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At the end of July 2023, the Bitcoin network passed its 800,000th block.
While this marks a major milestone in the blockchain’s history, it also reminds us that only eight months are left until the next BTC halving event, which is set to take place on April 26, 2024.
Similar to major Ethereum hard forks, Bitcoin halving is among the cryptocurrency industry’s highest-profile events.
On the one hand, acting as a potential catalyst for future bull runs, they bring good news for investors.
But the next halving’s impact on the mining industry is a more complex matter, seeing as how miners will need to adjust their strategies to make up for the reduced rewards that the halving will bring.
In this article, I would like to explore what some of these strategies can be.
A historical bull run catalyst
Occurring roughly every four years, Bitcoin halving is a deflationary mechanism that reduces the new coin supply by 50%.
In April 2024, the next event will decrease the block rewards amount from the current 6.25 BTC to 3.13 BTC.
Based on historical data, I believe it is very likely that the halving event will be followed by a major bull run taking place around late 2024-early 2025.
Reducing Bitcoin’s inflation rate to half generally comes with positive supply and demand dynamics, driving the cryptocurrency’s price to new highs.
After the last halving, the Bitcoin price increased from $8,970 on May 11, 2020, to $56,670 on May 11, 2021, representing a 533% ROI.
Considering the decreased inflation rate and surging demand, I expect April 26’s upcoming halving to push the BTC price up significantly.
As I see it, it is safe to assume that Bitcoin will reach the key psychological level of $100,000 in 2025.
Halving’s impact on miners’ behavioral patterns dapting to the new normal
Crypto mining involves a healthy competition for block rewards, as miners compete to mine a limited amount of BTC in each block.
This is due to Bitcoin’s block time the time it takes for miners to produce a new block being set at around 10 minutes on average on the protocol level.
No matter if the network’s hash rate is only one kH/s or increases massively to 200 million TH/s, the same amount of block rewards will be distributed among miners.
This competition incentivizes miners to become both energy- and hardware-efficient.
By reducing block rewards to half, each halving significantly accelerates the progress of this trend.
As it will take roughly double the costs to produce a single BTC shortly after the next halving, miners will have to look for ways to optimize their profitability.
To achieve this goal, they have to focus on three crucial factors in this field.
Cost-efficient strategies to keep in mind
The first and most important factor to come into play is the cost of electricity.
With a one cent per kWh change causing an estimated $4,300 difference in BTC production cost, signing sophisticated contracts and relocating to countries and regions with lower prices could significantly increase the post-halving profitability of miners.
As I see it, they will need to negotiate an electricity price of five cents/kWh or less to remain profitable after April 26.
Secondly, miners should also consider their equipment’s power efficiency.
Based on TheMinerMag’s data, the daily hash cost of BTC mining can be reduced by over 63% by upgrading from a rig with a 60 J/TH efficiency to one with a 22 J/TH rate.
In the end, the miners with the greatest mining efficiency and the lowest electricity prices will be the most profitable.
Thus, they are the ones that are expected to remain in business the longest, even after a significant market event like the next halving.
Another strategy miners could leverage to minimize the next halving’s negative impacts is accumulating excess capital in mined BTC during profitable periods.
After the post-halving rally takes place, this reserve can be utilized to make up for the losses caused by reduced block rewards by selling the mined assets at a greater profit margin.
Alternative solutions on the horizon
Next year’s Bitcoin halving will significantly increase miners’ BTC production costs, forcing many to shut down their operations.
While lower electricity prices, more efficient mining equipment and the smart usage of reserve capital can minimize the event’s negative impact, chances are that alternative solutions will also be considered.
One potential opportunity that miners can make use of is earning greater income through transaction processing fees rather than through block rewards.
The recent hype around Ordinals a protocol empowering users with the ability to mint NFT-like assets (inscriptions) directly onto Bitcoin is an indicator that alternative sources of income for miners could come to play a much bigger role in the long run.
With record-high network demand and over $55 million of transaction fees paid for inscriptions to date, Ordinals pushed the profitability of transaction processing above block rewards for miners for the first time in many years.
I believe it is reasonable to expect that further developments will take place on the foundation of Bitcoin’s blockchain network that could further shift the scales, allowing miners to adapt to the post-halving environment more seamlessly.
Didar Bekbauov is the founder and CEO of Bitcoin joint mining company Xive. He is an entrepreneur with 10 years of leadership experience and a Bitcoin miner. Didar has a strong financial background, attaining a UK Master’s degree in financial management. He also acts as a mentor at the Founder Institute startup accelerator program in Houston, Texas.
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