Bitcoin Mining May Be Even Less Economically Viable Than We Thought

Analysts at Morgan Stanley have added their voices to those warning that mining Bitcoin may no longer be economically viable.

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.