What Happens When Bitcon Goes Below the Cost of Production?
In all economic systems where the laws of supply and demand function it's entirely possible for the price of a commodity to sink below the cost of production. It happens with all commodities and is perfectly normal. When the price of a commodity drops below the production cost, growers, miners, manufacturers simply stop until the price recovers. For investors it's a great opportunity.
I'm going to take credit for nailing the top of Bitcon in December. It's perfectly true dozens if not hundreds of people a lot smarter than I am called it a bubble but that was accurate years ago. Saying something is a bubble is one of those perfectly true and perfectly meaningless statements like saying gold and silver are manipulated. Sure they are but aren't all financial instruments manipulated?
I've been told that the average cost of producing a single Bitcon is about $6,000. Since it's pretty much based on the cost of electricity the price does vary a lot. A fellow writing for MarketWatch has done an interesting article showing what he thinks the cost of production is for each state.
I love being a contrarian and seeing tops and bottoms being created. Investors hate contrarians because most people just want their fantasies fed. That's why the financial industry is filled with con men whining about manipulation and naked short selling in commodities when we all know that's impossible, as commodities are a zero sum game with one buyer and one seller for each contract. I even wrote a best selling book that would take about two hours to read and if you understand it, anyone could have called the top Bitcon in December.
But no one has yet to point out the fatal flaw in Bitcon. Yes, when the price to produce goes below the cost people are going to unplug their banks of computers and wait out the drought. As of Monday the 5th of February Coindesk shows a low of $6583.56 for Bitcon. Coindesk shows a high of $19,343.04 on December 16th for a decline of 66%.
The map from MarketWatch shows a cost of production of $7,059 in Hawaii, $6,951 for Connecticut and $6,674 for Massachusetts so anyone mining in those states is shutting down.
But there is a fatal flaw that I'm pretty sure no one has pointed out yet. The math for the blockchain requires people to mine Bitcon. When people stop mining, the value plunges. And when the price drops below the cost of production everywhere your Bitcon is going to have all the value of a slightly used Fax machine or a wonderful Beanie Baby. (MIBNSH)