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CBECI Update: JPMorgan lowers Bitcoin Mining cost estimate

JPMorgan, one of the largest investment banks in the world, has revised its estimate of the cost of mining one bitcoin, following the recent update of the Cambridge Bitcoin Electricity Consumption Index (CBECI). According to a report by Bloomberg, JPMorgan now estimates that the average cost of producing one bitcoin is around $21,000, down from its previous estimate of $23,000 in April.

The Cambridge Bitcoin Electricity Consumption Index (CBECI) is a tool that provides a real-time estimate of the total electricity consumption of the Bitcoin network. The CBECI is developed by the Cambridge Centre for Alternative Finance (CCAF) at the University of Cambridge and is based on a bottom-up approach that aggregates the electricity consumption of different types of Bitcoin mining hardware.

The CBECI, which tracks the energy consumption of the bitcoin network, has lowered its estimate of the annualized electricity usage of bitcoin mining from 143 terawatt-hours (TWh) in April to 113 TWh in July, a decrease of 21%. This reflects the impact of the crackdown on bitcoin mining in China, which forced many miners to shut down or relocate to other countries with cheaper and greener energy sources.

The CBECI aims to provide a transparent and reliable benchmark for the energy consumption of Bitcoin, as well as to raise awareness about the environmental impact of this emerging technology. The CBECI also offers a comparison with alternative uses of electricity, such as the power consumption of countries, regions, or industries.

The lower cost of mining bitcoin could have implications for the price and profitability of the cryptocurrency, as well as its environmental impact. JPMorgan analysts wrote that the lower electricity consumption could make bitcoin more attractive to institutional investors who are concerned about the carbon footprint of their portfolios.

They also suggested that the lower production cost could provide a floor for the bitcoin price, as miners would be less likely to sell their coins below their break-even point. However, they also cautioned that the price of bitcoin is still influenced by many other factors, such as supply and demand dynamics, regulatory developments, and innovation in the crypto space.

JPMorgan’s revised estimate of the bitcoin mining cost is still higher than some other sources, such as CoinShares, which estimated the average cost at $15,000 in May. The discrepancy could be due to different assumptions and methodologies used by different analysts.

The CBECI is updated every 30 seconds and provides three different estimates: a lower bound, an upper bound, and a best guess. The lower bound represents the minimum possible electricity consumption of the Bitcoin network, assuming that all miners use the most energy-efficient hardware available. The upper bound represents the maximum possible electricity consumption of the Bitcoin network, assuming that all miners use the least energy-efficient hardware available. The best guess is an approximation based on the average electricity consumption of different types of hardware, weighted by their respective market share.

According to the CBECI, as of September 9, 2023, the annualized electricity consumption of the Bitcoin network is 184.6 TWh, which is equivalent to the power consumption of Egypt or 0.8% of the global total. The lower bound is 83.5 TWh, which is equivalent to the power consumption of Chile or 0.4% of the global total. The upper bound is 402.4 TWh, which is equivalent to the power consumption of Germany or 1.7% of the global total.

The CBECI also shows that if Bitcoin were a country, it would rank 27th in terms of electricity consumption, ahead of countries such as Belgium, Switzerland, or Sweden. Moreover, the CBECI reveals that the carbon footprint of Bitcoin is 90.6 Mt CO2 per year, which is comparable to the emissions of Portugal or New Zealand.

The CBECI is a valuable resource for anyone interested in understanding the environmental implications of Bitcoin and its potential for innovation and social change. The CBECI is accessible online and offers interactive charts and data visualizations that allow users to explore various aspects of Bitcoin’s electricity consumption and compare it with other uses of energy.

For instance, JPMorgan assumes a constant hash rate and difficulty level for the bitcoin network, while CoinShares adjusts them according to the changes in the network activity. Moreover, JPMorgan uses a weighted average of electricity prices across different regions, while CoinShares uses more granular data on the locations and energy sources of miners. Therefore, it is important to take these estimates with a grain of salt and recognize that they are not precise or definitive measures of the true cost of mining bitcoin.

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