Bitcoin (BTC) halving is among the most anticipated events in the cryptocurrency space, with the potential to help the maiden digital asset price rally to new heights. Indeed, previous halvings have partly contributed to Bitcoin’s rally to record valuations, and the upcoming 2024 event carries similar expectations.
Although the halving could spell good fortunes for Bitcoin and the general cryptocurrency market in terms of price, the event is also projected to sound the ‘death knell for certain’ miners, Bloomberg reported on July 8.
Notably, concerns about the mining economics leading up to the next halving have emerged. In this line, Jaran Mellerud, a crypto-mining analyst at Hashrate Index, predicts that the higher costs of the process will impact most miners.
“Nearly half of the miners will suffer given they have less efficient mining operations with higher costs,” said Mellerud.
For instance, he indicated that the break-even electricity price for the primary mining machine is predicted to decrease from 12 cents/kWh to six cents/kWh after the halving. Mellerud added that around 40% of miners have operating costs exceeding this threshold, and miners with costs above 8 cents/kWh and smaller miners who outsource their rigs will face difficulties staying profitable.
“If you count in everything, the total cost for certain miners is well above Bitcoin’s current price.<…> Net profits will turn negative for many miners with less efficient operations,” said Wolfie Zhao, head of research at TheMinerMag, a research arm of mining consultancy BlocksBridge.
Rising mining debt
The concerns come at a time the Bitcoin mining industry is operating in debt partly due to last year’s extended bear market and increased electricity costs. According to Ethan Vera, COO of Luxor Technologies, the global mining industry currently holds a debt ranging from $4.5 billion to $6 billion, a decrease from $8 billion in 2022. This debt includes senior debt, loans secured by mining rigs, and Bitcoin-backed loans.
Notably, miners migrating from China to North America after the domestic mining ban in 2021 led to increased borrowing. Access to the capital market was limited for miners, making debt financing more readily available in the US, according to Zhao.
At the same time, rising competition among Bitcoin miners has reduced profit margins. Bitcoin miners are also proactively safeguarding themselves in anticipation of the halving.
Preparation for halving
The miners are implementing strategies like locking in power prices, strengthening their financial reserves, and reducing investment activities. Despite the preparation, Texas-based Bitcoin miner Lotta Yotta CEO Tiffany Wang believes several operators will still be wiped out.
“During the halving year, it is high risk. <…> It is better to save some fund in the account to keep the company running. <…> Everyone has to be prepared. Unfortunately, a lot of miners will eventually be driven out of the market,” said Wang.
It is worth noting that amid the concerns, in June, mining difficulty reached a record high, and maintaining profit margins after the halving, Bitcoin’s price would need to reach $50,000-$60,000 next year.