Is the Bitcoin Price Tied to the Mining Production Cost?

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here are many theories regarding what drives the Bitcoin cost, but one that has recently reemerged is its link to the Bitcoin production cost. The theory is essentially an old one, that the price doesn’t dip under the mining cost, and this idea has gained some traction thanks to a tweet-thread from market analyst Cole Garner.

Marginal Production Cost

The series of 18 tweets begins with one of those rare things – an accurate Bitcoin price prediction. This particular prediction was made in December 2017, when Bitcoin’s parabolic price action was making headlines all around the world, but was actually based on a chart produced in July of that year. This prediction posited that Bitcoin’s next correction, whenever it came, would see the author “lean towards $3k” for a bottom.


The author was a trader going by the name of filfil, and seventeen months later he was proved right as BTC hit $3,125 on December 15, 2018. The prediction was based, filfil said, on the “Marginal Production Cost” essentially the cost to mine a bitcoin, which in December 2017 was at $3,172, incredibly close to the final bottoming price a year later. Garner digs out as much historical detail as possible to verify this pattern throughout Bitcoin’s past, and what he found bears out this theory:

The argument for using the mining cost as a focal point for a potential low following a high is, Garner says, actually put forward by none other than Satoshi Nakamoto himself:

The price of any commodity tends to gravitate toward the production cost. If the price is below cost, then production slows down. If the price is above cost, profit can be made by generating and selling more.

Garner adds that Bitcoin miners are “natural sellers” who drive supply more than anyone else in the space, but their incentive to sell “vanishes” when the value of Bitcoin drops below the production cost, which is why Bitcoin stopped dropping when it did in December last year. Garner says that price isn’t bound by mining costs, they just happen to have followed them since 2015. We can’t then infer cause and effect – all we can do it note the correlation.

Where Do We Go from Here?

So where does this all leave us? Garner states that until recently not much had changed in terms of production cost, but that “Bitmain & friends aren’t fools” and the upcoming halving will effectively double the production cost. This, he says, is “priced into their bottom line by now”, meaning that they will now do all in their power to keep the Bitcoin price above $6,500. He also cites one of Filfil’s charts from earlier this year which suggests that the $6,500 floor will remain intact and a period of accumulation will take place until early 2020 when Bitcoin will enjoy another parabolic run, taking out all time highs around the time of the halving in May.

Predicting the Unpredictable

Filfil’s theory is a powerful one, and has some strong data to back it up. However, it has to be remembered that past performance is not indicative of future results and Bitcoin has been a different entity from bull run to bull run. Futures speculators have never had as much control over Bitcoin as they do now, so what we may end up seeing is a titanic battle between Wall Street and Chinese miners with a much longer accumulation time and more unpredictable behaviour once it is over.