Bitcoin is now worth less than the cost of ‘mining’ it, according to new research. JP Morgan Chase issued a report estimating that the cost of producing a Bitcoin was around US$4060, compared with the current market price of around US$3600.
The report says low-cost miners, predominantly in China, can mine a bitcoin for as little as US$2400 “by leveraging direct power agreements with electricity generators.”
Electricity is the biggest cost for miners, who need to run high-powered computer set-ups to process the data that generates cryptocurrency.
JP Morgan acknowledged that its cost estimates were not precise, due to the difficulty of obtaining data, but it was confident in its view that margins were negative for all producers except low-cost Chinese miners.
Bitcoin has been trading between US$3000 and US$4000 since November and gives no indication that it will break out of that range.
JP Morgan says that if miners start to drop out of the market, the remaining miners would see their costs fall. This is because they can win a greater share of Bitcoins for the same amount of energy consumption.
The report also questions cryptocurrency’s value as a diversification hedge in portfolios. “Low correlations have little value if the hedge asset is in a bear market, JP Morgan head of cross-asset strategy told Bloomberg.
“There are more liquid and less complicated instruments for transacting, investing and hedging.