The next Bitcoin (BTC) halving, scheduled for April 2024, could plunge miner profits into the red, Bloomberg reported July 8.
Every four years, Bitcoin mining rewards are cut in half; this event is known as the Bitcoin halving. Historically, all Bitcoin halvings have been followed by large bull runs, so investors welcome the event. In 2012, 2016, and 2020, the price of BTC increased by 8,450%, 290%, and 560% in one year, after the halving events.
The upcoming halving will reduce the mining rewards from the current 6.25 BTC to 3,125 BTC. Until now, BTC miners have made up for the loss of mining rewards after each halving by increasing their efficiency with technological advances.
BTC price rises have also worked in favor of miners, who could sell their assets at a huge profit. However, the report noted that things will become more challenging next year as miners grapple with rising electricity costs and a debt burden.
Less efficiency, less profit
Jaran Mellerud, a crypto mining analyst at Hashrate Index, told Bloomberg that nearly half of Bitcoin miners have sub-optimal efficiency in their mining operations. So these miners are likely to have problems after the next halving.
Mellerud said the breakeven price of electricity for the most common mining machine is expected to fall from $0.12/kilowatt-hour to $0.06/kWh after the halving. However, he said that about 40% of BTC miners operate at a cost per kWh higher than $0.06/kWh.
Therefore, miners with operating costs above $0.08/kWh and those who do not own mining rigs are likely to be drastically affected by the halving, Mellerud added.
Wolfie Zhao, head of research at TheMinerMag, the research unit of mining consultancy BlocksBridge, said:
“If you count everything, the total cost for certain miners is well above the current price of Bitcoin.
Net earnings will turn negative for many miners with less efficient operations.”
Also, many of the biggest mining companies are still trying to reduce their debt, which is eating into their profits. The global mining industry’s debt has been reduced from $8 billion in 2022 to around $4.5 billion to $6 billion today, estimates Ethan Vera, chief operating officer at Luxor Technologies.
Additionally, mining difficulty hit a record high in June, indicating that mining competition is increasing. As a result, the profit margins of mining companies are declining. Kevin Zhang, a senior vice president at Foundry, said that BTC prices would need to rise to $50,000-$60,000 next year for miners to retain the same profit margins.
Preparations may not be enough
In the first quarter of 2023, 14 publicly traded 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 noted, citing JPMorgan estimates.
According to Zhang, miners are preparing for the halving by being “more sophisticated with their energy costs and securing the price from their energy providers up front.”
Tiffany Wang, CEO of BTC miner Lotta Yotta, noted that while all miners should be prepared for the halving, “many miners will eventually be forced out of the market.”
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