In the wake of recent changes to the Cambridge Bitcoin Electricity Consumption Index (CBECI) methodology, JP Morgan has revised its estimates concerning the production costs of Bitcoin (BTC), marking a decrease from approximately $21,000 to closer to $18,000. The adjustment indicates that changes in electricity prices will have a less pronounced impact on the overall cost of Bitcoin mining. As of Thursday, Bitcoin was trading at around $25,800.
JP Morgan’s calculations prior to the CBECI adjustments revealed that a one cent per kilowatt-hour (kWh) fluctuation in electricity prices would cause a $4,300 alteration in Bitcoin production costs. With the updated methodology, this sensitivity is slightly reduced to around $3,800 per Bitcoin. This change carries significant implications for future energy-related stress tests in the Bitcoin mining industry, particularly with the upcoming Bitcoin halving event in 2024.
After the halving event, block rewards will drop by 50%, making electricity costs a larger part of miners’ total expenses. The heightened sensitivity to energy costs post-halving will necessitate miners to be more cautious in managing operational costs.
The Cambridge Centre for Alternative Finance, which oversees the CBECI, made these revisions to enhance the index’s accuracy and reliability. The revised methodology acknowledges the complexity and variability of mining hardware contributing to Bitcoin’s overall hash rate. It suggests that not all mining equipment should be treated equally, given the regular hardware upgrades and the use of a mixed set of machines with varying efficiencies.
The need for this revision arose from the desire to verify if the increased hash rate of the Bitcoin network is due to the use of more modern, energy-efficient hardware. This hypothesis was initially based on U.S. import data and was further investigated through analysis.
The report by JP Morgan analysts under Nikolaos Panigirtzoglou’s guidance noted that the new methodology changes the landscape of Bitcoin’s production cost estimations. According to their findings, the sensitivity to electricity prices is expected to double after the 2024 halving event, which will decrease miners’ rewards by half. This change will emphasize the importance of cost management due to the higher impact of electricity costs on overall mining expenses.
Despite the recent decrease in Bitcoin’s trading price, which saw a 13% drop in the past month to below $29,000, and a decrease in trading volume from a high of $14 billion last Wednesday to as low as $3.5 billion yesterday, Bitcoin has seen some gains over the past 24 hours. The crypto currently trades for $25,902 and has recorded an inflow of $3 billion in the past 24 hours.
