The next Bitcoin halving, scheduled for April 2024, raises concerns about miners’ profits. According to mining analysts, this event is expected to double the cost of mining one BTC to $40,000, which could lead many miners to negative net profit.
Historically, Bitcoin halvings have been followed by significant increases in the BTC price. However, the combination of higher electricity costs, outstanding debt and declining mining efficiency pose significant challenges for miners in the coming year.
Miners face the challenge of higher electricity costs and outstanding debts.
The Bitcoin halving will reduce mining rewards from 6.25 BTC to 3,125 BTC. In the past, miners managed to make up for the loss of mining rewards by increasing their efficiency with technological advances. However, operating costs, particularly those related to electricity, are expected to rise after the halving. According to Jaran Mellerud, a cryptomining analyst at Hashrate Index, cthus half of Bitcoin miners operate below optimal efficiency. This means that those with operating costs above $0.08/kWh will be negatively affected by the halving. Furthermore, many mining companies still have outstanding debts eating into their profits, further complicating the situation.
Increased mining competition and reduced profit margins.
Bitcoin mining difficulty hit a record high in June, indicating an increase in competition. As a result, the profit margins of mining companies are shrinking. Kevin Zhang, Senior Vice President of Foundry, noted that BTC prices should rise to $50,000-$60,000 next year for miners to maintain the same profit margins. This indicates that the situation is becoming more and more challenging for miners as they have to face higher costs and tighter profit margins. Preparation and sophistication in managing costs and negotiating energy prices may not be enough to guarantee long-term profitability.
The expulsion of less efficient miners from the market.
According to JPMorgan estimates, the cost of mining Bitcoin is expected to double to around $40,000 after the halving. This could lead many miners to have negative net profit. Although miners are preparing for this scenario by being more sophisticated in cost management and securing the price from their energy providers in advance, Tiffany Wang, CEO of BTC miner Lotta Yotta, warns that many miners will eventually be forced out of the market. Those with less efficient operations and high operating costs will face significant difficulties in staying profitable in this new landscape.
The Bitcoin halving poses challenges for miners as it is expected to double the cost of mining one BTC. Miners with less efficient operations and higher operating costs will face an especially difficult situation, as their net profits could turn negative.
Although preparation and cost management can help in the short term, many miners could be forced out of the market due to these changes. The combination of higher electricity costs, outstanding debt, and tighter profit margins raises questions about the long-term viability of Bitcoin mining in a post-halving environment.