Bitcoin Mining Cost Falls to $45K, JPMorgan Sees $5B Miner Sell-Off

Bitcoin halving leads to a drop in mining cost to $45K, prompting inefficient miners to exit and sparking a potential $5 billion sell-off.

By Barry Stearns

5/16, 12:44 EDT
Bitcoin / U.S. dollar

Key Takeaway

  • Bitcoin mining cost drops to $45,000 as inefficient miners exit, down from over $50,000, according to JPMorgan.
  • The decrease in mining cost follows the halving event and a temporary spike in transaction fees due to the Runes protocol.
  • JPMorgan anticipates limited upside for bitcoin prices in the near term, citing lack of positive catalysts and diminishing retail interest.

Halving's Ripple Effect on Bitcoin Mining

The recent Bitcoin halving event, which occurred last month, has significantly impacted the mining landscape, as anticipated by JPMorgan analysts. The halving, a quadrennial event that reduces miner rewards by 50%, was expected to lead to a substantial drop in the network's hashrate due to unprofitable miners exiting. This prediction is now materializing, albeit with some delay, primarily due to the temporary spike in transaction fees triggered by the launch of the Runes protocol. This protocol, introducing a new form of token creation, initially helped miners offset the loss in issuance rewards. However, as the hype around Runes faded, so did the transaction fees, leading to a decrease in miner revenue. JPMorgan's report, led by Nikolaos Panigirtzoglou, highlights the ongoing challenge for Bitcoin miners to maintain sustainable revenue sources, especially in the post-halving environment.

Price Pressures and Miner Exodus

The dynamics between Bitcoin's price, mining cost, and hashrate have become increasingly evident post-halving. With the estimated mining cost now around $45,000, down from above $50,000, the exit of unprofitable miners with inefficient rigs is noticeable. This shift is due to the reduced power consumption on the network, even as the hashrate remains relatively stable. JPMorgan's analysis suggests a feedback loop where declining Bitcoin prices could pressure more miners to leave the network, further reducing the hashrate and mining costs. This scenario underscores the delicate balance between mining profitability and Bitcoin's market value, especially in a post-halving world where transaction fees and block rewards have diminished.

The $5 Billion Miner Sell-Off

Amidst the backdrop of reduced miner revenue and external market pressures, analysts predict a potential $5 billion Bitcoin sell-off by miners in the coming months. This forecast is based on the need for miners to cover operational costs in light of lower transaction fees and halved block rewards. The sell-off could place additional downward pressure on Bitcoin prices, which have already seen a decline of over 4% to $61,990 since the halving. The potential payout from the Mt.Gox settlement, estimated at $9 billion, adds another layer of complexity to the market dynamics, potentially influencing Bitcoin's price trajectory further.

Liquidity Concerns and Mining Difficulty Adjustments

The halving event's impact extends beyond miner revenue, affecting market liquidity and mining dynamics. The anticipated forced sales by miners, especially during the summer slowdown in trading activity, could exacerbate liquidity challenges. Moreover, the recent 6% drop in mining difficulty, the largest since December 2022, presents an opportunity for miners with lower operational costs to gain market share. This adjustment reflects the ongoing adaptation within the mining sector to the new reward structure, highlighting the resilience and competitiveness of the Bitcoin network.

Street Views

  • Nikolaos Panigirtzoglou, JPMorgan (Neutral on Bitcoin):

    "The current hashrate and power consumption on the Bitcoin (BTC) network implies an estimated mining cost of about $45,000, down from above $50,000... This provided a temporary boost to miner revenue in the immediate aftermath of bitcoin halving... The boost from Runes proves short-lived, however, with users' activity and fees dropping dramatically over the past week or two... this highlights the ongoing challenge faced by bitcoin miners to maintain a sustainable source of revenue in particular in the post halving environment."