The price of bitcoin remains volatile today after approaching $9,000 on Monday, although it just didn’t have enough steam to smash through that level. However, even though the bitcoin price continues to swing wildly back and forth, bitcoin miners still see plenty of reason to mine it, but from a financial standpoint, is it really a smart decision to start mining bitcoin? Analysts continue to debate bitcoin mining’s cost structure and whether it’s worth the expense.
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JPMorgan analysts Natasha Kaneva and Gregory Shearer recently conducted their own analysis of bitcoin mining’s cost structure to explain the expenses involved. As has been common among analysts at traditional investment banks, they seem rather skeptical about whether it’s worth all the expense and hassle.
Many analysts have debated whether or not cryptocurrencies are a commodity and if not, what type of asset it is. This is where Kaneva and Shearer start their analysis of bitcoin mining’s cost structure. They note that cryptocurrencies in general do have a lot in common with commodities: “they are both yield-less, and have associated tangible, derivable costs of production, a finite supply and an increasingly diminishing production yield.”
They also point out that the jargon employed by bitcoin miners comes directly from the mining industry. Cryptocurrency miners even call the computer systems they use to mine them “rigs,” and typically, they use a system that’s similar to a gaming rig, sometimes utilizing NVIDIA or AMD GPUs. Like mining for precious metals or gems, cryptocurrency mining is very energy-intensive, although the expenses are different.
The JPMorgan team explained that the main variable expense from bitcoin mining is the cost of energy. In addition to actually running the computers, it also takes energy to keep them cool because such high-end systems generate a lot of heat. Kaneva and Shearer add that Bitmain’s S9 Antminer is one of the most popular and efficient rigs used for bitcoin mining.
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