JPMorgan Chase: Bitcoin price is lower than mining cost, and mining farms around the world are losing money except in China

According to a report released by JPMorgan Chase on January 24, the weighted average cash cost of global Bitcoin production in the fourth quarter was $4,060, while the current price of Bitcoin is below $3,600, which means that the price of Bitcoin is already lower than the cost of mining.

Mining farms around the world are losing money except in China

The report pointed out that there are also differences in global mining costs. Since running high-performance computer equipment requires a lot of electricity, electricity costs are the biggest cost of mining. Chinese mining farms have reduced electricity costs by signing purchase agreements directly with power plants, making the cost of mining in China around $2,400 per coin.

JPMorgan Chase said that as the price of Bitcoin fell from $6,500 in October to below $4,000 now, mining losses have gradually expanded around the world, except in China. The report predicts that more high-cost producers will be forced out in the future, but this has not happened yet. In fact, the production share of mines in the Czech Republic, the United States and Iceland even increased slightly last year.

JPMorgan believes that if some high-cost producers withdraw and only Chinese mines remain, the cost of Bitcoin production could drop below $1,260.

Virtual currency has low storage value

John Normand, chief cross-asset strategist at JPMorgan Chase, said that the sharp price fluctuations also make Bitcoin and other virtual currencies have very low storage value and are not suitable as diversified hedging tools in investment portfolios.

Normand said in the report,

“Even in extreme situations like a recession or financial crisis, there are a lot more liquid, simpler tools to trade, invest and hedge.”

Normand also stated that although the correlation between Bitcoin and other assets has been almost zero over the past year,

“But if the hedge asset itself is in a bear market, its low correlation has little value. Even if a recession does occur in the future, investors and companies need to make more comprehensive and in-depth preparations than just buying virtual currencies.”

Bitcoin prices fell 74% last year, while the S&P 500 fell 6.2%.

However, the report also pointed out that due to incomplete data and conservative assumptions about efficiency, their estimated mining costs may be too high, and the costs do not include equipment-related costs.

An article in Caijing.com pointed out that at the end of 2018, Bitcoin experienced its darkest period in history, with prices falling from more than $17,000 at the beginning of the year to less than $4,000, a year-on-year decline of more than 80%. A research report from the Computing Power Think Tank Research Institute showed that the sharp drop in Bitcoin has caused a large number of mining machines to lose money. According to calculations, more than 30% of mining machines were in a loss-making state by the end of December 2018.

According to coinmarketcap.com, as of press time, the price of Bitcoin fell 0.13% to $3,500.19 on Friday.