Some friends have misunderstandings about "whether mining costs affect BTC prices". They believe that in the current capital era, the proportion of BTC in the hands of miners in the entire circulation market is very small, so whether miners sell or not does not affect the price trend of BTC.

Here I can talk about my personal opinion. First of all, the mining cost has no effect on the "upper limit" of BTC's price, which is beyond doubt; but it will greatly affect the "lower limit" of BTC's price. The logic behind this is not that miners will sell or not sell their chips when the cost price reaches it, but it lies in the psychological factors on the market demand side.

When the price of BTC is lower than the mining cost, investors will think that buying BTC in the secondary market at this time is much more cost-effective than investing tens of millions of funds and spending time and effort to obtain BTC through mining. It is similar to a "taking advantage" mentality, taking advantage of miners, thereby triggering more market demand. It is like when we buy things, when we find that the production cost of the item is the same as or even higher than the price, we will buy it with more "peace of mind", that is, we feel that we have taken advantage (no loss or deception).

Secondly, when the price of BTC drops to a certain level, miners will choose to withdraw some of their computing power if they cannot cover their costs, thus reducing the difficulty. The reduction in difficulty reduces the cost of mining, and the market demand for "not getting a bargain" weakens, so the price continues to fall, and the computing power continues to withdraw... This enters a death spiral. Strong computing power is an important guarantee for BTC decentralization and system security. In extreme cases, no one packs, the mine closes, the mining machine cannot be sold, and even the asset security is threatened, which is not in the interests of everyone.

Therefore, the mining cost will definitely affect the lower limit of BTC price under certain conditions!

So how do we correctly measure the mining cost? We can use a simple calculation model to deduce:

Mining costs mainly include two aspects: purchasing mining machines and later operation and maintenance. The later operation and maintenance costs mainly include electricity costs and other operating costs (labor, plant, maintenance, loans, etc.). We assume that electricity costs account for 70%, other costs account for 30%, plus the cost of purchasing mining machines, which constitutes the main cost of miners.

The hash rate price refers to the amount of BTC (including block rewards and handling fee income) that can be generated per E hash rate (1E = 100w T) per day, which is currently 0.809;

The unit electricity price is $0.053. I selected 5 mining machines currently on the market as samples, among which S19 XP Hyd is the main mining machine in the last cycle, T21 is the main mining machine in this cycle, and S21 is currently sold on the official website as futures, which theoretically has not been deployed in large quantities. All mining machine parameters and prices are collected from the Bitmain official website.

The above table is the result of the calculation based on the above model. It can be seen that when the BTC price is $42,000, the profit margin of the main mining machine T21 is negative. This means that buying BTC in the secondary market is more cost-effective than mining.

Coincidentally, the limit of 42,000 is very close to my view in the article “How low could BTC fall in extreme cases during a bull market?” published on June 25 that the retracement limit calculated by STH-MVRV and TMMP will not be less than 43,000-44,000.

When the BTC price is below $56,500, the payback period of T21 will take 48 months. Generally speaking, the maximum service life of a mining machine is about 3-4 years. After 3 years, even if the mining machine does not break down, it will be replaced by a new mining machine due to its backward energy efficiency. By then, the remaining residual value of the old mining machine will be almost zero, and it can only continue to shine and heat for miners with extremely low or even free electricity costs, or it will have to be sold by weight as scrap iron. Therefore, for the T21, which can only pay back in 48 months, this price is too unfriendly. Assuming that the price of BTC does not rise in the future, it is equivalent to the miners who have just paid back after 3 years of hard work facing elimination again. Who is willing to do such a business?

Therefore, from this perspective, BTC below 56,500 also has a certain cost-effectiveness, and is especially suitable for those who like regular investment.

Note:
The above calculation model is not an accurate statistical model of mining costs, and there is a certain degree of error, but it is closer to the actual cost than the "shutdown price" you see on the Internet (the shutdown price usually only calculates the electricity cost). If there are any omissions, professional miners are welcome to correct them!