Mining analysts predicted that the next Bitcoin halving would increase the cost of mining one BTC to $40,000, effectively driving many miners out of the market.
According to a July 8 Bloomberg report, the subsequent Bitcoin (BTC) halving, scheduled for April 2024, could significantly reduce miner profits.
The mining rewards for Bitcoin are halved every four years; this is referred to as the Bitcoin event. Investors are happy about the event because historically, every time Bitcoin has been halved, there has been a significant bull run. BTC’s price rose 8,450%, 290%, and 560% in a year following the halving events in 2012, 2016, and 2020.
The mining rewards will be halved from the current 6.25 BTC to 3.125 BTC. BTC miners have up until now compensated for the loss of mining rewards after each halving by boosting their productivity with technological advancements.
The price increases for Bitcoin have also benefited miners, who were able to sell their holdings for sizable profits. The report did point out that as miners deal with rising electricity costs and debt loads in the upcoming year, conditions will reportedly get more difficult.
Less Efficiency, Less Profit
Nearly half of the Bitcoin miners are operating with less than ideal efficiency, according to Jaran Mellerud, a crypto mining analyst at Hashrate Index, who spoke with Bloomberg. After the subsequent halving, these miners will probably struggle.
Mellerud stated that after halving, the break-even electricity price of the most typical mining machine is anticipated to fall from $0.12/kilowatt-hour to $0.06/kWh. He claimed that 40% or so of BTC miners actually pay more per kWh than $0.06/kWh to run their machines.
The halving will therefore likely have a significant effect on miners whose operating costs are greater than $0.08/kWh and those who do not own mining rigs, according to Mellerud.
Wolfie Zhao, head of research at TheMinerMag, the research unit of mining consultancy BlocksBridge, said:
“If you add it all up, the total cost for some miners is much higher than the price of bitcoin right now.
For many miners operating inefficiently, net profits will decrease.”
Furthermore, a lot of the biggest mining companies are still working to pay down their debt, which is hurting their ability to make money. According to Ethan Vera, COO at Luxor Technologies, the global mining industry’s debt has decreased from $8 billion in 2022 to between $4.5 billion and $6 billion at the moment.
Also indicating increased miner competition is the fact that mining difficulty in June reached a record high. Profit margins for miners are consequently decreasing. According to Kevin Zhang, senior VP at Foundry, for miners to maintain the same profit margins in 2019, BTC prices would need to increase to $50,000–$60,000.
Preparations May Not Be Enough
According to data from TheMinerMag, 14 publicly-traded miners spent between $7,200 and $18,900 to mine one bitcoin in Q1 2023. According to estimates from JPMorgan cited in a Bloomberg report, the cost of mining is predicted to increase by a factor of two, to about $40,000.
According to Zhang, miners prepare for the halving by being “more sophisticated with their power costs and secure the pricing from their power providers in advance.”
Tiffany Wang, CEO of BTC miner Lotta Yotta, noted that while all miners need to be prepared for the halving, “a lot of miners will eventually be driven out of the market.”