JPMorgan Chase (JPM) said in a research report on Tuesday, September 4, that Bitcoin mining profitability has fallen to a historic low . Analysts Reginald Smith and Charles Pearce wrote: "We estimate that Bitcoin miners' daily block reward revenue averaged $43,600 per EH/s in August, the lowest point on record." In comparison, the peak in November 2021 was $342,000, when the BTC price was $60,000 and the network computing power was 161 EH/s.
Bitcoin did not appear suddenly, but was driven by miners. Miners buy mining machines to provide computing power to solve mathematical problems, and then Bitcoin is rewarded to miners in return. Therefore, miners determine the supply of Bitcoin, and the cost of mining will also affect the price of Bitcoin.
We can judge the price of Bitcoin through three indicators, namely the miner shutdown price, the miner transfer to the exchange, and the exchange balance.
1. Miner shutdown price: close to cost, close to shutdown
When the price of Bitcoin is lower than the cost of mining for miners, miners will stop mining because mining in this way will only result in greater losses. This price is called the shutdown price.
The main cost of mining is electricity, as well as various fees for mining machines, sites, management, etc. The current mainstream calculation method is mainly based on electricity costs, without adding other costs, so the shutdown price is higher than the actual situation.
The shutdown price represents the lowest point of the Bitcoin price and is an indicator used to determine whether the Bitcoin price has bottomed out, because people are unwilling to bear losses and find it difficult to accept decreasing profits. Therefore, when the Bitcoin price approaches the shutdown price, miners' selling behavior will temporarily stop, and secondary investors will have a "bargain" mentality and buy Bitcoin.
Calculated based on the electricity cost of $0.07 per kWh and the Bitcoin price of $56,000, only 7 high-end mining machines are profitable among the 25 mainstream mining machines, and the prices of the other 18 mining machines are below cost . It should be noted that this chart does not include the other costs mentioned above. If we simply estimate that other costs only account for 10% of the electricity cost, then only 3 mining machines on the market are profitable.
So from the perspective of the shutdown price, the price of Bitcoin may have bottomed out now.
2. Miners transfer to exchanges: slightly reduced, no significant change
The money miners earn from mining must be sold on exchanges to cash out in order to maintain the cost of mining. If the number of bitcoins transferred out increases, it means that many people want to sell bitcoins, which will push down the price of bitcoin, which is a bearish signal for bitcoin; if the number of bitcoins transferred out decreases, it means that fewer people want to sell, which is a bullish signal for bitcoin.
Since April this year, the number of bitcoins transferred out has decreased significantly, which may be related to the Bitcoin halving on April 20. As the output has decreased, the amount of bitcoins transferred out has also decreased.
There has been no significant change in the number of bitcoins transferred recently, only the number of bitcoins transferred on non-trading days will decrease. The number of bitcoins transferred per day from Monday to Friday is between 7,500 and 10,000, and the number of bitcoins transferred per day on weekends is about 2,500. Previously, the number of bitcoins transferred per day was between 3,500 and 4,500.
3. Exchange balance: bullish, lowest in a year and a half
The balance of the Bitcoin wallet on the exchange is also an indicator for judging the bottom of the Bitcoin price.
Centralized exchanges are the main trading venues in the cryptocurrency market. When the amount of Bitcoin in exchanges increases, it usually means that funds on the chain are flowing in and are ready to be exchanged for assets such as stablecoins, which means bearish for Bitcoin.
The decrease in Bitcoins in exchanges may mean that funds have been transferred to on-chain wallets. Since the liquidity on the chain is not as good as that of centralized exchanges, this transfer is not usually considered a sell-off. The expected selling pressure at this time is low, which means bullish on Bitcoin.
The figure below shows the changes in the Bitcoin balance of centralized exchanges in the past three months. It is currently about 2.4 million, which is the lowest in the past year and a half. Among them, Binance has reduced about 53,000 Bitcoins in the past 30 days.
Conclusion: The price is close to the cost, and the exchange balance has also hit a new low. The bottom is near
Now the cost of mining for miners has almost stopped. And the number of miners transferring to exchanges is gradually decreasing, indicating that some people may sell their bitcoins. At the same time, the balance of bitcoins in exchanges is also continuing to decline, which also supports the bullish signal. Combining these data, we can speculate that the price of bitcoin may have reached a stage bottom, and the future market trend may gradually pick up.
