Analysts at Morgan Stanley have added their voices to those warning that mining Bitcoin may no longer be economically viable.
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The issue is that “mining” cryptocurrencies such as Bitcoin involves heavy-duty number-crunching and, therefore, requires costly computers and a lot of electricity. That makes it expensive.
The cost of doing this wasn’t so much of an issue when Bitcoin was merrily above the $10,000 or even $15,000 marks, as was the case late last year. But Bitcoin crashed at the end of 2017 and has never really recovered. The value is $8,322 at the time of writing on Friday morning, and that’s pretty good by recent standards.
According to Morgan Stanley’s analysts, the break-even point for big mining groups is more like $8,600. Fundstrat analysts last month estimated break-even at $8,038.
It’s interesting to note that Fundstrat’s model was based on a global average electricity cost of 6 cents per kilowatt hour. Morgan Stanley’s model assumed a very low cost of just 3 cents per kilowatt hour, and still came out being more expensive.
The uncertainty over Bitcoin mining’s economic viability isn’t just an issue for cryptocurrency fanatics—it’s a big deal for chipmakers such as TSMC, which on Thursday lowered its guidance partly thanks to that very reason (and partly because of weak demand for top-end iPhones.) TSMC makes about a tenth of its revenues from its mining-rig processors.
Bitcoin mining gets more power-intensive, and therefore more expensive, as time goes on. That’s because the “mathematical problems” that miners have to solve in order to continue assembling the Bitcoin blockchain—and earn Bitcoins as a reward—get progressively more difficult. (While these problems are sometimes described as complex equations that need solving, they’re actually supercharged guessing races.)
“Even if the Bitcoin price stays the same in [the second quarter of 2018], we believe mining profits would drop rapidly, according to our simulation,” Morgan Stanley’s analysts said in their note.