Are Unprofitable Bitcoin Miners Exiting the Network After the Halving?
Bitcoin miners are starting to exit the network after the halving, which is good news for the remaining miners as it makes producing a single bitcoin less expensive. However, the performance of miners is heavily reliant on bitcoin’s price, which still faces several near-term challenges, according to JPMorgan.
JPMorgan’s global market strategist, Nikolaos Panigirtzoglou, noted that the current hashrate and power consumption put the central estimate of bitcoin production cost at around $45,000, well below the current price of around $66,000. Despite a recent 7% rally, JPMorgan does not see upside for bitcoin prices in the near term due to a number of factors.
One of the key indicators highlighted by JPMorgan is that its CME bitcoin futures position proxy suggests bitcoin is overbought. Additionally, bitcoin prices remain above JPMorgan’s volatility-adjusted comparison to gold of $45,000. Venture capital funding for crypto companies has been subdued this year, despite the resurgence in crypto prices. There has also been limited inflow into bitcoin ETFs following a significant outflow in April, indicating lackluster demand.
The reduction in Bitcoin’s hash rate, or the combined computational power required by miners to mine bitcoin and process network transactions, comes as a result of some miners exiting the network. This was expected after the halving in April, which reduced mining rewards from 6.25 to 3.125 bitcoins. The challenge for miners now is to maintain a sustainable source of revenue, especially with the price of bitcoin hovering between $60,000 and $70,000 since March.
As the price of bitcoin declines, more unprofitable miners come under pressure to leave the network, leading to a decrease in hash rate and bitcoin production cost. This creates a natural feedback loop where declining prices result in more miners exiting the network, putting further downward pressure on prices.
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