Bitcoin costs $8,000, report says cryptocurrency mining is no longer profitable

“Bitcoin is currently trading at essentially the breakeven cost of mining one bitcoin,” Fundstrat’s Thomas Lee said in a Thursday note.

Shone Anstey, co-founder and president of Blockchain Intelligence Group, said, “In some cases, miners may turn off their machines until the price of Bitcoin recovers.”

Charlie from Crypto Campare said that since December last year, miners' income has almost been cut in half as people's interest in Bitcoin mining has surged since December.

According to some estimates, Bitcoin has fallen to the point where mining is no longer profitable.

“Bitcoin is currently trading at what is essentially the breakeven cost of mining one bitcoin, which is currently $8,038, based on the mining model developed by our data science team,” Fundstrat’s Thomas Lee said in a Thursday note.

Fundstrat’s model takes into account three factors: the cost of mining equipment, electricity, and other expenses, such as the cost of maintaining cooling facilities.

Bitcoin was trading slightly lower on Thursday, approaching $8,000, according to CoinDesk’s Bitcoin Price Index, which tracks the price of bitcoin on four major exchanges around the world. Earlier, bitcoin hit a low of $7,676.52, the lowest level since Feb. 8, according to CoinDesk data.

Bitcoin is generated through an energy-intensive "mining" process that uses high computing power to solve a series of complex mathematical problems to prove that an anonymous miner used the process and put the transaction record on the blockchain. If the miner can successfully verify the mathematical equation, then he will get the corresponding number of bitcoins.

If the cost of producing Bitcoin exceeds the reward, miners would theoretically lose the incentive to mine.

"In some cases, miners may shut down their machines until the price of bitcoin recovers," said Shone Anstey, co-founder and president of Blockchain Intelligence Group. "We have to understand that some miners may be losing money right now."

Today, bitcoin mining requires some custom hardware that can cost anywhere from a few hundred to a few thousand dollars, but like many technologies, more efficient equipment is always being developed.

In fact, the need for miners to regularly replace equipment accounts for more than half of the cost of mining, according to Fundstrat’s model, said Sam Doctor. He assumed that electricity costs 6 cents per kilowatt-hour, plus other expenses, and it costs a total of $8,038 to mine one bitcoin.

Charlie Hayter, CEO of CryptoCompare, a data website for the cryptocurrency industry, said that since December, miners' earnings have almost halved as interest in bitcoin mining has surged since December. According to data from bitinfocharts, another source of income for miners, transaction fees, have also fallen from a peak of $34 in December to less than 50 cents at present.

For traditional commodities such as gold, when trading prices are equal to production costs, some speculators see it as a clue that price action has bottomed.

But relatively speaking, Bitcoin may be more complicated because the cost of Bitcoin still varies greatly around the world due to different regional electricity costs.

In China, the main bitcoin mining market, miners have access to very cheap electricity generated by hydroelectric power. Anstey said that to compete with Chinese miners, the electricity cost for mining must reach 4 cents per kilowatt-hour or less. Fundstrat's break-even model assumes that the average electricity cost for mining is 6 cents worldwide.

Despite the high costs, Chinese miners are still motivated to mine because they can send money overseas and circumvent the government's capital controls. Data from Blockchain shows that four of the world's five largest Bitcoin "mining pools" are from China.

Fundstrat’s Doctor said that when the price of Bitcoin reaches $3,000 to $4,000, most miners will stop mining, noting that this also happened in January 2015, when the price of Bitcoin was close to $200 per coin.

Bitcoin prices climbed rapidly in their most recent rally, reaching more than $19,000 late last year. Since then, the digital currency has lost more than half its value.