Bitcoin Is Worth Less Than the Cost to Mine It, by Eric Lam.

The production-weighted cash cost to create one Bitcoin averaged around $4,060 globally in the fourth quarter, according to analysts with JPMorgan Chase & Co.

With Bitcoin itself currently trading below $3,600, that doesn’t look like such a good deal. However, there’s a big spread around the average, meaning that there are clear winners and losers.

Low-cost Chinese miners are able to pay much less — the estimate is around $2,400 per Bitcoin — by leveraging direct power purchasing agreements with electricity generators such as aluminum smelters looking to sell excess power generation …

Electricity tends to be the biggest cost for miners, needed to run the high-powered computer rigs used to process data blocks to earn Bitcoin. … The cost figures exclude equipment. …

With margins negative, it’s expected more high-cost producers will be forced to drop out, the analysts said. That hasn’t happened yet, and production shares of miners based in the Czech Republic, U.S. and Iceland have actually grown slightly over the past year or so, JPMorgan said.

If there is capitulation, the remaining miners may actually see their costs fall as they would win a greater share of Bitcoins for the same amount of energy consumption. If only low-cost Chinese miners remain, the marginal cost could drop to less than $1,260 per Bitcoin, the analysts said.