Bitcoin mining costs drop to $13,000 might reverse its falling profitability

The cost of mining one Bitcoin (BTC) has fallen to 10-month lows as mining hardware becomes more efficient, and difficulty has dropped 6.7% since its May peak. It could help to reverse the falling profitability trend while lowering power demands on the network.

JPMorgan strategists led by Nikolaos Panigirtzoglou, in a note to clients seen by Bloomberg on July 14, said that the drop in production costs for the digital asset was “almost entirely” due to a decline in electricity use.

This change in Bitcoin’s production cost is evidence of some miners’ attempts to protect profitability by deploying more efficient mining rigs.

Analysts explained that while the reduction in production costs could “potentially reduce” pressure on miners to sell their Bitcoin holdings, it might also be a hindrance to Bitcoin’s price going forward.

“The decline in the production cost might be perceived as negative for the Bitcoin price outlook going forward,” the note stated. “The production cost is perceived by some market participants as the lower bound of the Bitcoin’s price range in a bear market.”

With JPMorgan’s current estimate of Bitcoin’s production cost, this would imply that the leading digital asset could fall to a low of $13,000 in the current bear market.

Bitcoin production cost peaked just after the price peaks in April and November 2021 and has fallen back as markets did, so it is correlated but lags price movements.

The drop in production cost has been linked to a decline in electricity consumption.

Cambridge University’s Bitcoin energy consumption index currently reports that the network’s estimated daily power demand is 9.59 Gigawatts. This is a decline of 33% over the past month and is down 40% from the 2022 peak demand of almost 16 GW in February.

Moreover, a significant number of miners have powered down older and more inefficient mining rigs as they have become unprofitable to operate due to surging energy prices and a collapse in BTC prices.

According to Asicminervalue, the Bitmain Antminer E9, just released this month, is one of the most efficient units on the market, with a maximum hash rate of 2.4Gh/s for a power consumption of 1,920 watts.

On the flip side, miners have been hit with the double whammy of increasing global energy prices and tanking BTC prices. This has caused mining profitability to slump by 63% since the beginning of the year. Bitinfocharts reports that mining profitability is currently at its lowest levels since October 2020 at $0.095 per day per terahashes per second.

However, the fall in production cost may prevent a further fall in profitability and could even reverse that trend in the coming months.