Crypto News

6 Ways the Halving Will Impact Bitcoin Mining

The hashrate of Bitcoin won’t decrease that much.

In contrast to what many people think, the network’s hashrate won’t probably drop significantly as a result of this halving. The hashrate of Bitcoin fell by 25%, 11%, and 25% during its previous three halvings; it seems that many analysts and miners are anticipating—or perhaps wishing for—a similar hashrate drop this time around.

Pennyether predicts that the upcoming Bitcoin halving will cause a small drop in hashrate, between 5 and 10%, and I agree with them. Additionally, this prognosis is not that dissimilar from the 3-7% Hashrate Index.

This cautious prediction is based on the fact that mining Bitcoin is currently very profitable due to its high price and that almost 70% of its hashrate was added since January 2022, operating under mining economics that at times were less favorable than those now anticipated post-halving.

It is also anticipated that the hashrate would rapidly recover from this minor decline. The network recovered its pre-halving hashrate levels in an average of 57 days during the last three halvings. This pattern emphasizes a crucial viewpoint: halvings should be seen as temporary breaks in the hashrate’s unstoppable upward trajectory rather than as occasions where the hashrate falls.

The ongoing efforts of miners to replace their outdated equipment with the newest and most effective models contribute to the hashrate’s resilience. It is expected that this approach would not only counteract any temporary drops in hashrate, but will also probably cause a large increase in hashrate in the upcoming months.

Essentially, the impending halving of Bitcoin is probably only going to be a small bump in the network’s hashrate trajectory, rather than a significant setback.

High-cost miners will be forced to upgrade fleets

The majority of the sector now uses rather inefficient devices, such as the Antminer S19J Pro, according to data from CoinMetrics. For these miners to continue to generate strong gross profit margins after halving, their operational costs must be $0.05/kWh or less.

However, the Hashrate Index indicates that the average hosting rate in the US is currently slightly under $0.08/kWh. This means that many miners in the US may experience cash flow issues following the halving, which may drive them to improve their fleets significantly.

The S21, T21, and S21 Pro, three new machines from Bitmain that have efficiency of less than 20 J/TH, are released right in time for the halving. Numerous hosting companies in the United States are pushing their clients to move from S19J Pro to S21 models as a result of this development. Considering the high hosting fees in the U.S., this push can be seen as a necessity rather than a choice

With their direct bitcoin production cost of $75,000, it is clear from the above figure that the S19J Pro models are unlikely to produce positive cash flow when hosted at $0.08 per kWh. Consequently, in order to stay profitable, miners that are suffering increased operating costs need to switch to more efficient gear, such the Antminer S21 or comparable models.

Even in high-cost settings, operations can continue by updating to the newest equipment, but this is rarely a sustainable long-term plan. The unviability of this strategy is highlighted by the need to replace hardware frequently before the initial costs are recovered.

My underlying point is very clear: your running costs are too high if you have to use the newest hardware to maintain a positive cash flow.

Miners will find creative ways to increase profits

Adam Smith himself would have been proud of the free and competitive nature of the bitcoin mining industry, which is one of the largest worldwide. This innate competitiveness encourages a never-ending search for innovation, particularly in trying times like the halving events. Miners are implementing some of the most creative tactics to make the best use of their current resources in reaction to the pressures imposed by the halving.

Underclocking is one such tactic, which lowers the electricity consumption of the equipment in an effort to save money and improve energy efficiency. This procedure, made possible by third-party software such as LuxOS, greatly increases machine efficiency, which is an essential adjustment in a setting with narrow profit margins. It’s conceivable that underclocking will become more popular.

Additionally, the search for increased profitability extends beyond operational tweaks to include novel revenue-generating approaches. A compelling example comes from Hashlabs in Finland, where we are undertaking a project taking advantage of several revenue streams to boost mining profitability.

In Finland, we have diversified our sources of income by selling our miners’ waste heat to a district heating system, collecting fees for helping to maintain grid stability, and reselling power to the market at times when spot prices are high. Our mining operation is becoming much more profitable thanks to these supplemental revenue streams.

The impending halving is expected to serve as a stimulant, encouraging miners all around the world to follow Hashlabs’ lead and investigate and employ innovative ways to increase their earnings.

Some miners will diversify away from mining

Many people are exploring new opportunities as a result of the intense competition that characterizes the current status of the mining industry, particularly public miners. AI computing is becoming more and more popular, with businesses like Iren and Hive Digital Technologies spearheading the trend.

Over the difficult upcoming months, it is anticipated that the movement for diversification will gain steam. However, the mining industry’s characteristics are cyclical. This trend of diversification is expected to reverse in 2025, according to predictions of a bull market. With the possibility for bitcoin’s value to rise, miners may abandon their diversification plans in favor of optimizing mining profits and return to the fray with renewed energy to mine every hash for value.

Bitcoin mining will become more geographically decentralized

At 40%, the US currently controls a significant share of the world hashrate; China and Russia are also significant contributors, at 15% and 20%, respectively. Nonetheless, the business is progressively moving toward a more internationally distributed model due to the never-ending search for cost-effectiveness, particularly lower electricity prices.

Many miners are looking into developing mining markets in Asia, Latin America, and Africa where electricity is quite affordable as they prepare for the impending halving. For instance, Bitfarms is growing in Paraguay and Argentina; Bitdeer is increasing its capacity in Bhutan; Marathon is expanding into Paraguay and the United Arab Emirates; and Hashlabs is providing hosting services in Ethiopia.

Hashrate migration is triggered by the upcoming halving event, which forces miners to go outside of developed countries in search of more affordable electricity sources. This shift towards a mining network that is more geographically decentralized is going to be extremely beneficial for Bitcoin. In addition to making Bitcoin mining less vulnerable to local regulatory risks and variations in electricity prices, a more equitable distribution of hashrate globally will also bring Bitcoin mining closer to the decentralized philosophy that forms the foundation of the cryptocurrency.

Little impact on the bitcoin price

Many are excitedly awaiting the upcoming half of Bitcoin as a possible catalyst for the next bull market. However, given that the current annualized issuance rate is already quite low at 1.6% and that about 94% of all Bitcoin is already in use, the expected supply shock from this halving is probably not going to have much of an effect on the price of bitcoin.

During the first halving, when the annualized issuance fell from 25% to 12.5%, and the second halving, when it decreased from 8.4% to 4.2%, the negative supply shocks had a significant impact. The drop from 1.6% to 0.8% in this impending halving, however, signifies a far less notable shift in comparison to the striking shifts seen in earlier cycles.

Please do not misinterpret my stance;I still foresee a bull market in the wake of this halving. However, the growing demand, and not the meager supply decline, will be the main factor fueling the price surge.

I appreciate Dylan LeClair’s characterization of the halving as a “global advertisement,” which implies that the heightened investor excitement and media attention it garners have a greater impact on the price of bitcoin than the actual reduction in supply. Because of the increased awareness, demand may increase and the halving may become a self-fulfilling prophecy of optimistic market mood.

This viewpoint is also consistent with observations made by Daniel Polotsky regarding the ongoing significance of the four-year cycle of bitcoin. Demand variations will always occur, but the effects of shifting supplies are getting progressively smaller.

Currently, the price of Bitcoin is largely determined by demand rather than supply, given the issuance rate has dropped to such a low level. Although the story around the halving is still a powerful motivator and is predicted to push bitcoin into a new bull market, its impact is probably going to fade over time. Because of this, it’s likely that bitcoin will eventually separate from the four-year cycle of halving.

Bring the halving on!

I have wonderful recollections of the 2020 halving. As the day of the block subsidy’s half-cut was drawing near, the mood within the Bitcoin community was electric with expectation. This historic moment created a tremendous wave of optimism that persisted into the summer of 2020, paving the way for the historic bull market of 2021. While I don’t think that this halving’s slight supply drop will dramatically change the price equilibrium of bitcoin, I am excited about the possibility that it could spark investor excitement and higher demand.

From a miner’s perspective, the halving offers an opportunity to reflect and develop within our operations, in addition to possibly sparking a market rally. It inspires us to try new things methodologies to reduce costs and enhance efficiency, ensuring our survival and success in this highly competitive field. The halving isn’t just a test of resilience but a catalyst for evolution within the mining community.

It is crucial to keep in mind the fundamental principles of Bitcoin as we anticipate the upcoming halving. The heart of Bitcoin beats for the hodlers, not the miners. Undoubtedly, miners are essential to the Bitcoin network’s upkeep and stability. The real essence of Bitcoin, however, is found in its capacity to empower users by offering a decentralized substitute for established banking institutions. The whole community of Bitcoin aficionados and investors is buzzing with excitement and anticipation for the halving, not just the miners.

So let’s welcome the halving with open arms and an innovative spirit as we get closer to this historic occasion. It serves as a reminder of Bitcoin’s ever-changing environment, evidence of its tenacity, and a beacon of the exciting developments yet to come. To all hodlers and miners alike, let’s gear up for the halving. Bring it on!

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