3.19%

Technology

Name Last Change
APPL 202.64 4.85%
GOOG 1151.29 3.32%

@SmallCapDigest ON TWITTER