The fourth halving in bitcoin history is just few days away, and traders are full of expectations for a potential skyrocket in price. But what about mining? Miners will still have costs, but their rewards will be halved. Will they even want to continue?
So far, the network's hashrate has dropped significantly after each halving. The first time by 25% (2012), then by only 11% (2016) and the last time again by 25% (2020). This year, however, a significantly different number is expected. According to the Hashrate Index, this year's decline could be in the range of 3-7%. The prediction is based on the current high price and high profitability of mining.
In addition, approximately 70% of the devices on the network are running since January 2022. At that time, the price of Bitcoin was significantly lower and conditions were tougher. The decline will be short-lived anyway. In previous cycles, it returned to its original values in an average of 57 days.
Of course, some miners will make a loss. This will cause their high costs and inefficiency of the equipment. Most of the industry today is still working with inefficient machines like the Antminer S19J Pro. This device needs an operating cost of $0.05/kWh to maintain a profit margin even after the halving. However, according to statistics, most miners in the United States operate at a cost of $0.08/kWh. This will likely lead to a massive modernization of mining facilities in the US. For example, the new Antminer S21 can mine 1 BTC after halving at a cost of around $22,000 USD even in the U.S.A.
Bitcoin mining is not the only possible source of income for miners. The low price of Bitcoin last year forced some companies to look for new sources of income. Of course, with the price rising again, this does not seem so necessary, but after the halving, ideas could come in handy again. For example, Hashlabs in Finland already practice this model well. They expanded their income by selling waste heat to the district heating system, profit from stabilizing the electricity grid and also selling electricity back to the market in a period of high spot prices. All this contributed to their stabilization and diversification of the risk of a loss of income.
Not all miners will go in the direction of increasing mining efficiency or income diversification. Surely someone will decide to go in the direction of cost reduction. In this case, electricity prices. Either by building your own power plant or by looking for low-cost locations. Today, 40% of mining takes place in the US, 15% in China and 12% in Russia. But the industry is also gradually looking at destinations in Africa, Latin America or Asia, where electricity is still very cheap . For example, Bitfarms is targeting Argentina and Paraguay, Bitdeer is expanding mining in Bhutan, and Marathon is entering the United Arab Emirates and Paraguay.
Ultimately, the actual impact of the halving on the price remains the question itself. While historically the event is always labeled as bullish , this year many analysts are not so sure. Rather than scarcity shock, they expect marketing- induced FOMO .
The main reason is the size of the reduction. At the halving in 2012, the reward dropped from 50 BTC to 25 BTC. Further in 2016 to 12.5 BTC and in 2020 to 6.25 BTC. It will currently be reduced to 3.125 BTC. So about three coins. Daily mining is currently around 900 BTC and after the halving we will reach around 450 BTC. Considering the current amount of Bitcoin on the exchanges and the daily spot ETF purchases , this is likely to create more of a shock than it is now. Still, the media can create a shopping frenzy with a sense of higher scarcity, and FOMO can work wonders. However, we will soon find out how it turned out in the end.
