6 Ways the Halving Will Impact Bitcoin Mining

Contrary
to
popular
belief,
this
halving
will
likely
not
cause
a
major
decrease
in
the
network’s
hashrate.
After
Bitcoin’s
first
three
halvings,
the
hashrate
plummeted
by
25%,
11%,
and
25%,
and
it
appears
many
analysts
and
miners
are
expecting
(or
hoping
for?)
a
similar
hashrate
reduction
this
time.

I
concur
with

Pennyether’s
prediction
that
the
forthcoming
Bitcoin
halving
is
expected
to
result
in
a
modest
decrease
in
the
hashrate,
ranging
from
5
to
10%.
This
prediction
is
also
not
far
from
that
of

Hashrate
Index,
which
sits
at
3-7%.

This
cautious
forecast
stems
from
the
present
high
profitability
of
Bitcoin
mining,
driven
by
its
high
price,
and
the
observation
that
approximately
70%
of
Bitcoin’s
hashrate
was
introduced
since
January
2022,
operating
under
mining
economics
that
at
times
were
less
favorable
than
those
now
anticipated
post-halving.

Additionally,
the
hashrate
is
expected
to
quickly
bounce
back
from
this
slight
dip.
In
the
past
three
halvings,
the
network
recovered
its
pre-halving
hashrate
levels
within
an
average
of
57
days.
This
trend
highlights
an
important
perspective:

halvings
should
not
be
viewed
as
events
that
lower
the
hashrate,
but
rather
as
brief
pauses
in
the
hashrate’s
relentless
upward
trajectory.

The
hashrate’s
robustness
is
further
enhanced
by
the
continuous
efforts
of
miners
to
update
their
equipment
with
the
newest
and
most
efficient
models.
This
strategy
is
anticipated
not
just
to
offset
any
short-term
reductions
in
hashrate,
but
is
also
likely
to
lead
to
a
significant
uptick
in
hashrate
in
the
forthcoming
months.

In
essence,
the
upcoming
Bitcoin
halving
is
likely
to
be
a
brief
hiccup
in
the
network’s
hashrate
trajectory,
rather
than
a
significant
setback.

Data
from

CoinMetrics
highlights
that
most
of
the
industry
currently
operates
with
relatively
inefficient
machines
like
the
Antminer
S19J
Pro.
These
miners
require
an
operating
cost
of
$0.05/kWh
or
lower
to
maintain
healthy
gross
profit
margins
post-halving.

However,
with
the
average
hosting
rate
in
the
United
States
sitting
just
below
$0.08/kWh,
as
indicated
by

Hashrate
Index,
many
U.S.-based
miners
could
face
cash
flow
challenges
after
the
halving
and
thus
be
forced
to
undertake
massive
fleet
upgrades.

Bitmain’s
launch
of
its
new
machines,
including
the
S21,
T21,
and
S21
Pro
—
each
boasting
efficiencies
below
20
J/TH
—
arrives
just
in
time
for
the
halving.
This
development
is
prompting
many
U.S.-based
hosting
providers
to
push
their
customers
to
switch
from
S19J
Pro
to
S21
models.
Given
the
high
hosting
fees
in
the
U.S.,
this
push
can
be
seen
as
a
necessity
rather
than
a
choice.

Referring
to
the
chart
above,
it’s
evident
that
the
S19J
Pro
models
are
unlikely
to
generate
positive
cash
flow
when
hosted
at
$0.08
per
kWh,
considering
their
direct
bitcoin
production
cost
stands
at
$75,000.
Thus,
miners
facing
higher
operational
expenses
must
transition
to
more
efficient
hardware,
such
as
the
Antminer
S21
or
similar
models,
to
maintain
profitability.

While
upgrading
to
the
latest
machines
allows
operations
to
continue
even
in
high-cost
environments,
it’s
hardly
a
viable
long-term
strategy.
The
necessity
to
constantly
update
hardware,
often
before
the
previous
investments
are
recouped,
underscores
the
unsustainability
of
such
an
approach.

My
underlying
message
is
clear:
if
you
need
to
use
the
latest-generation
hardware
to
stay
cash
flow
positive,
your
operating
costs
are
too
high.

Bitcoin
mining
is
one
of
the
most
free
and
competitive
markets
globally,
a
market
that
Adam
Smith
himself
would
admire.
This
inherent
competitiveness
fuels
a
relentless
pursuit
of
innovation,
especially
during
challenging
periods
such
as
the
halving
events.
In
response
to
the
pressures
exerted
by
the
halving,
miners
are
adopting
some
of
the
most
inventive
strategies
to
maximize
the
utility
of
their
existing
resources.

One
such
strategy
is
underclocking,
a
process
in
which
the
machines’
electricity
consumption
is
reduced
to
increase
the
energy
efficiency
and
reduce
costs.
This
process,
which
can
be
facilitated
by
third-party
firmware
like

LuxOS,
significantly
improves
machine
efficiency
—
a
critical
adaptation
in
an
environment
where
margins
are
thin.
The
movement
towards
underclocking
is
likely
to
gain
momentum.

Moreover,
the
quest
for
increased
profitability
extends
beyond
operational
tweaks
to
include
novel
revenue-generating
approaches.
A
compelling
example
comes
from

Hashlabs
in
Finland,
where
we
are
undertaking
a
project
taking
advantage
of
several
revenue
streams
to
boost
mining
profitability.

In
Finland,
we
have
diversified
our
income
streams
to
include
selling
waste
heat
from
our
miners
to
a
district
heating
system,
earning
fees
for
contributing
to
the
stabilization
of
the
electric
grid,
and
strategically
selling
electricity
back
to
the
market
during
periods
of
high
spot
prices.
These
ancillary
revenue
channels
are
significantly
bolstering
the
profitability
of
our
mining
operation.

The
upcoming
halving
is
set
to
act
as
a
catalyst,
driving
miners
worldwide
to
emulate
Hashlabs
by
exploring
and
implementing
creative
strategies
to
augment
their
profits.

The
fierce
competitiveness
that
defines
the
current
state
of
the
mining
industry
is
prompting
many,
especially
public
miners,
to
explore
new
horizons.
Increasingly,
there’s
a
move
towards
AI
computing,
with
companies
like
Iren
and
Hive
Digital
Technologies
leading
the
charge.

The
trend
towards
diversification
is
expected
to
pick
up
momentum
over
the
challenging
coming
months.
Yet,
the
dynamics
of
the
mining
industry
are
cyclic.
Predictions
for
a
bull
market
in
2025
portend
a
reversal
of
this
diversification
trend.
As
the
value
of
bitcoin
potentially
climbs,
miners
may
set
aside
their
diversification
strategies
in
favor
of
maximizing
returns
from
mining,
diving
back
into
the
fray
with
renewed
vigor
on
extracting
value
from
every
hash.

This
shift
between
diversification
and
focused
mining
reflects
the
broader
ebbs
and
flows
of
the
market.
Miners’
strategies
evolve
with
the
market,
balancing
between
seizing
immediate
opportunities
in
new
industries
and
preparing
for
the
next
upsurge
in
bitcoin
mining
profitability.

Currently,
the
United
States
commands
a
substantial
portion
of
the
global
hashrate,
accounting
for
40%,
while
China
and
Russia
are
also
key
players,
contributing
15%
and
20%,
respectively.
However,
the
industry
is
gradually
shifting
towards
a
more
globally
dispersed
model,
driven
by
the
perpetual
quest
for
cost
efficiencies,
especially
cheaper
electricity.

As
miners
brace
for
the
upcoming
halving,
many
are
exploring
emerging
mining
markets
across
Africa,
Latin
America,
and
Asia
where
electricity
is
exceptionally
cheap.
For
instance,
Bitfarms
is
making
strides
in
Argentina
and
Paraguay;
Bitdeer
is
expanding
its
capacity
in
Bhutan;
Marathon
is
entering
the
United
Arab
Emirates
and
Paraguay;
and

Hashlabs
is
offering
hosting
solutions
in
Ethiopia.

The
impending
halving
event
acts
as
a
catalyst
for
hashrate
migration,
compelling
miners
to
venture
beyond
developed
nations
to
secure
more
economical
electricity
sources.
This
move
towards
a
more
geographically
decentralized
mining
network
is
poised
to
have
a
profound
positive
impact
on
Bitcoin.
By
distributing
the
hashrate
more
evenly
across
the
globe,
Bitcoin
mining
will
not
only
become
less
susceptible
to
regional
regulatory
risks
and
power
cost
fluctuations
but
also
align
more
closely
with
the
decentralized
ethos
that
underpins
Bitcoin
itself.

The
forthcoming
Bitcoin
halving
is
eagerly
awaited
as
a
potential
trigger
for
the
next
bull
market.
Yet,
considering
the
current
annualized
issuance
rate
sits
at
an
already
meager
level
of
1.6%,
and
with
nearly
94%
of
all
Bitcoin
already
in
circulation,
the
anticipated
supply
shock
from
this
halving
is
likely
to
have
a
minimal
impact
on
the
bitcoin
price.

The
impact
of
the
negative
supply
shocks
in
earlier
halvings
was
profound,
especially
during
the
first
halving
when
the
annualized
issuance
plummeted
from
25%
to
12.5%,
and
the
second
when
it
dropped
from
8.4%
to
4.2%.
However,
in
this
upcoming
halving,
the
decrease
from
1.6%
to
0.8%
represents
a
much
less
significant
shift
compared
to
the
dramatic
changes
observed
in
previous
cycles.

Don’t
misunderstand
my
position;
I
still
foresee
a
bull
market
in
the
wake
of
this
halving.
However,
the
growing
demand,
and
not
the
meager
supply
decline,
will
be
the
main
factor
fueling
the
price
surge.

I
like

Dylan
LeClair’s
analogy
of
the
halving
as
a
“global
advertisement,”
suggesting
that
its
principal
effect
on
bitcoin’s
price
is
not
so
much
the
immediate
result
of
decreased
supply
but
rather
the
increased
media
attention
and
investor
enthusiasm
it
generates.
This
heightened
awareness
could
stimulate
demand,
turning
the
halving
into
a
self-fulfilling
prophecy
of
bullish
market
sentiment.

This
perspective
also
aligns
with
insights
from

Daniel
Polotsky
questioning
the
continuing
relevance
of
bitcoin’s
four-year
cycle.
While
fluctuations
in
demand
will
persist,
the
impact
of
supply
changes
is
becoming
increasingly
negligible.

At
this
point,
the
issuance
rate
of
Bitcoin
has
become
so
low
that
its
supply
has
a
minimal
effect
on
its
price,
which
is
now
primarily
influenced
by
demand.
While
the
narrative
surrounding
the
halving
continues
to
be
a
strong
driver
and
is
expected
to
propel
bitcoin
into
a
new
bull
market,
this
influence
is
likely
to
diminish
in
the
future.
As
a
result,
it’s
probable
that
bitcoin
will
eventually
decouple
from
the
four-year
halving
cycle.

I
have
great
memories
from
the
halving
in
2020.
The
atmosphere
within
the
Bitcoin
community
was
electric
with
anticipation
as
we
approached
the
moment
when
the
block
subsidy
would
be
cut
in
half.
This
pivotal
event
sparked
an
incredible
wave
of
bullishness
throughout
the
summer
of
2020,
setting
the
stage
for
the
monumental
bull
market
of
2021.
Although
I
remain
skeptical
that
the
modest
reduction
in
supply
due
to
this
halving
will
significantly
alter
bitcoin’s
price
equilibrium,
the
prospect
of
it
igniting
increased
demand
and
investor
enthusiasm
is
something
I
eagerly
await.

From
the
vantage
point
of
a
miner,
the
halving
presents
more
than
just
a
potential
market
rally;
it’s
an
opportunity
to
introspect
and
innovate
within
our
operations.
It
prompts
us
to
explore
new
methodologies
to
reduce
costs
and
enhance
efficiency,
ensuring
our
survival
and
success
in
this
highly
competitive
field.
The
halving
isn’t
just
a
test
of
resilience
but
a
catalyst
for
evolution
within
the
mining
community.

As
we
look
forward
to
the
next
halving,
it
is
essential
to
remember
the
core
ethos
of
Bitcoin.
Bitcoin
wasn’t
created
for
the
miners;
its
heart
beats
for
the
hodlers.
Miners
play
a
crucial
role,
no
doubt,
servicing
the
Bitcoin
network
and
ensuring
its
robustness.
Yet,
the
true
spirit
of
Bitcoin
lies
in
its
ability
to
empower
holders,
providing
a
decentralized
alternative
to
traditional
financial
systems.
The
anticipation
and
excitement
for
the
halving
resonate
not
just
among
miners
but
throughout
the
entire
community
of
Bitcoin
enthusiasts
and
investors.

So,
as
we
edge
closer
to
this
pivotal
event,
let’s
embrace
the
halving
with
open
arms
and
a
spirit
of
innovation.
It’s
a
reminder
of
the
dynamic
landscape
of
Bitcoin,
a
testament
to
its
resilience,
and
a
beacon
of
the
exciting
developments
yet
to
come.
To
all
hodlers
and
miners
alike,
let’s
gear
up
for
the
halving.
Bring
it
on!