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Bitcoin’s Price Needs to Remain Above $8600 for Mining to be Profitable, Says Morgan Stanley

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Bitcoin’s Price Needs to Remain Above $8600 for Mining to be Profitable, Says Morgan Stanley

According to a report by Morgan Stanley, bitcoin’s price needs to break and sustain above the $8,600 level to ensure bitcoin mining remains a profitable venture.

Even with a low electricity cost of $0.03 kW/h, analysts from the US-based investment firm believe that only a price above $8,600 would keep big mining pools profitable.

The report further added that decreasing profits from bitcoin mining would prove to be detrimental to Taiwan Semiconductor Manufacturing Company’s (TSMC) performance; Q1 2018 saw the company earn over $3 billion in revenue.

As reported, TSMC enjoys a 100,000 wafer chip demand from Bitmain – the world’s largest cryptocurrency mining hardware manufacturer – each month, making it a fast-growing company which has directly benefited from the mining industry.

Breakeven Chart for Bitcoin Businesses

Source: Morgan Stanley Research Estimates

The chart bifurcates the bitcoin (BTC) mining sector into three businesses; mining pools, ASIC manufacturers, and retailers.

For calculations, the model uses a price of $7,000; although it isn’t revealed why exactly this value is chosen.

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Mining farms like Bitmain‘s – which also manufactures mining equipment – have substantial hardware setups with thousands of miners running around the clock. However, with the number of miners increasing, the difficulty of the process increases, thus making it more expensive to mine the currency.

Although miners need a value of $8,600 to be profitable, it differs for manufacturers and retailers.

With a hardware cost of $450, mining vendors would need bitcoin’s price to remain above $5,000 to make their venture profitable.

For retailers – who have the same hardware costs but different electricity costs – the threshold bitcoin value increases by almost 50 percent to $10,200; to ensure profits. This is all due to a paltry $0.02 increase in electricity cost per hour.

TSMC Lowers Revenue Targets After Report

The report was deemed to be very accurate, especially by TSMC executives who immediately lowered their 2018 revenue guidance to ten percent growth from ten to 15 percent.

As per the company’s Q1 report, the company’s $3 billion revenue in 2018 was “mainly driven by strong demand from high-performance computing such as cryptocurrency mining.”

Mark Liu, the co-founder of TSMC, said:

“We see very strong demand in the first quarter from cryptocurrencies. During the second quarter, while we do see some weakness in the 28mm chip, the [demand for] the rest of the technology is still very strong on cryptocurrency.”

The five percent revenue decrease can be attributed to the fact that Bitmain is both a mining pool and a hardware manufacturer, and its mining business only requires a BTC value of $5,000 to be profitable. If Bitmain solely manufactured mining hardware, the revenue decrease could have been much larger.

At the time of writing, bitcoin trades at $8,300, slightly higher than the week’s average of $8,200. The digital currency has been struggling to recover in Q1 of 2018, after an impressive surge in December 2017 when the cryptocurrency reached $20,000 on some exchanges.

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