Bitcoin Halving: Boom or Bust for Miners?

In a recent report by David Pan for Bloomberg News, the upcoming “Halving” event for Bitcoin, a significant occurrence that happens every four years, is causing concern among some Bitcoin miners. The event, which reduces the amount of Bitcoin miners can earn for validating transactions by half, has historically led to substantial increases in Bitcoin’s price. However, this time around, the event could potentially spell trouble for less efficient mining operations.

The Halving, predicted to occur on 26 April 2024, will decrease miners’ rewards to 3.125 Bitcoin per block, down from the current 6.25. According to a report by Bloomberg News published on 8 July 2023, while this scarcity is seen as a long-term value maintainer for Bitcoin, the upcoming Halving could prove challenging for miners with higher operating costs. Jaran Mellerud, a crypto-mining analyst at Hashrate Index, predicts that nearly half of the miners could suffer due to less efficient mining operations.

The break-even electricity price for the most common mining machine is expected to drop to six cents per kilowatt-hour from 12 cents/kWh after the Halving. Mellerud noted that around 40% of miners still have higher operating costs per kWh, and those with costs above 8 cents per kilowatt-hour could struggle to stay afloat.

Wolfie Zhao, head of research at TheMinerMag, told Bloomberg that the total cost for certain miners is well above Bitcoin’s current price, and net profits could turn negative for many miners with less efficient operations. This comes at a time when Bitcoin’s price is still less than half the record of almost $69,000 reached in late 2021, and miners’ production costs have risen in tandem with electricity prices.

The Bloomberg report also pointed out that the global mining industry has between $4.5 billion to $6 billion in debt, down from $8 billion in 2022. This debt, coupled with rising competition among Bitcoin miners and increasing electricity costs, is apparently creating a challenging environment for miners.

In preparation for the Halving, Bloomberg says that Bitcoin miners are taking measures such as locking in power prices, bolstering war chests, and cutting back on investments. For example, Hut 8 Mining Corp. entered into a $50 million credit facility last month with a unit of Coinbase Global Inc. to help preserve its Bitcoin treasury ahead of the Halving.

Despite these measures, the Halving is expected to double Bitcoin’s production cost to about $40,000, according to JPMorgan Chase & Co. strategists. This could potentially drive many miners out of the market, highlighting the high-risk nature of the Bitcoin mining industry.

Featured Image Credit: Photo / illustration by MichaelWuensch via Pixabay

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