JPMorgan Says Bitcoin Mining Network Is More Sensitive to Price Swings
Summary
- JPMorgan said Bitcoin mining difficulty and hash rate are becoming more sensitive to price swings in Bitcoin.
- The bank estimates Bitcoin’s production cost at about $78,000 and said that if the token stays below that level, higher-cost miners may scale back or halt operations, leading to a drop in difficulty and sales of their Bitcoin holdings.
- As mining profitability deteriorates, some miners are selling Bitcoin holdings while also moving to diversify revenue streams through AI and HPC businesses, though building AI-dedicated data centers requires significant capital and carries execution risk.
Forecast Trend Report by Period
Bitcoin’s mining network is becoming more responsive to price swings as mining profitability deteriorates, according to a new analysis. More miners are operating close to break-even, causing hash rate and mining difficulty to react more quickly to moves in Bitcoin’s price.
CoinDesk reported on June 22 that JPMorgan said in a recent report that Bitcoin mining difficulty has become much more sensitive to price moves this year.
The bank said the beta of mining difficulty to changes in Bitcoin’s price rose to 0.62 over the past six months. That means the network’s computing power and difficulty are reacting more sharply than before when Bitcoin’s price moves.
Nikolaos Panigirtzoglou, a JPMorgan analyst, wrote that mining economics have worsened this year as Bitcoin has traded below its cost of production for five straight months.
JPMorgan estimates Bitcoin’s production cost at about $78,000. If the token remains below that level, higher-cost miners may cut back or halt operations, which could reduce both hash rate and mining difficulty.
JPMorgan also pointed to a 10% drop in mining difficulty in the second week of June. It was the second steep decline this year.
The report said weaker mining profitability has also led some operators to sell Bitcoin holdings. Publicly listed miners sold more than 32,000 Bitcoin in the first quarter alone, exceeding the total they sold in all of last year.
Citing CoinShares’ first-quarter mining report, JPMorgan estimated that about 20% of miners are now operating at a loss.
The bank expects hash rate and mining difficulty to remain highly sensitive to price moves as long as Bitcoin continues to trade below its production cost.
Mining companies are also diversifying revenue through artificial intelligence and high-performance computing businesses to cope with pressure on profitability. AI hosting contracts can offer longer-term, more stable revenue and are emerging as an alternative to volatile Bitcoin mining income.
Still, building data centers dedicated to AI requires substantial capital, and execution risks remain, the report said.
Minseung Kang
minriver@bloomingbit.ioBlockchain journalist | Writer of Trade Now & Altcoin Now, must-read content for investors.
