Bitcoin seems to have regained some beautiful colors a few weeks ago. Indeed, since July 15, 2018 the Bitcoin went from 6300 $ to 8200 $ on July 30, 2018 suggesting a bullish scenario. These past few days, it's been holding steady at around $6,500. Many investors wonder what the bottom line of Bitcoin could be in a strong bearish scenario. In other words, would there be a low limit value that the Bitcoin cannot cross?
The cost of electricity extraction
We could try to answer part of the question by analyzing the electricity cost of extracting bitcoin. However, we know that this cost varies considerably from one country to another depending on the price of electricity in each country. Electricity seems to be an important variable in our case. Indeed, we consider that the acquisition cost of the equipment is identical whatever the country considered (the price of ASIC machines being identical from one country to another because those machines are in the hands of a few manufacturers who fix their price in dollars on a world scale). The cost of equipment acquisition is excluded here because the weight of equipment depreciation varies from one minor to another. Also, is not taken into account depreciation and/or costs related to the replacement of defective equipment which should be analyzed on a case-by-case basis.
Looking at the figures above, the cost of extracting bitcoin vary considerably from one country to another: $26 170 for South Korea (i.e. 3.75 times the current value) while extraction cost is only $531 for Venezuela (13 times lower than the current price). The average cost of electricity for all these countries is about $4500. This average does not take into account the weight of each country in global bitcoin extraction. Koreans, for example, are big miners (which seems paradoxical when one considers their extraction costs). Thus, the weighted average is certainly above $4500. Around $5900 which was the lowest value this year on June 28th? Is this value even higher than the current bitcoin price? We can't know exactly.
However, having consider the marginal cost of electricity for extracting Bitcoin, it seems highly unlikely that the Bitcoin price would fall below $4500 in a strong bearish scenario.
Your comments are welcome!