Altcoin News: JPMorgan Valued Bitcoin at $2,400, Miners Disagree

February 23, 2019, by Marko Vidrih on ALTCOIN MAGAZINE

Cryptocurrency miners are actively discussing the recent JPMorgan Chase report, in which the “fair value” of Bitcoin is set at $2,400. However, some users believe that a US investment bank can hardly be considered competent in estimating the cost of producing Bitcoin by Chinese miners.

Based on the current BTC price of $3,983, in order to reduce to “fair value”, the price should fall by about 38%. In this case, the market will reach the so-called estimated marginal cost of Bitcoin production. Marginal costs — the costs required for the production of another unit of production.

For example, if a company produces 301 units of production instead of 300, then the cost of producing the 301st unit is the marginal cost.

In the case of Bitcoin, miners can only increase their market share, since the daily amount of digital currency is limited to about 1,800 coins. In this regard, industry players have noticed that the structure of the Bitcoin network cannot have an average “marginal cost” of mining, which already makes discussion of this issue useless.

In a January report entitled Blockchain and Cryptocurrency 2019: Acceptance, Performance, and Problems, JPMorgan assesses the intrinsic value of Bitcoin, an extremely volatile virtual asset that does not have its own asset or cash flow, and views it as a commodity, calculating marginal costs of production.

“In accordance with the average hashrate during the 4th quarter of 2018 and production costs, we estimate … the average cost of the Chinese miner is about $2,400 per Bitcoin,” JPMorgan analysts said.

A hashrate is a measure of cryptocurrency network computing power. Since November 2018, the rate remains stable, around 40 Th/s, in October 2018 this figure was 60 Th/s. The decrease is due to the fact that some miners turned off their equipment and left the market due to the fall in Bitcoin prices.

In April 2018, Citi published a report called a higher break-even point of $5,500.

“For the market as a whole, there can be no average cost or break-even point, because different miners have different electricity tariffs, even on the territory of one country, besides, they can constantly acquire more energy-intensive equipment,” said co-founder LuTech, a manufacturer of equipment for mining bitcoins, engaged in mining in China, Ben Gagnon.

According to Gagnon, when the price of Bitcoin falls, the cost of mining increases, so miners with higher costs are the first to leave the market. Due to this, the remaining miners get a greater market share and increase their profitability.

Starting in the fourth quarter, the cost of mining LuTech remained at $1,400. The company Bitfarms Technologies from Tel Aviv reported that the cost of production for it was $1,567, as it used cheap renewable energy sources in Canada. The company’s net profit was $6.2 million.

In addition, the majority of industry players expect a Bitcoin rally in 2020, due to a reduction in remuneration for miners, which takes place every four years. In May 2020, the reward will be reduced to 6.25 Bitcoins per block.

During the previous halves in 2012 and 2016, Bitcoin rose sharply in price.

Author: Marko Vidrih