Bitcoin (BTC) halving, the most anticipated quadrennial event in the cryptocurrency space with potential to drive the maiden digital currency price to new heights. However, it could pose more troubles to Bitcoin miners than the previous ones.
As per experts, Bitcoin miners would face more challenges in the upcoming halving, given the high electricity costs and debt burden.
“Nearly half of the miners will suffer given they have less efficient mining operations with higher costs,” Jaran Mellerud, crypto-mining analyst at Hashrate Index, told Bloomberg.
Every once in four years, the reward for successfully mining a Bitcoin block is cut in half. The event, dubbed halving, reduces inflationary pressure on the asset.
Currently, the rewards per block are 6.25BTC ($188,944 at press time), and next halving in the second quarter of 2024 will further reduce it to 3.125BTC ($94472 at press time) per block.
Bitcoin halvings in the past have been followed by major bull runs, the latest was in 2020 with a 560% surge in the price of the world’s biggest cryptocurrency. As a result, many investors welcome the event.
So far, Bitcoin miners have been making up the loss of mining rewards following the halving, by technological advancements that have improved the mining efficiency.
The report noted that the upcoming halving “risks sounding the death knell” for certain miners.
According to Mellerud, the break-even electricity cost for primary mining machine is predicted to drop from 12 cents/kWh to 6 cents/kWh after the halving. Even though, 40% of miners have operating costs exceeding the threshold.
“Miners with operating costs above 8 cents per kilowatt-hour will struggle to stay afloat, as will smaller miners that don’t run their own mining rigs but outsource them instead.”
Increase in Miners’ Production Costs
Wolfie Zhao, head of research at TheMinerMag, the research arm of mining consultancy BlocksBridge, said net profits will turn negative for many BTC miners with less efficient operations.
This is because the Bitcoin mining industry is operating in debt partly due to the 2022 bear market’s repercussions on electricity costs.
Per Ethan Vera, COO of Luxor Technologies, the global mining industry currently holds a debt ranging from $4.5 billion to $6 billion, down from $8 billion in 2022.
Additionally, rising competition among Bitcoin miners has contributed to reduced profit margins.
Kevin Zhang, senior VP at Foundry, noted that the price of BTC would have to increase to $50,000-$60,000 next year in order to maintain the same profit margins for miners.
Sustaining the Halving Season
Despite all these challenges, Bitcoin miners are preparing for the halving by “trying to be more sophisticated with their power costs and secure the pricing from their power providers in advance,” Zhang added.
Additionally, miners are implementing strategies such as locking in power prices, bolstering war chests and cutting back on investments, to protect themselves from getting affected by the halving.
For instance, Riot Platforms recently revealed its plans to expand mining capacity by acquiring 33,000 new Bitcoin miners, ahead of the halving.
By adding these miners, Riot Platforms aims to increase its mining capacity and potential profits, the company added.
Bitcoin (BTC) halving, the most anticipated quadrennial event in the cryptocurrency space with potential to drive the maiden digital currency price to new heights. However, it could pose more troubles to Bitcoin miners than the previous ones.
As per experts, Bitcoin miners would face more challenges in the upcoming halving, given the high electricity costs and debt burden.
“Nearly half of the miners will suffer given they have less efficient mining operations with higher costs,” Jaran Mellerud, crypto-mining analyst at Hashrate Index, told Bloomberg.
Every once in four years, the reward for successfully mining a Bitcoin block is cut in half. The event, dubbed halving, reduces inflationary pressure on the asset.
Currently, the rewards per block are 6.25BTC ($188,944 at press time), and next halving in the second quarter of 2024 will further reduce it to 3.125BTC ($94472 at press time) per block.
Bitcoin halvings in the past have been followed by major bull runs, the latest was in 2020 with a 560% surge in the price of the world’s biggest cryptocurrency. As a result, many investors welcome the event.
So far, Bitcoin miners have been making up the loss of mining rewards following the halving, by technological advancements that have improved the mining efficiency.
The report noted that the upcoming halving “risks sounding the death knell” for certain miners.
According to Mellerud, the break-even electricity cost for primary mining machine is predicted to drop from 12 cents/kWh to 6 cents/kWh after the halving. Even though, 40% of miners have operating costs exceeding the threshold.
“Miners with operating costs above 8 cents per kilowatt-hour will struggle to stay afloat, as will smaller miners that don’t run their own mining rigs but outsource them instead.”
Increase in Miners’ Production Costs
Wolfie Zhao, head of research at TheMinerMag, the research arm of mining consultancy BlocksBridge, said net profits will turn negative for many BTC miners with less efficient operations.
This is because the Bitcoin mining industry is operating in debt partly due to the 2022 bear market’s repercussions on electricity costs.
Per Ethan Vera, COO of Luxor Technologies, the global mining industry currently holds a debt ranging from $4.5 billion to $6 billion, down from $8 billion in 2022.
Additionally, rising competition among Bitcoin miners has contributed to reduced profit margins.
Kevin Zhang, senior VP at Foundry, noted that the price of BTC would have to increase to $50,000-$60,000 next year in order to maintain the same profit margins for miners.
Sustaining the Halving Season
Despite all these challenges, Bitcoin miners are preparing for the halving by “trying to be more sophisticated with their power costs and secure the pricing from their power providers in advance,” Zhang added.
Additionally, miners are implementing strategies such as locking in power prices, bolstering war chests and cutting back on investments, to protect themselves from getting affected by the halving.
For instance, Riot Platforms recently revealed its plans to expand mining capacity by acquiring 33,000 new Bitcoin miners, ahead of the halving.
By adding these miners, Riot Platforms aims to increase its mining capacity and potential profits, the company added.