JPMorgan revises bitcoin production cost estimate to $45,000

JPMorgan has revised its central estimate of bitcoin production cost to $45,000 from the previous $42,000 projection amid a shift in bitcoin mining hashrate.

"We previously anticipated a significant drop in the hashrate post halving as unprofitable bitcoin miners exit the bitcoin network. This appears to be happening, albeit with some delay," JPMorgan analysts led by Nikolaos Panigirtzoglou wrote in a report on Thursday. "The current hashrate and power consumption put our central estimate of the bitcoin production cost to around $45,000, i.e., well below current prices" of around $65,000 , the analysts added.

In February, the analysts estimated the cost of producing one bitcoin to be $42,000. Consequently, they also estimated $42,000 as bitcoin's price target once the halving-induced euphoria subsides after April.

When asked if the updated bitcoin production cost estimate of $45,000 implies that JPMorgan expects the bitcoin price to rise to that level, Panigirtzoglou told The Block that while the current bitcoin production cost estimate stands at $45,000, it still maintains the $42,000 level for the medium term.

"The production cost estimate is a function of the hashrate and mining equipment efficiency, which are in a state of flux post-halving," Panigirtzoglou told The Block. "We get a $45,000 estimate at the moment (which is slightly different from the $42,000 we envisage as things settle over time), but this $45,000 current estimate would change as the hash rate and mining equipment efficiency evolve."

"$42,000 is a medium production cost target we envisage once the hash rate and mining efficiency settle. It will take some time for things to settle," Panigirtzoglou added.

Temporary boost due to Runes protocol

The launch of the Bitcoin BTC -0.81% Runes protocol led to a temporary surge in Bitcoin transaction fees, offering miners a revenue boost following the halving event. 

"The boost from Runes proved short-lived, however, with users' activity and fees dropping dramatically over the past week or two," the analysts said in the report. "This highlights the ongoing challenge faced by bitcoin miners to maintain a sustainable source of revenue in particular in the post-halving environment."

As enthusiasm for the Runes protocol waned and the temporary boost for Bitcoin miners diminished, power consumption on the network has declined more than the hashrate, the analysts noted, indicating the exit of unprofitable miners with inefficient setups.

According to the analysts, this exodus is part of a natural feedback loop linked to Bitcoin prices — declining prices prompt more unprofitable miners to exit, further reducing the hashrate and production cost.

Overall, the analysts reiterated that bitcoin prices will have limited upside ahead due to several previously stated headwinds, including limited inflow into U.S. spot bitcoin ETFs and lackluster demand for Hong Kong spot bitcoin and ether ETFs.