Bitcoin’s 4th halving event is scheduled to occur on April 22 at event block height 840,000. As each block, containing executed transactions, is mined, it is stamped with a block height, noting how many blocks were generated before the latest one.
In this way, block heights create a chronologically ordered digital ledger, lending Bitcoin its cloak of decentralized transparency and security against double spending. It also makes it instrumental in enforcing the embedded halving logic on the entire Bitcoin network, which occurs every 210,000 blocks.
Bitcoin halving is there as an algorithmic monetary policy. Unlike arbitrary central banking, halving predictably controls the inflow (inflation) of new bitcoins by cutting miner BTC rewards in half. The very first Genesis block in 2009 delivered 50 BTC to miners. After the fourth halving, miners will receive 3,125 BTC per block mined.
The stark difference in these rewards translates to Bitcoin’s inflation rate. From over 1,000% to current 1.7%, Bitcoin’s inflation rate will be cut in half again. And as less BTC is available in the supply, each Bitcoin becomes more valuable.
Still, Bitcoin halvings are just one of many factors that affect BTC price. One of the most serious halving impacts revolves around Bitcoin mining profitability. If BTC rewards get this low, will it force BTC sales from struggling mining companies? And if so, won’t the selling pressure depress BTC price?
Understandthe halving and its impact on miners
To understand the importance of something, it is best to imagine its absence. In the case of Bitcoin halving, its absence would mean that all 21 million BTC would have been available immediately upon the launch of the Bitcoin mainnet.
Conversely, this will greatly reduce BTC scarcity, especially given the initial unproven, new proof of concept as a digital asset. After three halvings, Bitcoin scarcity has proven a successful foil against fiat currency debacle as central banks tinker with their respective money supplies. In other words, halvings have expanded the Bitcoin supply and demand dynamic, allowing adoption to unfold.
And as Bitcoin adoption increased, the Bitcoin mining network became more secure. This is because more Bitcoin miners increase Bitcoin mining difficulty, which is automatically adjusted every two weeks. After shifting the supply and demand dynamic, Bitcoin halvings typically result in multiple pre- and post-halving profits.
Likewise, the real purpose of Bitcoin mining problems is to regulate the rate at which new transaction blocks are added to the network (~10 min), after every 2016 blocks. Without this mechanism, Bitcoin mainnet would be less secure because miners could be discouraged from participating.
With the Bitcoin mining problems, their profitability is automatically fixed. If too many miners disconnect, the difficulty decreases, making it more profitable to mine regardless of the cut rewards. If more miners are on board the network, the difficulties increase, making it less profitable to secure the network (its computing power expressed in hash rate).
However, this is offset by BTC price rising over time, due to its supply scarcity. When BTC mining rewards are cut in half, miners suffer a profitability hit. If the mining problems are not reduced, they must increase their cost efficiency by reinvesting in operations upgrades. Consequently, these mining cycles are called periods of accumulation and capitulation.
In the end, Bitcoin miners need to think ahead carefully. Without overstretching themselves in the expansion/debt department, they are relying on BTC price growth to carry them through the halvings.
Challenges for Bitcoin Miners Post-2024 Halving
As of March 26, the total hash rate of the Bitcoin network is 614.6 million TH/s, or 614.6 EH/s. Bitcoin miner income is per TH/s $0.10. To put this into context, Bitmain’s latest mining rig, Antminer S21, priced around $4,500, delivers a hash rate of 188 TH/s while consuming 3,500 Watts of electricity.
Some machines are even more powerful and expensive, such as the Antminer S21 Hyd 335T. Against the cost of these machines, miners themselves have to account for electricity costs, cooling, maintenance, debt interest payments and the cost of facilities. The companies that cannot perform this balancing act will go bankrupt, as has happened Nuclear scientist in 2022.
For individuals using regular computers and laptops, Bitcoin mining has long ceased to be profitable. They will need to invest in specialized ASIC machines to counter the rising Bitcoin mining difficulties and the subsequent increase in energy costs. The USG, which depends on central banking and currency devaluation, is well aware of this fact.
In late January, the Energy Information Administration (EIA) began investigating how to cripple miners’ operations. By request mandatory survey data about their energy consumption, EIA would then transfer findings to the Department of Energy (DOE) to introduce restrictive policies.
Due to the swift legal action of Texas Blockchain Council (TBC) and Riot, this action has been stopped as of March 2 submission.
Technological advances and efficiency improvements
Bitcoin’s proof-of-work is the critical component of BTC value. This enables a digital asset to be anchored in physical reality via energy consumption and hardware assets. Otherwise, a multitude of cryptocurrencies can be created at low cost, introducing noise into their valuation.
But just as energy consumption is Bitcoin’s strength, it is also its weakness from a political point of view. For example, Elon Musk revoked Bitcoin payment from Tesla in May 2021, causing a huge crash. Since those days, Bitcoin mining has gone green, after it pulled 54.5% of energy from sustainable sources.
In addition to using regenerative hydropower, like Norwegian Kryptovault, Bitcoin miners can put excess heat to good use. For example, Kryptovault funnels this hot air to dry cut logs for the lumber industry. Many smaller mining operations have taken this approach to heating their homes.
Heat an entire house with #bitcoin mining pic.twitter.com/470jJ7PSGW
— Documenting ₿itcoin 📄 (@DocumentingBTC) December 28, 2022
Other miners, such as Crusoe Energy Systems, have connected their operations to oil and natural wells and used the excess gas instead of wastefully flaring it. On a larger scale, Bitcoin miners even help balance the electrical grid, as noted by now-deceased ERCOT CEO Brad Jones.
The #bitcoin energy debate is over.
Head of Texas Electric Grid Brad Jones explains, “#Bitcoin mining helps balance our grid and drives more renewable energy into our system” pic.twitter.com/kGYwAkOVv8
— Documenting ₿itcoin 📄 (@DocumentingBTC) March 5, 2023
On the high end, Bitcoin miners are turning to the densest and greenest form of energy – nuclear power. TeraWulf has its construction from the beginning Nautilus Cryptomine facility as the first nuclear Bitcoin mining operation. TeraWulf wants to become the most cost-effective miner in the world at 2 cents per KW/h.
Within the next halving cycle, much is expected of it hydrogen infrastructure as the next best solution to nuclear power. However, the most common path to cost efficiency remains the pooling of resources mining pools.
What to expect in the post-halving landscape
Bitcoin serves as a currency debasing foil, and also provides an out for miners. They buy time with debt to upgrade, hoping to boost the BTC price to repay that debt in the future. The problem is that only the prepared miners, with the updated gear and favorable energy costs, will survive.
After all, they are the ones who will keep the Bitcoin mining difficulties elevated. Those who cannot compete will leave the network, making the job easier for competitors as network problems are automatically adjusted. According to Luxor’s base case, in the scenario of BTC price staying within the $66k – $66k range, 3% Bitcoin miners may leave the network.
Further, Luxor projects Bitcoin is struggling to reach 725 EH/s by the end of the year. This will level the hash price post-halving at $53/PH/day, which is consistent with the flat cache hash price projection.
Currently, the breakeven hash price stands at $37.20/PH/day, not accounting for firmware upgrades. Other companies, such as Blockware solutionsexpect hashrate to reach ~670 EH/s by the end of the year, benchmarking the 2020 halving when the hashrate has increased by 30% by the end of the year.
With this in mind, Bitcoin miners should plan for long-term scalability, like TerraWulf’s investment in nuclear power. In the meantime, to hedge against uncertainty, miners can take advantage Bitcoin derivative products.
There are currently several trading platforms that offer exchange-traded futures as the mechanism to forward their mining productivity. Just like in traditional commodity markets, miners can use this strategy to hedge against BTC price fluctuations.
And with recurring revenue streams, the rise in operating costs can be reduced. Likewise, Bitcoin mining companies can diversify and offer cloud mining services with enhanced cloud security.
Closure
Considering all its elements, Bitcoin is a marvel of both software engineering and economic theory. It turns out that it is possible to implement monetary policy and incentives without resorting to direct centralized tampering.
Bitcoin miners play a key role in this digital legislation. Although they must resort to the Darwinian game of survival of the fittest, the unknowns are less common. With three halves behind, data for projections is there to take advantage of.
The only question remains, which Bitcoin miners have aligned their financial modeling with the worst bear case?
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While we love diving into the exciting world of crypto here at Uncirculars, remember that this post, and all our content, is purely for your information and exploration. Think of it as your crypto compass, pointing you in the right direction to do your own research and make informed decisions.
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