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Nexo

Why Bitcoin Production Cost Is A Very Likely Bottom

Tony Spilotro by Tony Spilotro
2 weeks ago
in Bitcoin
0
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Bitcoin price is barely above $20,000 per coin – a shock to most new and long-time holders of the cryptocurrency alike. The selloff took the cryptocurrency back down to its production cost, which has acted as a bottom in the past.

In this article we’ll take a closer look at the cost to produce each BTC and its relationship with price action. We’ll also examine why the scarce digital asset could very likely find a bottom at such levels.

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Bitcoin Falls To Production Cost, Aligns With Former ATH Retest

Bitcoin is unlike any other asset before it, and since its inception an entire industry has been created hoping to mimic the success of its network. Investors pile into altcoins hoping to find the next Bitcoin and profit.

The cryptocurrency relies on an energy-intensive proof-of-work process to generate new coins. Mining isn’t cheap, or else everyone would do it. In fact, according to the Production Cost Indicator designed by Bitcoin expert Charles Edwards, it costs roughly $20,260 per BTC at the low end.

Related Reading | Coinbase Considers Bitcoin Creator A Risk To Business, Here’s Why

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It doesn’t take a mathematician with the skills of Satoshi to know that’s barely a few hundred dollars away from current prices. Interestingly, the selloff fell straight to the cost of production. Looking back, significant bottoms such as December 2018 and March 2020 both touched the lower boundary.

The high end of the metric is around $33,766, which once breached could be a sign that the downside is finished. Similar to Black Thursday, retesting it is even more bullish.

BTCUSD_2022-06-21_17-20-47

BTC Production Cost Indicator could call the bottom | Source: BTCUSD on TradingView.com

How Satoshi Called The Bottom 12 Years Ago

Considering a bottom after such a brutal selloff and amidst the backdrop of the most bearish macro environment Bitcoin has ever faced, could seem hard to believe or even too good to be true. But there is a reason for this sort of base-building behavior in scarce assets.

Scarce assets like commodities tend to build a base and bottom out around the cost of production. Even Satoshi discussed this in the past, dating as far back as 2010. The mysterious founder is quoted as saying that the “price of any commodity tends to gravitate toward the production cost. If the price is below cost, then production slows down. If the price is above cost, profit can be made by generating and selling more.”

Related Reading | Why Bitcoin Doesn’t Need Musk, Saylor, Or Anyone Else

What Satoshi describes is the revenue model which BTC miners follow. They produce new coins at as profitable of a rate as they can, and sell them as price deviates higher than the cost of production. Returning to such levels, often cleanses the market of less efficient operations, leaving only the fittest behind.

BTCUSD_2022-06-21_17-21-56

BTC miners are capitulating | Source: BTCUSD on TradingView.com

Is this what is happening now with Bitcoin? And what happens when only the strongest have survived? Could Satoshi have really predicted the bottom this far in advance?

Follow @TonySpilotroBTC on Twitter or join the TonyTradesBTC Telegram for exclusive daily market insights and technical analysis education. Please note: Content is educational and should not be considered investment advice.

Featured image from iStockPhoto, Charts from TradingView.com
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Tony Spilotro

Tony Spilotro

I'm Tony Spilotro. Behind the pseudonym, I'm a digital media executive and global remote work leader with a decade of content experience and excellence. Here, I explore my newfound passions pertaining to privacy, finance, economics, politics, cryptography, property rights, and other libertarian-esque views. I am a Bitcoin evangelist, maximalist, and educator whenever I can be, helping to spread its message of freedom from government control, monetary policy mismanagement, and passing the buck - literally – to future generations. My journey from a curious retail crypto investor to a serious Bitcoin advocate, trader, and technical analyst is an unusual one, but life-changing nonetheless and has become less about money and more about a long-overdue revolution. While a firm believer in the laws governing math and science, I am profoundly fascinated by the impact of astrology and astronomy including moon and solar cycles and planetary alignment and their ability to influence and potentially predict markets. It hasn't yet clicked for me as to how to put anything to use, but I consider it my current rabbit hole I can't yet dig out of. My perspective of growing up alongside the internet, the dot com era, the Great Recession, and roots in video games collecting coins and rare items caused Bitcoin to immediately make sense to me. Through all of these lenses, I seek to produce content that is educational and entertaining, and I thank you sincerely for taking the time to read what I have to say. Please follow me on Twitter and feel free to drop me a line if you would like to work together.

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