The first time this report crossed my desk, I must admit that I was hesitant to read it. By the second and third time it was sent to me I’d already dismissed it completely. After all, why would I want to delve through pages of FUD from one of bitcoin’s harshest critics?
At least as far as the report’s summary, it seemed like fairly standard stuff. Roadblocks to adoption, the recent bear market, scalability issues, so figured I may as well skip it. That is until I saw this post stating they’d made a calculation error.
To sum it up, ZeroHedge is claiming that JP Morgan had made a classic newbie error when calculating bitcoin’s mining costs. Unlike physical commodities bitcoin has a steady rate of production, which is 12.5 BTC approximately every 10 minutes, regardless of how many miners there are.
Upon further inspection however, it seems that JPM’s assessment made no such claims. What they did actually made sense. By breaking the miners into different categories, they make the claim that it is the low-cost miners who set the price floor.
Mining costs are notoriously difficult to estimate but assuming for argument’s sake these numbers are correct, bitcoin is now below the average mining cost ($4,060).
What the report does indicate is that if the high-cost miners choose to exit, then the low-cost miners will then be competing against each other, which could drive the prices down as far as $1,260. Again, an accurate statement.
What JP Morgan fails to take into account is a simple matter of behavioral economics. By their own admission, and included in the graph above,