Bitcoin Mining Costs Drop to $45K as Inefficient Miners Exit, Says JPMorgan

In a recent report, JPMorgan estimates that the cost of mining Bitcoin has dropped to around $45,000. This decrease is attributed to the exit of inefficient miners from the network, influenced by the recent Bitcoin halving and the launch of the Runes protocol.

JPMorgan Predicts Limited Upside for Bitcoin Price Due to Several Headwinds

JPMorgan estimates that the current cost of mining Bitcoin (BTC) has dropped to around $45,000, down from over $50,000. This decrease is attributed to the exit of inefficient miners from the network, according to a research report released on Thursday.

Key Factors Influencing Mining Costs

The report highlights that the expected significant drop in hashrate following the halving did not occur immediately. This delay is due to the launch of the Runes protocol, which temporarily boosted transaction fees and miner revenue. This increase allowed miners to offset the loss in issuance rewards caused by the halving.

Understanding Hashrate and Power Consumption

Hashrate, the total combined computational power used to mine and process transactions on the Bitcoin network, was expected to decline significantly after the halving event. The Bitcoin halving, which occurred last month, reduces miner rewards by 50% and was anticipated to drive unprofitable miners out of the network. However, the introduction of the Runes protocol, which enabled new token creation and increased transaction fees, provided a short-term boost to miner revenue.

Analysts’ Insights

“This provided a temporary boost to miner revenue in the immediate aftermath of the Bitcoin halving,” stated analysts led by Nikolaos Panigirtzoglou. They added, “Bitcoin miners were able to offset the loss in issuance reward due to halving with the surge in transaction fees, keeping the block rewards for miners almost unchanged.”

However, this boost from the Runes protocol was short-lived. As user activity and transaction fees dropped significantly over the past weeks, the challenges for Bitcoin miners to maintain a sustainable revenue stream in the post-halving environment have become more apparent.

Network Power Consumption and Miner Exit

With the fading excitement around Runes, power consumption on the network has decreased more than the hashrate. This indicates that unprofitable miners with inefficient rigs have exited the network. There is also a feedback loop between Bitcoin prices and mining activities. “The more Bitcoin prices decline, the higher the number of unprofitable miners that come under pressure to leave the Bitcoin network, leading to a larger decline in hashrate and mining costs,” the report explained.

Key Insights from JPMorgan’s Report

1. Current Mining Costs: The report indicates that the current hashrate and power consumption on the Bitcoin (BTC) network suggest a mining cost of approximately $45,000, down from over $50,000 previously.

2. Effect of Bitcoin Halving: Last month’s quadrennial Bitcoin halving, which cuts miner rewards by 50%, was expected to cause a significant drop in the hashrate as unprofitable miners exited the network. However, this decline has occurred with some delay.

3. Runes Protocol Impact: The introduction of the Runes protocol, which facilitates new token creation on the Bitcoin network, temporarily boosted transaction fees. This increase provided short-term revenue gains for miners, offsetting the reduced issuance rewards from the halving.

4. Challenges in Sustaining Revenue: Despite the temporary boost from Runes, transaction fees and user activity have dropped significantly in recent weeks. This situation underscores the ongoing difficulty for Bitcoin miners in maintaining a stable revenue stream, particularly in the post-halving period.

5. Decrease in Power Consumption: With the fading excitement around Runes, power consumption on the network has declined more than the hashrate, indicating that unprofitable miners with inefficient rigs have left the network.

6. Feedback Loop with Bitcoin Prices: The report highlights a feedback loop where declining Bitcoin prices pressure more unprofitable miners to exit the network, leading to further declines in hashrate and mining costs.

Limited Upside for Bitcoin Price

JPMorgan sees limited upside for Bitcoin in the near term due to several headwinds, including a lack of positive catalysts and diminishing retail interest. While the Runes protocol provided temporary relief, sustaining miner revenue remains a significant challenge moving forward.