Bitcoin Halving Results Might Be A Little Different This time around.

Jerry Vanover

Cypto enthusiasts are hopeful that a once-in-four-years event which rewrites the underlying code of the world’s biggest cryptocurrency will extend the current market rally. But the milestone also risks sounding the death knell for certain Bitcoin miners. The quadrennial event rather ominously dubbed “the Halving” or “Halvening,” has historically been followed by exponential surges in Bitcoin’s price. The last three occurrences in 2012, 2016 and 2020 saw the token jump nearly 8,450%, 290% and 560% a year on, Bloomberg data shows. Bitcoin was launched in 2009 by a computer programmer or group of programmers under the pseudonym Satoshi Nakamoto. Halvings — as the name suggests — slash in half the amount of Bitcoin each miner can earn for validating transactions on the digital asset’s blockchain using specialized, energy-intensive computers. The next halving, slated for April 2024, will cut miners’ rewards to 3.125 Bitcoin per block — or $94,438 — from the current 6.25 or $188,876. The scarcer supply is seen by crypto proponents as helping to maintain Bitcoin’s value in the long run, or at least until the maximum number of tokens that can ever be mined — 21 million — is reached around 2140. So far, miners have been able to make up for the loss in revenue when the rewards are cut thanks to the rallies in Bitcoin’s price after each halving, as well as technological advancements that have improved the efficiency of their mining rigs. But mining economics ahead of the next halving look more troubling than previous ones. “Nearly half of the miners will suffer given they have less efficient mining operations with higher costs,” predicts Jaran Mellerud, crypto-mining analyst at Hashrate Index. He points to the break-even electricity price of the most common mining machine, which is expected to drop to six cents per kilowatt-hour from 12 cents/kWh after the halving. Around 40% of miners still have higher operating costs per kWh than that, Mellerud said. Miners with operating costs above 8 cents per kilowatt-hour will struggle to stay afloat, as will smaller miners that don’t run their own mining rigs but outsource them instead, he said. “If you count in everything, the total cost for certain miners is well above Bitcoin’s current price,” added Wolfie Zhao, head of research at TheMinerMag, a research arm of mining consultancy BlocksBridge. “Net profits will turn negative for many miners with less efficient operations.” Bitcoin has rallied more than 80% this year to around $30,000, though the price is still less than half the record of almost $69,000 reached in late 2021. Meanwhile, miners’ production costs have risen in tandem with electricity prices, and debt burdens have become unsustainable for many of them.

The global mining industry has $4.5 billion to $6 billion in debt — down from $8 billion in 2022 — spanning senior debt, loans collateralized by mining rigs, and Bitcoin-backed loans, estimates Ethan Vera, chief operations officer at crypto-mining services firm Luxor Technologies. Outstanding loans for 12 major public mining companies such as Marathon Digital Holdings and Riot Platforms stood at around $2 billion at the end of the first quarter, down from $2.3 billion in the previous quarter, data compiled by Hashrate Index shows. The borrowing spate was partly driven by miners migrating to North America from China after the Communist nation’s domestic mining ban in late 2021. “One thing the miners didn’t have is access to the capital market,” said Zhao. “Debt financing is much more available in the US.” Rising competition among Bitcoin miners has also compressed profit margins. Mining difficulty, a measure of computing power to mine Bitcoin, hit a record high in June, data from btc.com shows. For miners to keep the same profit margins after the halving, Bitcoin’s price will have to rise to $50,000-$60,000 next year, said Kevin Zhang, senior vice president of mining strategy at crypto-mining firm Foundry, which is owned by industry heavyweight Digital Currency Group. And while miners enjoyed a brief respite earlier this year as Bitcoin’s price rebounded after a long crypto winter and electricity costs fell, power prices are climbing again. Texas, a major crypto hub, is already experiencing an early heat wave. Bitcoin miners are taking a number of measures to protect themselves ahead of the halving, such as locking in power prices, bolstering war chests and cutting back on investments. “Coming to the halving itself, miners are preparing by trying to be more sophisticated with their power costs and secure the pricing from their power providers in advance,” said Zhang. ChatGPT

Hey there, crypto enthusiasts! We’ve got some exciting news for you today. There’s this epic event that only happens once every four years, and it’s about to shake up the world of cryptocurrency. We’re talking about “the Halving” or “Halvening,” which sounds kinda ominous but has historically sparked crazy price surges for Bitcoin.

Now, let’s rewind a bit. Bitcoin, launched back in 2009 by the mysterious Satoshi Nakamoto, is the big daddy of cryptocurrencies. It’s been gaining popularity over the years, and the Halving event has played a significant role in its price history. So far, we’ve seen Bitcoin’s price jump by mind-blowing percentages after each Halving in 2012, 2016, and 2020. I’m talking about a whopping 8,450%, 290%, and 560% respectively, according to Bloomberg data.

But what exactly happens during a Halving? Well, it’s as straightforward as it sounds. The event cuts in half the amount of Bitcoin that miners can earn for validating transactions on the digital asset’s blockchain. These miners use super powerful computers and expend lots of energy to get the job done. So, after the next Halving scheduled for April 2024, miners’ rewards will be reduced to 3.125 Bitcoin per block, which is equivalent to around $94,438, down from the current 6.25 Bitcoin or $188,876.

Now, here’s where things get interesting. Crypto proponents believe that this reduction in supply will help maintain Bitcoin’s value in the long run. They think it’ll keep the price going strong until the maximum limit of 21 million tokens that can ever be mined is reached, which won’t happen until around 2140. In the past, miners managed to compensate for the reduced rewards by enjoying the surges in Bitcoin’s price after each Halving. They also made technological advancements that improved the efficiency of their mining rigs.

But here’s the twist. The economics of mining leading up to the next Halving look a tad more troubling compared to previous ones. Jaran Mellerud, a crypto-mining analyst at Hashrate Index, predicts that almost half of the miners will face challenges since they have less efficient operations and higher costs. You see, the break-even electricity price for the most common mining machine is expected to drop to six cents per kilowatt-hour after the Halving, down from 12 cents/kWh. Unfortunately, around 40% of miners still have operating costs higher than that. It’s gonna be tough for miners with costs above eight cents per kilowatt-hour to stay afloat. The same goes for smaller miners who outsource their mining rigs instead of running their own.

To make matters worse, Wolfie Zhao, head of research at TheMinerMag, warns that when you factor in everything, the total cost for certain miners is well above Bitcoin’s current price. Yikes! This means that net profits might turn negative for many miners with less efficient operations.

Now, let’s talk about Bitcoin’s recent rally. It’s been on fire, surging over 80% this year to around $30,000. However, we’re still a long way from the record high of almost $69,000 reached in late 2021. Meanwhile, miners are grappling with rising production costs, particularly electricity prices, and a heavy burden of debt. The global mining industry has around $4.5 billion to $6 billion in debt, which has decreased from $8 billion in 2022. It includes different types of debt, like senior debt, loans collateralized by mining rigs, and Bitcoin-backed loans.

In North America, where many miners migrated from China after the mining ban, outstanding loans for major public mining companies stood at around $2 billion at the end of the first quarter, according to data compiled by Hashrate Index. Debt financing has become more accessible for miners in the US, providing them with some relief.

On top of all this, the competition among Bitcoin miners has intensified, squeezing profit margins. Mining difficulty, a measure of computing power required to mine Bitcoin, hit a record high in June. To maintain the same profit margins after the Halving, Bitcoin’s price will need to rise to somewhere between $50,000 and $60,000 next year, according to Kevin Zhang, senior vice president of mining strategy at Foundry, a crypto-mining firm.

Phew, that’s a lot to take in, right? But don’t worry, miners are not sitting idly by. They’re taking several measures to protect themselves before the Halving arrives. Some are locking in power prices, others are building up their reserves, and many are cutting back on investments. They’re getting more sophisticated with their power costs and securing pricing from power providers in advance. It’s all about being prepared for what’s coming.

So, my friends, get ready for the Halving rollercoaster ride! It’s a time of excitement, uncertainty, and opportunity. Who knows what surprises await us? Just remember to stay informed, keep an eye on Bitcoin’s price movements, and cheer on those brave miners as they navigate these challenging times.