The landmark figure was passed as BTC continues its landslide beyond the point where the amount of energy expended in the mining operation for the original crypto far outweighs the value of bitcoin. The tipping point came in November when bitcoin plunged from a steady $6,500 and slipped to levels that left many miners ceasing their operations. Pockets remain throughout the world, but the current state of the crypto markets means mining has been significantly curtailed. However, one of the UK’s most senior cryptocurrency academics maintains that repeatedly breaking the $3,400 line may be bad news for miners, but it certainly is not signalling the end of bitcoin.
Gavin Brown, senior lecturer in finance at Manchester Metropolitan University, said: “As bitcoin falls to below $3,400 there is significant reaction to the fact that this price is now below the global production weighted cost of $4,060 in quarter four last year.
“Although damaging to the bitcoin mining community this will not mean the end of bitcoin, at least in the short to medium term.
“Firstly, marginal costs of production are driven by electricity costs which represent the majority of total mining costs.
“However, hardware expenditure – mining rigs etc – are a material outlay and critically are a sunk cost meaning that miners may continue with their efforts for longer than perhaps expected.”
Mr Brown also suggested that, if global prices were to continue to trade at a discount to the marginal costs of mining then more miners would inevitably withdraw.
Yet, in turn, that would raise the probability of success for those remaining when mining any given block.
He warned: “The aggregate effect of this will be more keenly felt not in a sharp decline in the price of bitcoin but rather in the size, or depth, of the bitcoin mining community which by extension will weaken the decentralisation of the underlying bitcoin blockchain.
“Finally, it should be noted that the exit of miners globally will not be evenly spread across the network geographically.
“Rather, we are likely to see locations of higher electricity costs see more pronounced rates of withdrawal compared with, say, a low-cost Chinese miner who can often obtain electricity at discounted rates as low as $1,260 per bitcoin.”
This, he adds, will lead to greater centralisation of the bitcoin mining community in places such as China which reportedly already hosts 74 percent of bitcoin mining and exposes a threat of cyberattacks.
He said: “Such a shift will only increase the pre-existing criticism about the extent to which bitcoin is truly decentralised, and therefore represents an inherent flaw, in turn exposing the network to potential attacks.
“Overall, I am relatively bearish on bitcoin for the medium to long term.
“It remains the market leader by first mover advantage and exhibits ‘flight to quality’ type attributes as evidenced by a BTC dominance in excess of 50 per cent.
“Nonetheless, it is the gateway cryptocurrency for many new adopters and trading pairs on the exchanges, but with new use cases and an appetite to better understand the underlying distributed ledger technology (DLT) by industry the future may be bleak for Bitcoin, but strong for the wider space of cryptoassets.”
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