Two Months to Bitcoin Halving

With Bitcoin halving, now only two months away, the current price of Bitcoin threatens the break-even cost for miners. This presents a scenario for large scale exits from miners. Nevertheless, according to leading analyst, mining is a large scale business and ‘respectfully disagrees’ with any FUD around miner capitulation.

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Bitcoin around $8000 is at the confluence of production cost for miners paying $0.06 per KWh. Moreover, post halving, effectively the production cost will double which will put a lot of pressure on miners causing capitulation.

bitcoin production cost
BTC/USD Daily Chart on Coinbase with Production Cost Indicator (Source)

Matteo Leibowitz, a research analyst at The Block notes,

If prices fail to double within the next 2 months, miners will find their revenues cut in half. Mining operations will close en masse, network security will dive & Bitcoin’s value proposition will objectively be worse off than it is today.

Miners are Far Better off

However, this is a rudimentary view of the industry which has better developed financial and technical infrastructure. Arjun Balaji, leading crypto analyst and founder of crypto assets management firm, Paradigm tweeted on the Leibowitz’s observation,

Respectfully disagree. An alt. view:
(1) Industrial miners have healthy margins > revenue drop off and constraints (eg. PPAs) forcing activity.
(2) 7nm ASIC lifetimes are now >3-4y, amortizes over a longer period.
(3) Legit growth in structured product sales shows miners hedging.

The mining industry has seen tremendous growth in the last few years. The lower limit of the production cost band (at $0.04 KWh) shows that the break-even cost goes to as low as $4800. Hence, they are unlikely to capitulate due to paying bills of the Power Purchase Agreement. Moreover, they usually look for discounted prices on electricity in drafting these agreements which spans over a long time.

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