Bitcoin’s trading price has fallen below the average mining cost

Bitcoin recently experienced its biggest one-day drop in history, with the price of Bitcoin falling from $7,900 to around $5,000 in less than 48 hours.

The first digital currency ever is currently trading at a price lower than the cost for miners to produce each Bitcoin. What does the current state of the network’s hashrate, the future direction of the asset, the upcoming halving, and Bitcoin’s price adjustment mean?

Bitcoin falls below production cost, miners may start buying Bitcoin, but profits remain uncertain

Bitcoin may be in its most dangerous position in a decade following its biggest one-day drop in a decade.

With the stock market crashing, the coronavirus, the world going into lockdown and panic, the Bitcoin and cryptocurrency markets have also tanked.

The decline has taken Bitcoin from $10,500 a month ago to as low as below $4,000.

At the time of writing, Bitcoin is trading around $5,000, still well below the average production cost per Bitcoin.

Bitcoin's blockchain protocol is powered by a process called proof of work, which involves miners using Bitcoin mining machines (supercomputer servers) to perform complex hashing operations to verify each new block. Miners receive a certain amount of Bitcoin as a reward. However, the electricity costs associated with operating Bitcoin mining machines must be taken into account.

And if the cost of producing Bitcoin is too high, then miners would be better off buying Bitcoin rather than running mining machines and continuing to provide computing power to the network.

This is exactly the case now, as Bitcoin has fallen to a point in price where, even if the cost of electricity to produce each Bitcoin were low enough, miners would still struggle to make a decent profit at current prices.

Halving is hell: Mining difficulty indicator suggests the worst is yet to come for Bitcoin

Based on current mining costs, the worst mining machine costs about $8,000 to produce, but the best mining machine costs about $4,800.

The current network hashrate means that most miners are still struggling to run their machines.

The cost of mining Bitcoin will also rise significantly over the next two months. While the halving was expected to be a bullish event, causing supply and demand to be reset and prices to soar, this time it is likely to end up being bearish.

The halving cuts the rewards miners receive in half, which means that in just two months, when the price of Bitcoin halves, production costs will double overnight, making the lowest-end mining machine as expensive as $16,000 and the best mining machine production cost to $9,600.

As miners shut down older Bitcoin mining machines in large numbers, the difficulty of mining Bitcoin will decrease, and eventually the production cost of each Bitcoin will decrease to compensate accordingly, but the initial sudden change in rewards may have a lot of unknown factors.

Another important indicator of Bitcoin mining activity is Bitcoin’s mining difficulty band. In the past, the mining difficulty band has signaled when miners are about to capitulate, which is usually a bearish sign for Bitcoin.

Miners capitulated at the end of 2018 and again at the end of 2019. The mining difficulty band is currently curling downwards, and with production costs so low, miners may capitulate again, leading to another massive sell-off. The only positive factor in all the negativity associated with Bitcoin mining is that after the halving, Bitcoin usually reaches new all-time highs.

In past Bitcoin cycles, mining difficulty usually produces three major stages of forced miner capitulation before a new bull run is triggered. Bitcoin miners have already experienced two capitulations in 2018 and 2019, and the next major miner capitulation may be the last market elimination behavior before the next bull run is confirmed to begin.