JPMorgan Lowers Bitcoin Production Cost Estimate

Following revisions to the Cambridge Bitcoin Electricity Consumption Index (CBECI) methodology, JPMorgan has reduced its estimate for Bitcoin production costs.

JPMorgan analysts led by Nikolaos Panigirtzoglou wrote in a report on Wednesday, “The present bitcoin production cost falls to around $18,000 with the new methodology compared to $21,000 with the old methodology.”

Analysts noted that, as a result, changes in electricity prices will now have a lesser impact on the costs associated with Bitcoin mining.

According to data, the current Bitcoin market price is approximately $25,800.

“We had previously determined that a one cent per kWh [kilowatt-hour] change in the cost of electricity results in a $4,300 change in the cost of producing Bitcoins.

After the revised CBECI methodology, we anticipate a modest decline in this sensitivity to approximately $3,800,” the analysts said.

“This sensitivity would mechanically double after the 2024 halving event,” they added.

The imminent Bitcoin halving event will halve the rewards miners receive, and fluctuations in electricity costs will have a more significant impact on their overall expenses, making cost management even more crucial for miners.

JPMorgan reiterated on Wednesday that the halving event could serve as a stress test for bitcoin miners, given the high sensitivity of Bitcoin production costs to electricity prices.

The Cambridge Center for Alternative Finance revised the index’s methodology last week to improve its accuracy and reliability.

The index monitors and estimates the Bitcoin network’s electricity consumption.

The new CBECI methodology acknowledges that not all mining equipment contributing to Bitcoin’s hash rate should be regarded equally, as miners frequently upgrade to more contemporary, more efficient equipment or operate various machines with varying efficiencies.

The Cambridge Center for Alternative Finance stated, “In conclusion, we conducted this analysis to evaluate our hypothesis that increases in network hash rate are likely attributable to newly released mining hardware.”

The U.S. import data supported this hypothesis, and additional evidence was sought to confirm it.