Bitcoin mining hashrate, a measure of computing power on the network, is likely to drop dramatically after a year if rewards are halved.
Approximately every four years, the reward for successfully mining a Bitcoin block is cut in half. This event, known as the halving, will reduce inflationary pressure on Bitcoin. Currently, the reward is 6.25 BTC ($170,000) per block. April 2024 Reduced to 3.125 BTC ($85,000) per block.
Currently, listed miners are mining at a cost of $10,000 to $15,000 per bitcoin, according to Wolfie Chao, head of research at mining consultancy Blocksbridge. Once the halving is realized, these costs will double and the breakeven point for miners will be between $20,000 and $30,000.
“If bitcoin isn’t well above $30,000, a lot of it could be mining at a gross loss,” he said.
Wall Street giant JP Morgan has predicted that Bitcoin mining costs could rise to $40,000 after the halving.
If the cost of mining is this high, and without a significant rise in the Bitcoin price, only the most cost-effective miners will survive and others will be forced out of business.
“Energy costs and equipment efficiency will determine the winners and losers after the halving,” said Kelly Langre, chief strategy officer at Bitcoin mining firm Terrawolf (WULF).
Operators with higher production costs per bitcoin will have a harder time surviving the halving.according to Data compiled by ZhaoStronghold Digital Mining (SDIG), Cipher Mining (CIFR), and Riot Platforms (RIOT) had the lowest production costs per bitcoin in Q1, with Stronghold at $8,200, Cipher at $8,600, and Riot at $10,400.
Given that margins are likely to shrink, “mining companies are starting to strategize around capital conservation, fleet efficiency and diversification,” said Bill Papanastacio, an analyst at investment bank Steifel, in late May. wrote in a note of
Broadly speaking, the industry is focused on operational and machine efficiency, rather than simply providing as much hashrate online as is the case in the 2021 bull market.
If the hashrate “drops significantly” immediately after the halving, “there will be very slow growth for the next few months, as efficient machines will replace the older ones, and the machines will switch to the lowest cost operators.” You’ll see it,” said Chief Operating Officer Ethan Vera. At Luxor Technologies, a mining services company.
Furthermore, Papanastacio said investments in new machinery were “prudent” given the uncertainty of the mining economy next year. The mining business already has a high cost of capital compared to other industries, double that of the precious metals sector. According to Luxor Technologies analyst Jalan Mereld:.
Given the consistent rise in hashrate and difficulty (a measure of how easily a Bitcoin block is discovered by a miner) in recent months, despite the cryptocurrency bear market, investment The shortage may seem counterintuitive. Both key metrics of miner profitability continue to hit all-time highs throughout 2023.
However, the rise in hashrate may reflect economic conditions a few months ago. Hashrate growth largely reflects investments made in the past period, as mining facilities and equipment take months to develop.
Still, B. Reilly analyst Lucas Pipes said in an investor note that discussions about new developments will pick up in 2023. Investment in new buildings is subdued compared to 2021 levels, but the industry is doing better than it was in fall 2022, when the Bitcoin price was at a low of about $15,000.
Rising bitcoin prices and a significant drop in energy prices could make miners more profitable and not have to turn off their power after the halving. According to Bloomberg Intelligence and Matrixport. A halving could cause the price of Bitcoin to rise by up to 81%.
“Historically, BTC price appreciation has outpaced the impact of the halving. Only time will tell what will happen in this cycle,” Langre said.
