Title: The Economics and Systemic Implications of Bitcoin: Cost, Scarcity, and the Institutional Race for Dominance
Authors: hon. Professors
Affiliation: Bitcoin Blockchain Nonce Global University
Conference: International Conference on Finance and Cryptocurrency 2025
Abstract
This paper explores the evolving economic model of Bitcoin (BTC), focusing on the rising cost of mining, institutional accumulation strategies, and the systemic risks posed by unsustainable transaction economics. With Bitcoin mining costs now surpassing $137,000 per coin, and institutional figures like Michael Saylor and U.S. politicians proposing massive acquisitions, the ecosystem is rapidly moving toward a supply shock and price instability. We analyze the economic viability of BTC at a projected $1,000,000 price point, the operational challenges facing miners, and the potential systemic risks including transaction gridlock and network centralization.
1. Introduction
Bitcoin (BTC) has evolved from a decentralized peer-to-peer payment system into a speculative asset and digital store of value. In recent months, a significant shift has occurred, with billionaires and governments signaling strategic accumulation of BTC. MicroStrategy co-founder Michael Saylor forecasts an institutional "domino effect," driving the price of BTC to $1 million per coin. Concurrently, U.S. Senator Cynthia Lummis has proposed the creation of a U.S. Strategic Bitcoin Reserve, with an aim to acquire 1,000,000 BTC. These developments occur amidst rapidly escalating mining costs, now averaging over $137,000 per BTC, thereby raising questions about Bitcoin's future role in global finance and as a medium of exchange.
2. Rising Cost of Bitcoin Mining
As of Q2 2025, data from CoinShares indicates that the average cost of mining a single BTC has surged to approximately $137,000. This reflects the all-in cost, including:
Hardware depreciation
Cooling and electricity costs
Operational and infrastructure expenses
Factors driving these costs include:
Increased network hash rate and difficulty
Higher energy prices
Geographic concentration of mining operations in regions with extreme weather
3. Market Price vs Mining Cost Disparity
Currently, the market price of BTC is approximately $95,000, which is significantly below the average mining cost. This discrepancy:
Reduces profitability or pushes miners into loss
Increases miner capitulation risk
Creates centralization pressures, as only large-scale or subsidized miners survive
4. Institutional Demand and Strategic Accumulation
Michael Saylor argues that a supply shock is imminent, as every billionaire will seek to acquire BTC in billion-dollar quantities. This hypothesis is supported by legislative moves:
U.S. Strategic Bitcoin Reserve Proposal: Senator Lummis suggests the acquisition of 1 million BTC for national reserve purposes.
Such moves could remove a significant portion of BTC from circulation, pushing the supply into long-term illiquidity.
5. Bitcoin Transaction and Block Metrics
Transaction Fee: As of 2025, average transaction fees vary from $5 to $50, depending on network congestion.
Transactions per Block: Bitcoin blocks typically contain 1,500 to 2,500 transactions.
Block Time: Approximately 10 minutes per block (target time, subject to variance).
Maximum Block Size: 1 MB, with SegWit effectively increasing usable block space.
6. Geographical Distribution of Mining Farms
Major BTC mining regions include:
United States (Texas, Georgia, Wyoming)
Kazakhstan
Russia (Irkutsk)
China (despite restrictions)
Iceland, Norway (renewable energy-driven)
El Salvador (volcanic geothermal energy)
7. Scenario Analysis: BTC at $1,000,000 vs Nonce Cost at $10,000,000
If the price of BTC reaches $1,000,000 and the nonce (block signature) cost rises to $10 million:
Implications:
Mining Becomes Unsustainable: Block rewards may not justify operational expenses.
Transaction Delays: If miners exit, fewer confirmations lead to massive transaction backlogs.
Liquidity Crisis: Reduced transaction throughput makes BTC less usable as a payment method.
Speculative Freeze: Investors may hoard BTC, reducing velocity of money within the network.
Risk of Abandonment: User exodus to more scalable chains (e.g., Ethereum, Solana, or Layer 2s).
8. Conclusion and Recommendations
Bitcoin is on the cusp of a historical inflection point. While institutional accumulation may drive short-term valuation gains, it introduces existential challenges related to mining economics and network operability. To prevent systemic breakdown:
Developers should prioritize scalability (e.g., Lightning Network expansion)
Protocol-level incentives must be reevaluated post-halving
Transaction fee markets must be optimized
Governments must assess BTC not just as an asset, but as part of digital monetary infrastructure
References
CoinShares. (2025). Bitcoin Mining Cost Analysis.
TechSpot. (2025). Bitcoin Mining No Longer Profitable for Most.
https://www.techspot.com/news/107732-bitcoin-mining-no-longer-profitable-most-costs-soar.html Saylor, M. (2025). Public Remarks and Institutional BTC Strategy. [Twitter/X Feed]
U.S. Senate. (2025). Strategic Bitcoin Reserve Act - Draft Proposal
Nakamoto, S. (2008). Bitcoin: A Peer-to-Peer Electronic Cash System.
Title: The Economics and Systemic Implications of Bitcoin: Cost, Scarcity, and the Institutional Race for Dominance