•  Analysts do not anticipate the hash rate to continue its rapid ascent following the halving unless there is a substantial rise in transaction fees.

• Jaran Mellerud from Hashrate Index has issued a cautionary statement, revealing that nearly 50% of Bitcoin miners operate with suboptimal efficiency. 

With the upcoming halving of Bitcoin scheduled for April 2024, which happens approximately every four years and reduces mining rewards by 50%, there is growing concern about the profitability of miners. Experts in the industry suggest that the outcome of this halving event will be a crucial indicator of miners’ ability to adapt to a rapidly changing landscape.

A recent report from JPMorgan’s Nikolaos Panigirtzoglou on July 13 highlights that miners with lower electricity expenses might be better positioned to handle the financial impact of the halving. In contrast, those with higher operational costs could face challenges in maintaining profitability.

The halving event has a noteworthy impact beyond regulating inflation and preserving the limited supply of Bitcoin. It also has a significant influence on the cost associated with producing Bitcoin. Additionally, JPMorgan analysts said,

“One cent per kWh [kilowatt-hour] change in the electricity cost induces a $4,300 change in the Bitcoin production cost.”

Analysts have observed a notable surge in Bitcoin’s total computing power, known as the hash rate, suggesting intensified competition among miners as the halving event approaches. However, these analysts do not anticipate the hash rate to continue its rapid ascent following the halving unless there is a substantial rise in transaction fees. Such an increase would need to compensate for the reduced mining rewards and surpass the production cost.

Preparing for the Halving

Historically, halving events have been accompanied by substantial price surges in Bitcoin, creating profitable opportunities for miners. Specifically, post-halving price increases in 2012, 2016, and 2020 reached remarkable percentages of 8,450%, 290%, and 560% respectively. Nonetheless, Bloomberg cautions that the upcoming event could plunge miners into financial losses.

Transitioning to the present situation, it is crucial to acknowledge that the rules of the game are shifting. Miners are currently grappling with mounting electricity expenses and an increasing debt burden. The challenge lies in finding the right balance between these rising operational costs and the pursuit of efficiency and technological advancements, which have, up until now, mitigated the impact of reduced mining rewards.

Jaran Mellerud from Hashrate Index has issued a cautionary statement, revealing that nearly 50% of Bitcoin miners operate with suboptimal efficiency. This makes them particularly susceptible to the impending halving event. These miners are expected to experience a significant drop in the break-even electricity price, plunging from $0.12 per kilowatt-hour to $0.06/kWh.

Furthermore, mounting debt burdens and intensified competition among miners—indicated by the record-high mining difficulty in June—pose a significant threat to miner profit margins. To sustain their current levels of profitability, Kevin Zhang from Foundry estimates that Bitcoin prices would need to soar from $50,000 to $60,000 next year.

As Bitcoin miners strive to maintain financial stability, the upcoming halving event will separate the successful from the struggling. Those who effectively manage their power costs and secure favorable pricing agreements with power providers in advance may emerge relatively unscathed.