The fall of Bitcoin appears to be continuing. Bloomberg reports on the latest sign of impending apocalypse for those who hold Bitcoins:
The production-weighted cash cost to create one Bitcoin averaged around $4,060 globally in the fourth quarter, according to analysts with JPMorgan Chase & Co.
With Bitcoin itself currently trading below $3,600, that doesn’t look like such a good deal. However, there’s a big spread around the average, meaning that there are clear winners and losers.
Low-cost Chinese miners are able to pay much less — the estimate is around $2,400 per Bitcoin — by leveraging direct power purchasing agreements with electricity generators such as aluminum smelters looking to sell excess power generation, JPMorgan analysts led by Natasha Kaneva said in a wide-ranging Jan. 24 report about cryptocurrencies spearheaded by Joyce Chang. Electricity tends to be the biggest cost for miners, needed to run the high-powered computer rigs used to process data blocks to earn Bitcoin.
Of course, if Bitcoins surge in value relative to the dollar, then they become worth mining again, or if power becomes cheaper, yada yada yada.
But I think it’s worth noting that we’re not seeing standard economics here. That is, it’s not competition impacting the Bitcoin mining industry, but rather the external factor of the cost of electricity. While the amount of energy in use to mine Bitcoins is nothing to sneeze at, it’s still not a large enough factor that a few miners dropping out will drop the price of electricity. BTW, here’s the latest chart of estimated Bitcoin energy consumption:
Too bad that chart doesn’t include estimated value of a Bitcoin in dollars vs the cost to mine a single Bitcoin. I would expect that the two would meet right at or before the 30% drop in energy consumption.
So what does it all mean? Depends on what drives the value of a Bitcoin. It’s not an absolute value as recent years have demonstrated, between outright fraud and speculative investments. It doesn’t appear to truly serve any necessity. It’s power consumption is significant in a world which is damaged by each joule consumed.
If I were significantly more risk-prone, I’d short Bitcoins with a big chunk of cash. But I think there are better investments out there, so why indulge in taking advantage of someone else’s failure?
But I’m sure glad I never tried to invest in buy Bitcoins, as I discussed earlier in this thread. I’d have lost most of what I ventured, I suspect.
