JPMorgan: Bitcoin's climb above $85,000 production cost could ease miner selling

Bitcoin rises back above JPMorgan's estimated production cost

Bitcoin moved above JPMorgan's estimated production cost of around $85,000 during this week's rally, the bank's analysts said. The coin had traded below that level for 280 days, according to the analysts led by Nikolaos Panigirtzoglou in a report published Wednesday.

The analysts said this change could give bitcoin miners relief and lower the risk of forced selling, but only if it lasts. Bitcoin has since slipped a little and was trading at about $84,100.

Mining is the process that keeps the Bitcoin network running and produces new coins. The production cost is an estimate of what it costs on average to produce one bitcoin.

Key points from the report

• JPMorgan estimated bitcoin's production cost at about $85,000.
• Bitcoin spent 280 days below that estimate before rising above it this week.
• The analysts said the production cost has historically acted as a "soft floor" for the price.
• The last time bitcoin stayed below its estimated production cost for a similar stretch was 2018, at about 224 days.
• Hash rate, a measure of the network's computing power, has fallen about 19% from its peak last October, and mining difficulty has dropped roughly 15%.

What the JPMorgan analysts said

According to the analysts, when bitcoin trades below its production cost for a long time, miners facing higher electricity and equipment costs can become unprofitable. Those miners may respond by selling more bitcoin, shutting down machines, or leaving the market altogether.

They noted that miners have handled this weak profit period by moving machines to regions with cheaper electricity, selling older equipment, and putting some machines on standby. Some less efficient machines were scrapped or recycled.

The analysts said the last comparable stretch was in 2018. Falling prices then pushed higher-cost miners to shut down, which lowered the network's hash rate and mining difficulty. The industry is now larger and more industrialized, but the analysts said the same adjustment still happens when higher-cost miners pull back.

"To the extent it is sustained, this new backdrop should provide relief to bitcoin miners, thus reducing the risk of forced selling by them," the analysts said.

The analysts also said bitcoin's rally came even after the U.S. Senate failed to advance the Clarity Act, a regulatory bill. They said that move was consistent with investors closing out bearish positions, as the analysts had pointed out the week before.

Miners are shifting toward AI as hash rate falls

The analysts said bitcoin mining is going through a broader shift toward artificial intelligence. As miners move some or all of their operations into AI computing, growth in the Bitcoin network's hash rate has slowed.

Many publicly traded miners have cut their hash rate growth forecasts as long-term AI contracts speed up the move away from bitcoin mining. The analysts said AI companies are paying large premiums for access to electricity and data centers already built for intensive computing. With bitcoin prices subdued for much of this year, miners have been drawn to AI revenue that is more predictable, more stable, and higher per megawatt than mining income.

As a result, publicly listed miners are losing share of bitcoin mining activity to privately owned and sovereign miners, the analysts said.

"From a bitcoin perspective, this can reduce excess hashrate growth and help prevent the network from becoming 'too crowded,' i.e., avoiding concentration risk. At the same time, by flattening the trend in the bitcoin hash rate, this structural shift by miners to AI implies that the bitcoin production cost would rise more slowly going forward, outside halving events," the analysts said.

What is still unclear

The potential relief for miners depends on bitcoin holding above the estimated $85,000 production cost. The report frames the benefit as conditional on the move being sustained, and bitcoin has already dipped back to around $84,100. The $85,000 figure is JPMorgan's estimate, not a fixed or official number.

Why this matters

Miners who cannot cover their costs may sell the bitcoin they hold, which adds selling pressure to the market. If bitcoin stays above the estimated production cost, that pressure could ease. The analysts also said the growing shift to AI could slow the rise in bitcoin's production cost outside halving events, when the reward for mining is cut.

Sources

• The Block