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Bitcoin Price can not go Under the Production Cost

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Bitcoin price made a substantial rally in 2019 hitting $14,000 in June and then entered in a correction phase going under $8,000. Crypto markets being a young asset class ara characterized by a strong volatility which in most cases might be simple market manipulation.

However, saying that even manipulators can not bring the price under the production cost. Analyzing the 2018 bear market we see that bitcoin bottomed at $3,150. At that time we heard many miners switching off their mining machines.

Miners are mostly sellers because they need to pay their electricity bills, and this is what pushes the price down to the production cost.

Even Satoshi, the famous bitcoincreator said that “the price of any commodity tends to gravitate toward the product cost.”

Of course not forgetting to mention that bitcoin price is determined mostly by CME futures which speculate on the bitcoin price without even owning a single bitcoin.

In any case, speculators can not drive prices under the production cost because would collapse the whole system. They need to continue benefiting from the system in the longest term possible so price corrections may touch the production cost of the asset but never go under it.

Applying this logic the shakeout at $3,150 at the bottom of the bear market worked to accomplish 2 things.

The first thing was to shake the weak hands and sell the bottom so speculators can fill their spot positions, and the second was to get out of business weak miners eliminating in this way competition. Big players know these things while retail users were missing totally the point.

A crypto trader called on Twitter @filbfilb, called the $3,000 bottom even before the bull market was over making a correlation between the bitcoin mining cost and the possible correction bottom.

While the crypto analyst is divided into two groups, some calling for a parabolic move and others calling for more correction.  Both scenarios are possible but considering the production cost, we can calculate the amplitude of the possible correction.

Bitcoin is only a few months from the halving which means that the block reward will halve and the production cost will double. So if we agree that the production cost was $3,150 after the halving it will be $6,300.

That does not mean that bitcoin correction will touch $6,300 but simply means that speculators can not push the price under this floor.

Saying all that, the range between $7,600-$6500 seems like a great entry point before the next bitcoin bull market.

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Ethan Hunt

Bitcoin Maximalist and Toxic to our banking and monetary system. Separation of money and state is necessary just like the separation of religion and state in the past.

Disclaimer: All content found on 7bitcoins.com is only for informational purposes and should not be considered as financial advice. Do your own research before making any investment. Use information at your own risk.

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