In a recent report seen by Decrypt, the investment bank JP Morgan estimated that the production cost of mining a single Bitcoin had fallen to just $13,000 from $24,000 in early June.
The cost of producing bitcoin is an estimate of the average cost of mining one bitcoin per day. That cost depends largely on the electricity the miners pay to run their machines, but there are other variables as well.
As long as the price of bitcoin remains above that cost, the mining operation remains profitable, and many market watchers believe that production costs can also serve as a "floor for bitcoin's price range in a bear market."
According to the New York based bank, bitcoin is likely to bottom out as low as $13,000, marking a 45 percent drop from today's price.
Jpmorgan strategists led by Nikolaos Panigirtzoglou wrote: "While clearly contributing to miners' profitability and potentially reducing the pressure on miners to sell their bitcoin holdings to boost liquidity or deleverage, the reduction in production costs could be seen as a negative impact on the outlook for bitcoin prices going forward." Their estimate is based largely on the reduction in electricity use as miners deploy more efficient mining machines.
However, other metrics paint a slightly different picture for the leading cryptocurrencies.
Production costs, for example, are still hovering above $17,700, according to MacroMicro. When mining costs fall below bitcoin's market value, more miners will join. When the cost of mining exceeds the income of miners, the number of miners decreases, "the data provider's website explains.
Both entities use data from the Cambridge Bitcoin Power Consumption Index (CBECI) to calculate the cost of producing bitcoin. However, the figures provided by CBECI depend on the average cost of electricity for miners, which can be widely skewed and affect the calculation.
Other costs, including infrastructure, hardware, and hiring staff to maintain the mine, will also vary.
"Production costs vary greatly depending on the type of rig, as well as the cost of electricity, as well as labor costs and facility maintenance," Zach Bradford, CEO of Bitcoin mining company CleanSpark, confirmed to Declare.com.
Bradford added that his team's analysis made production costs even lower than JPMORGAN's.
"With most public miners running the latest [generation] RIGS and strategic power management contracts in place, our internal research brings the public miner figure closer to $12,000," he said. But even within a company, it can vary from facility to facility. CleanSpark, for example, has lower facilities than that."
That means public miners will remain profitable as long as bitcoin remains above $12,000.
Bitcoin miners caved
Regardless of the difference in production costs, almost all miners are under pressure after Bitcoin's disastrous plunge since November.
Glassnode has outlined this stress in something called Puell Multiple.
The mathematical model measures the total earnings of bitcoin miners; When that metric is particularly low, miners earn less on average and are more likely to sell their bitcoin holdings or shut down some machines. These days, they must be earning a lot less than they used to.
"Bitcoin miners earn 49% of the 12-month average. This means that miner income pressures may be a factor, "Glassnode wrote in a recent report.
Last month, publicly traded bitcoin miners Core Scientific Inc. Nearly 7,000 bitcoins were sold at an average price of $23,000. Similarly, Algo Blockchain sold about $15.6 million of its leading cryptocurrency to cover costs.
From a quick glance at their stock prices, public mining companies have also been heavily affected by the brutal cryptocurrency bear market.
Marathon Digital Holdings Inc. is down 73% year-to-date, and Riot Blockchain Inc. Down 73% year-to-date, Core Scientific Inc. It's down 81% year-to-date. The same could be true of those numbers if Bitcoin continues to plummet.