The next Bitcoin (BTC) halving, scheduled for April 2024, could plunge miners’ profits into the red, Bloomberg reported July 8.
Every four years, Bitcoin mining rewards are halved – this event is known as the Bitcoin halving. Historically, all Bitcoin halvings have been followed by major bull runs, so investors are applauding this event. In 2012, 2016, and 2020, the price of BTC surged 8,450%, 290%, and 560%, respectively, following the year-on-year halving events.
The upcoming halving will bring mining rewards down from the current 6.25 BTC to 3.125 BTC. So far, BTC miners have offset the loss of mining rewards after each halving by increasing their efficiency through technological advances.
The BTC price surge has also worked in favor of miners, who could sell their holdings for hefty profits. However, the report noted that things will get tougher over the next year as miners grapple with rising electricity costs and debt burdens.
Less efficiency, less profit
Jaran Mellerud, crypto mining analyst at Hashrate Index, told Bloomberg that nearly half of bitcoin miners do not have optimal efficiency in their mining operations. Therefore, these miners are likely to face problems after the next halving.
Mellerud said that after the halving, the break-even electricity price of the most common mining machine is expected to fall from $0.12/kWh to $0.06/kWh. However, he said that around 40% of BTC miners pay higher costs per kWh than $0.06/kWh.
Therefore, miners with operating costs above $0.08/kWh and those who do not own mining assets are likely to be drastically affected by the halving, Mellerud added.
Wolfie Zhao, head of research at TheMinerMag, the research arm of mining consultancy BlocksBridge, said:
“All things considered, the total cost for certain miners is well above the current price of bitcoin.
For many miners with less efficient operations, net profits will be negative.”
Additionally, many of the largest mining companies are still trying to deleverage, which is eating away at their profits. Global mining industry debt has fallen to around $4.5 billion to $6 billion from $8 billion in 2022, estimates Ethan Vera, COO at Luxor Technologies.
In addition, mining difficulty hit a record high in June, suggesting that mining equipment competition is increasing. As a result, miners’ profit margins are falling. Kevin Zhang, senior vice president at Foundry, said that for miners to maintain the same profit margins, BTC prices need to surge to $50,000-$60,000 over the next year.
The preparations may not be enough
In the first quarter of 2023, 14 listed miners spent between $7,200 and $18,900 to mine one BTC, data from TheMinerMag shows. The BTC halving is expected to double the cost of mining to around $40,000, the Bloomberg report said, citing estimates by JPMorgan.
According to Zhang, miners are preparing for the halving by “better estimating their electricity costs and securing prices in advance from their electricity providers.”
Tiffany Wang, CEO of BTC miner Lotta Yotta, noted that while all miners need to be prepared for the halving, “many miners will eventually be forced out of the market.”
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