Bitcoin Mining Cost Is Most Reliable Support Level
As cryptocurrencies decline, the most pressing issue is the level of fundamental support, below which the price cannot fall. For Bitcoin, the cost of mining is that support.
The cost of Bitcoin mining is inseparably linked to the complexity of the calculations and the number of participants: the more miners, the higher the complexity and the greater the total power of the network. Due to the mining craze, the hash rate reached 171 exahash/sec in May, but the following restrictions imposed on Chinese miners led to the collapse of the indicator by almost half.
China continues repressive measures against the cryptocurrency community. At the end of May, the government banned commercial banks and financial institutions to do clearing in cryptocurrencies, and last week Sichuan province's energy bureau demanded the closure of the 26 largest mining centres by 20th June. According to the University of Cambridge, Sichuan accounts for around a third of China’s entire Bitcoin hashrate or 15% of the global mining power. The prohibition of mining and operations in cryptocurrencies led to a drop in the price by 50% from April’s highs.
The repressions also affected the fall in the cost of mining, which is inseparably linked with the complexity of mining. According to Capriole CERLZ Edwards, the cost of production extremely rarely matches the price, but when this happens, it leads to another bull run.
Now the cost of Bitcoin mining sways between $12,000 and $21,000. This is the fundamental support below which the coin can trade only for a short while. Because of the Chinese repressions, the network’s hashrate fell, which triggered the fall in the cost of mining. However, Chinese miners have already been invited by the president of El Salvador and the mayor of Miami, being promised support and low tariffs.
Since the price is still above the cost of mining, Chinese miners will try to resume operation, and Western ones – to increase power. Michael Sailor from MicroStrategy – one of the largest public BTC holders – has said that repressions in China are a great piece of luck for North American miners. In the near future, the hashrate will begin to recover, and the cost of mining will start to grow again.
The StormGain Analytics Group