Bitcoin has dropped to a point where it's not that profitable to produce, according to some estimates. "Bitcoin currently trades essentially at the break-even cost of mining a bitcoin, currently at $8,038 based on a mining model developed by our data science team," Fundstrat's Thomas Lee said in a report Thursday. Fundstrat's model incorporates three factors: the cost of equipment, electricity and other overhead such as maintaining cooling facilities. The cryptocurrency traded mildly lower, near $8,000, Thursday, according to CoinDesk's bitcoin price index, which tracks prices from four major global exchanges. Earlier, bitcoin hit a low of $7,676.52, its lowest since Feb. 8, according to CoinDesk data. Bitcoin is created through an energy-intensive "mining" process that uses high computing power to solve a complex mathematical equation, proving an anonymous miner used the process the network agreed upon to build the blockchain record of transactions. Miners then get bitcoin in reward for successfully completing the equation.

If the cost to create bitcoin exceeds the reward, miners theoretically lose incentive. "In some cases the miners may simply turn off the machines until the price comes back a bit," said Shone Anstey, co-founder and president of Blockchain Intelligence Group. "It's got to be getting to the point that some of them may be losing money." Bitcoin mining today requires custom hardware that can cost several hundred to a few thousand dollars. And like much technology, more efficient equipment is always coming out. In fact, the need to regularly replace equipment accounts for more than half the cost of mining, according to Fundstrat's model, said Sam Doctor, head of quantitative data science. He assumes electricity costs of 6 cents per kilowatt hour and other expenses to arrive at the break-even estimate of $8,038. Miners' earnings have roughly halved this month from December due to a surge of interest in bitcoin mining, as measured by hashrate, according to Charlie Hayter, CEO of industry data site CryptoCompare. The median transaction fee, another source of revenue for miners, has also fallen below 50 cents from as high as $34 in late December, according to bitinfocharts. For traditional commodities such as gold, when it equals its cost of production, some speculators take that as a clue it may be near a bottom as supply eases. But bitcoin may be more complex because the cost to mine it still varies widely around the world due to differing electricity costs.

In the major bitcoin mining market of China, miners can access very cheap electricity produced by hydropower. The rule of thumb to be able to compete with Chinese miners is to have electricity costs of 4 cents or less per kilowatt hour, Anstey said. Fundstrat's break-even model assumes an average of 6 cents globally. Chinese miners also have an incentive to produce bitcoin regardless of cost because it allows them to send money overseas and evade the government's capital controls. Four out of the five largest bitcoin "mining pools" in the world are Chinese, according to data from Blockchain. The price at which most miners would really start shutting down their operations is around $3,000 to $4,000 per bitcoin, said Fundstrat's Doctor. He pointed out that bitcoin also traded at the breakeven cost of mining in January 2015, when the cryptocurrency traded near $200. It slowly began climbing before accelerating gains in its latest rally, which peaked late last year above $19,000. Bitcoin has lost more than half its value since.

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