With the next Bitcoin (BTC) halving scheduled for April 2024, miner profits could slip into the red, Bloomberg reports. report July 8th.
Every four years, Bitcoin mining rewards are cut in half. This event is known as the Bitcoin Halving. Investors welcomed the event as historically, Bitcoin halvings have always been followed by massive bull markets. In 2012, 2016 and 2020, the price of BTC increased by 8,450%, 290% and 560% in one year after the halving event.
The upcoming halving will reduce the mining reward from the current 6.25 BTC to 3.125 BTC. Until now, BTC miners have compensated for the mining reward loss with each halving by increasing efficiency through technological advancements.
Rising BTC prices also work in favor of miners, who may sell their holdings for large profits. But the report said the situation will be more difficult next year as miners deal with rising electricity bills and debt burdens.
Less efficiency, less profit
Hashrate Index cryptocurrency mining analyst Jalan Mereld told Bloomberg that almost half of Bitcoin miners are less than optimally efficient in their mining operations. Therefore, these miners are likely to struggle after the next halving.
Mereld said the break-even electricity price for the most common mining machines is expected to drop from $0.12/kWh to $0.06/kWh after the halving. However, about 40% of BTC miners operate at a cost higher than $0.06 per kWh, he said.
Therefore, miners whose operating costs exceed $0.08/kWh or who do not own mining rigs are likely to be significantly affected by the halving, Mereld added.
Wolfie Zhao, Head of Research at TheMinerMag, the research arm of mining consultancy BlocksBridge, said:
“All things considered, the total cost of any given miner is well above the current price of Bitcoin.
Net profit will be negative for many miners with low operating efficiency. “
What’s more, many of the biggest mining companies are still trying to reduce their debt, which is squeezing profits. Luxor Technologies COO Ethan Vera estimates that global mining debt has fallen from $8 billion in 2022 to around $4.5 billion to $6 billion today.
Additionally, mining difficulty hit a record high in June, indicating that miners are becoming more competitive. As a result, miner profit margins are declining. Foundry senior vice president Kevin Chan said the price of BTC would need to rise from $50,000 to $60,000 next year for miners to maintain the same profit margins.
you may not be ready
Q1 2023, 14 listed miners spent between $7,200 and $18,900 mining 1 BTC, data from TheMinerMag show. A Bloomberg report, citing JP Morgan estimates, noted that the BTC halving is expected to double mining costs to around $40,000.
Zhang said miners are preparing for the halving by “becoming more sophisticated with their power costs and securing prices from power companies in advance.”
BTC miner Lotta Yotta CEO Tiffany Wang said all miners need to prepare for the halving, but “many will eventually be forced out of the market.” Stated.