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The key price point for Bitcoin mining profitability is $8,600, according to Morgan Stanley Equity Analyst Charlie Chan and his team. As per their simulation, if the coin can’t recover $8,600 soon, many Bitcoin miners will likely find it unprofitable to keep creating the cryptocurrency.
Bitcoin Mining Profitability
As of today, Bitcoin is trading at almost $8,250 according to Coinmarketcap. The coin is less than half the value it was in late-December, but has improved from early-February numbers, when it hit 2018 lows trading just below $6,000.
“We estimate the break-even point for big mining pools should be US$8,600, even if we assume a very low electricity cost (US$0.03 kW/h),” Chan said.
Because of the uncertainty expressed in Morgan Stanley’s report, TSMC, the Taiwan Semiconductor Manufacturing Company, lowered its 2018 revenue guidance to 10% growth from 10-15%. The firm estimates that about 10% of the Asian chipmaker’s revenue now depends on cryptocurrency mining demand.
Large groups of miners, primarily in China (think Bitmain), work together in mining pools to improve efficiency. But as more miners participate, the difficulty of the process increases.
“We think the injection of new mining capacity will further increase the mining difficulty in 2H18,” the Morgan Stanley analysts said. “Even if the Bitcoin price stays the same in 2H18, we believe mining profits would drop rapidly, according to our simulation.”
Companies that sell specialized ASIC (application-specific integrated circuits) mining chips, on the other hand, appear to have more leeway. The Morgan Stanley model estimates companies that develop ASICs — which are manufactured for the sole purpose of mining cryptocurrency — will break even in two years time if Bitcoin stays above $5,000.
Changing Times
Moving forward, Bill Tai, the chairman of Hut 8 Mining Corp., the North American arm of cryptocurrency mining rig manufacturer Bitfury, expects only 5-10% of the largest miners to survive and be profitable, according to Bloomberg.
“It’s totally different this year than last year. The Bitcoin mining industry was this mysterious dark cottage industry, and it’s about to grow up and about to have elements of institutional scalability at all levels,” Tai said.
The concentration of mining power in the hands of a small number of corporate entities is frowned upon by the large majority of people in the cryptosphere, as it contradicts the very nature of a decentralized network.
A so-called 51% attack, which hit the cryptocurrency Verge earlier this year, would permit a powerful mining pool to effectively steal coins from other users. With the increasing presence of mining pools and ASIC developers, this remains a distant worst case scenario for Bitcoin, although perhaps not as distant as in the past.
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