American banking and finance giant JP Morgan Chase has been one of the fiercest of Bitcoin critics. The company, earlier this week, had pointed out that Bitcoin is an asset on a decline and if market conditions persist, it might hit a low of $1,260. Today, JP Morgan has pointed out that for four weeks in Q4 2018, the cost of mining Bitcoins was higher than the price of Bitcoins - basically making cryptocurrency mining a loss-making activity.
The report, which was originally published on Bloomberg, claims that in late November when the price of Bitcoin sank below $4,000 - the cost of mining Bitcoins stood at $4,060 on an average. What is worrisome is that this situation continues to persist, as the price of Bitcoins at the moment is close to $3,600. However, with mining difficulty having been reduced, the profit-loss equation continues to be balanced. The Bloomberg report reads:
The drop in Bitcoin prices from around $6,500 throughout much of October to below $4,000 now has increasingly pushed margins further and further negative for just about every region except low-cost Chinese miners.
Chinese miners have been termed an ‘exception’ because the cost to mine Bitcoins in China remains significantly lower, at $2,400 per Bitcoin. Miners in China are buying electricity for Bitcoin mining directly from power generators which often have excess electricity. Some of these power generators are the likes of aluminium smelters, etc. Analysts have also pointed out that if only the Chinese were mining for Bitcoins, the average cost of mining one Bitcoin may go down to as low as $1,260 - which is also their prediction for the Bitcoin price if the bearish downtrend continues.
Analysts from JP Morgan Chase expect that cryptocurrency miners who feel that their cost of mining is higher than the price of Bitcoin are likely to exit the markets soon. However, as more miners exit the markets, the mining difficulty (hash rate required to mine Bitcoins) would reduce - thereby making it easier for the remaining miners on the network to mine for Bitcoins.
There has been a general disinterest in cryptocurrency mining over the past one year - as the price of cryptocurrencies continues to fall. Only low-cost mining areas where electricity is inexpensive, such as Iceland, US and Czech Republic are still thriving. Earlier, there were reports of dissatisfied miners having to sell off their mining equipment as scrap, selling it by the kilogram.
JP Morgan Chase hasn’t really been optimistic about cryptocurrencies as the future of money. The banking and finance giant commented on cryptocurrencies on a recent report, stating that the concept of cryptocurrencies could only be successful in case of a dystopian event where a majority of the people lose faith in traditional systems such as banking and the value of gold - which is a highly unlikely event.
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