JPMorgan, one of the leading financial institutions, recently made revisions to its estimation of Bitcoin’s production costs. Previously, the estimated cost stood at $21,000, but JPMorgan has now revised it to $18,000.
This adjustment by JPMorgan is closely connected to the Cambridge Bitcoin Electricity Consumption Index (CBECI)’s decision to update its methodology for estimating the electricity consumption of the Bitcoin network. The CBECI plays a critical role in tracking and estimating the energy consumption of Bitcoin. Therefore, any updates to its methodology have a significant impact on financial analyses and industry metrics.
JPMorgan analysts, led by Nikolaos Panigirtzoglou, highlighted in a recent report that the new CBECI methodology changes the landscape of Bitcoin’s production cost estimations. According to the report, the current Bitcoin production cost falls to around $18,000 using the new methodology, compared to $21,000 using the old methodology. This shift implies that future changes in electricity prices will have a comparatively lesser effect on mining costs.
Additionally, the adjustments made by the CBECI methodology have broader implications. Analysts have discovered that changes in electricity costs can significantly reduce the cost of producing 1 Bitcoin. With the new CBECI methodology, this sensitivity has decreased slightly to approximately $3,800. This means that for every one cent per kilowatt hour (kWh), the cost of producing 1 Bitcoin decreases by $3,800. Previously, this change was $4,300.
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Panigirtzoglou expects this sensitivity to double after the 2024 halving event, which will decrease miners’ rewards by half. As a result, cost management becomes even more important due to the higher impact of electricity costs on overall mining expenses.
In terms of Bitcoin’s recent price action, the cryptocurrency has experienced a significant decline. Over the past month, Bitcoin’s value dropped by 13%, falling below $29,000. Since then, it has continued on a downward trend with little significant movement. However, in the past 24 hours, Bitcoin has seen some gains, trading at $25,902 at the time of writing, up by nearly 1%. Despite this, more than $70 billion has been wiped off Bitcoin’s market cap in the past month.
During this period of decline, Bitcoin recorded an inflow of $3 billion in the past 24 hours, indicating that some investors are still actively participating in the market. However, the trading volume for Bitcoin has seen a significant decrease. From a high of $14 billion recorded last Wednesday, the trading volume has fallen to as low as $3.5 billion yesterday. In the past 24 hours, the trading volume stands at around $8 billion, which is still significantly lower compared to the daily trading volume of more than $15 billion seen early last month.
In conclusion, JPMorgan’s revised estimation of Bitcoin’s production costs, influenced by the CBECI’s updated methodology, highlights the interdependence of financial analyses and industry metrics. The adjustments made by the CBECI have implications not only for cost estimations but also for understanding the impact of electricity costs on mining expenses. As for Bitcoin’s price action, it has experienced a decline in value over the past month, but there have been some recent gains, indicating a potential recovery. The trading volume, however, has decreased significantly, reflecting reduced market activity.
