The average Bitcoin mining cost represents the estimated average cost of mining a single Bitcoin. Throughout almost all of Bitcoin’s lifetime, the average mining cost has sat significantly below the average market price of Bitcoin.
The market price has only fallen below the average mining cost on three occasions — in 2016 to 2017, end 2018 to May 2019, and early 2020, each for less than half a year at a time. Each time, the Bitcoin price rallied strongly, sending it to a temporary peak where market price is several multiples of the mining cost.
Each time the price falls below the mining cost, Bitcoin miners have three options: (1) sell at a loss; (2) hold; (3) scale back their mining activities. The aggregate of these choices may contribute to the price rally seen shortly after. Right now, the market price of Bitcoin (~$39,000) is just 30% higher than its mining cost (~$30,000) and is approaching parity.
Bitcoin’s market price is now at the lowest multiplier of its cost price since January 2021, standing at 1.3X. If history repeats itself, the smaller the gap between market value and mining cost, the more attractive Bitcoin becomes as an investment. However, with the overall bearish market conditions and uncertainty over the macro environment, traders and investors should be cautious when dipping their toes in Bitcoin, or altcoins.
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