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Bitcoin Miners Struggle Ahead of Major ‘Halving’ Event: Rewards Slashed by 50%

Miners around the world are gearing up for the upcoming Bitcoin halving, anticipated to take place in April next year, according to a recent report by Bloomberg News. The halving, which occurs approximately every four years, is an event that has historically resulted in significant price surges for Bitcoin. As miners eagerly anticipate this potential bull run, they face mounting challenges that could potentially push them out of the market.

During the previous three halvings in 2012, 2016, and 2020, Bitcoin experienced remarkable price increases of 8,450%, 290%, and 560% per year, respectively. It is no wonder that most miners are optimistic about the price prospects for the upcoming halving. However, their optimism is tempered by the changing mining landscape and diminishing rewards.

In the fourth halving scheduled for April 2024, miners will receive a reduced reward of 3.125 Bitcoins per block, down from the current reward of 6.25. This reduction is part of Bitcoin’s design, which involves the gradual reduction of block rewards until the maximum supply of 21 million Bitcoins is reached. The halving policy serves as a mechanism to support Bitcoin prices, as previous halvings have often been followed by events that caused significant price surges, such as the ICO rally in 2016, Tesla’s Bitcoin purchase in 2020, and the emergence of futures ETFs.

Source: Bloomberg

One of the major concerns for miners is the increasing costs associated with mining, particularly electricity expenses. Jalan Mellord, an analyst at HashrateIndex, revealed that nearly half of miners are grappling with these costs. According to Mellord’s analysis, the electricity rate required to break even after the halving is 6 cents per kilowatt-hour (kWh), while the current average rate is 12 cents/kWh. This means that unless miners have access to very cheap electricity, there is a possibility of incurring losses from Bitcoin mining.

Estimates suggest that around 40% of miners are currently operating at a loss, and miners using electricity rates higher than 8 cents/kWh or smaller mining operations may be forced to abandon mining altogether. The rising electricity costs present a significant hurdle for miners, as they strive to maintain profitability in an increasingly competitive industry.

To make matters more challenging, the price of Bitcoin itself plays a crucial role. Even with higher electricity costs, miners can continue their operations if the price of Bitcoin rises to a certain level. Kevin Jiang, senior vice president of Foundry, a mining company affiliated with DCG Group, believes that Bitcoin needs to be valued between $50,000 and $60,000 next year to sustain profit margins after the halving.

However, it is important to note that mining costs are expected to rise significantly after the halving. JP Morgan analysts predict that mining expenses could reach around $40,000 per Bitcoin. A report by The Dynamag highlighted that, in the first quarter of this year, 14 publicly-listed miners spent between $7,200 and $18,900 in costs, excluding interest and overhead.

As miners brace themselves for the upcoming halving, they face a delicate balancing act between rising costs and the potential for future price surges. The outcome of the halving and its impact on Bitcoin’s price remains uncertain, but it is clear that miners must adapt to the changing landscape and find innovative ways to sustain profitability in the face of mounting challenges.

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