Friday, March 16, 2018

Thanks to price declines or manipulation, Bitcoin mining operations now on par with resource mining as production costs outweigh output profitability

With the average electrical cost of mining a single Bitcoin floating in the range of around $4500, large scale operations need the price of Bitcoins to remain above $10,000 to sustain real profitability.  However thanks to what appears to be either a fleeing of the cryptocurrency by the investment community as well as the probability of price manipulation ever since Bitcoin trading entered into the paper markets, Bitcoin mining has now become on par with the headwinds endured by physical resource miners.

A recent report by Fundstrat’s Tom Lee notes that Bitcoin (BTC) mining earnings are currently almost breaking even, as the activity has temporarily become less profitable the midst of the current decline in the markets, CNBC reported yesterday, March 15.
Lee notes in the report that the current figure for the cost of mining one bitcoin is $8,038, while BTC is trading at around $8,221 by press time, down a quarter of a percent over a 24 hour period, according to data from CoinMarketCap
The model Fundstrat used for calculating the cost of mining one BTC includes the cost of equipment, overhead such as sustaining cooling apparatuses, and the cost of electricity, assumed to be 6 cents per kilowatt. The head of quantitative data science at Fundstrat, Sam Doctor, said that the cost of replacing equipment takes up more than half of the overall cost of mining. 
Crypto miners also earn money from transaction fees, which have recently been falling. According to data from BitInfoCharts, the median transaction fee on March 15 was around $0.21, while it had been over $34 dollars on Dec. 23 of last year. Charlie Hayter, CEO of website CryptoCompare, told CNBC that miners are now earning half of what they were in December also due to a rise in popularity of BTC mining, measured by hashrate. 
According to Fundstrat’s Doctor, miners are likely to stop mining operations if BTC’s price sank to around $3,000 or $4,000. Doctor added that BTC mining had been breaking even in January 2015, when one BTC was equal to between $200 and $300. – Coin Telegraph
Perhaps one of the more interesting caveats regarding an attribute of Bitcoin is that its limited supply does not necessarily equate to it being a valuable commodity.  Ie... U.S. and Western investors are today more intrinsically followers of price action versus value, and supply and demand very rarely have an effect on investor interest.

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