The upcoming Bitcoin (BTC) halving in April 2024 could have a detrimental impact on miner profits, potentially pushing them into negative territory, warns Bloomberg. Historically, halving events have been followed by significant price increases, driving investor excitement. Following previous halvings, BTC experienced impressive surges of 8,450%, 290%, and 560% in 2012, 2016, and 2020, respectively.
However, the upcoming halving poses new challenges for miners. The reduction in mining rewards from 6.25 BTC to 3.125 BTC will require miners to adapt to maintain profitability. Technological advancements have helped offset the effects of previous halvings, but miners may struggle next year due to rising electricity costs and mounting debt burdens.
Inefficient mining operations are a significant concern. Roughly half of Bitcoin miners currently operate with less-than-optimal efficiency, according to Jaran Mellerud, a crypto mining analyst at Hashrate Index. Break-even electricity prices are projected to decrease from $0.12 per kilowatt-hour to $0.06 per kWh after the halving. Unfortunately, about 40% of BTC miners face operating costs exceeding $0.06 per kWh. Those with costs surpassing $0.08 per kWh, may be particularly affected.
Major mining firms are also grappling with debt reduction, eating into their profits. The global mining industry’s debt has decreased from $8 billion in 2022 to an estimated $4.5 billion to $6 billion. Meanwhile, mining difficulty has hit a record high, indicating heightened competition among miners. Profit margins are shrinking as a result. Kevin Zhang, senior VP at Foundry, suggests that BTC prices would need to rise to $50,000-$60,000 next year for miners to maintain current profit margins.
To prepare for the halving, miners are adopting sophisticated strategies to manage power costs and secure pricing agreements with power providers in advance. However, the cost of mining is expected to double, reaching approximately $40,000, according to JPMorgan estimates.
While preparations are essential, Tiffany Wang, CEO of BTC miner Lotta Yotta, expresses concerns that many miners will ultimately be forced out of the market. The BTC halving presents a significant challenge to miners, requiring them to navigate increasing costs and intense competition in order to maintain profitability.
