Bitcoin Mining and Halving

Bitcoin's recent halving event, marking the fourth in its history, has significantly altered the landscape of cryptocurrency mining. With miners now receiving 3.125 BTC for their efforts, the halving signifies more than just reduced rewards—it heralds a multitude of changes poised to reshape the crypto industry.

In this blog, we delve into the intricate relationship between Bitcoin halving and mining, unraveling the implications of this pivotal event.

Mining will require Better Computers

Data sourced from CoinMetrics reveals that the majority of the industry presently relies on relatively inefficient equipment, such as the Antminer S19J Pro. These devices necessitate an operational expense of $0.05/kWh or lower to sustain favorable gross profit margins post-halving.

Yet, with the mean hosting rate in the United States hovering just under $0.08/kWh, per Hashrate Index data, numerous U.S.-based miners might encounter financial constraints following the halving, potentially prompting substantial fleet upgrades.

Bitmain's recent release of its latest models, including the S21, T21, and S21 Pro, boasting efficiencies below 20 J/TH, coincides perfectly with the halving. Consequently, many U.S.-based hosting providers are urging their clients to transition from S19J Pro to S21 models. Given the steep hosting charges in the U.S., this transition appears imperative rather than discretionary.

While upgrading to newer equipment facilitates ongoing operations even in high-cost settings, it represents an unsustainable long-term solution. The need for continuous hardware updates, often before recovering previous investments, underscores the impracticality of such an approach.

Find New Ways to Increase Profits

Bitcoin mining stands as one of the most unfettered and fiercely competitive markets globally, akin to what Adam Smith would have revered. This inherent competitiveness fosters an unyielding drive for innovation, particularly during challenging periods like halving events. In response to the pressures of halving, miners are embracing some of the most inventive strategies to optimize the utilization of their existing resources.

One such strategy is underclocking, a method wherein machines' electricity consumption is reduced to enhance energy efficiency and cut costs. Enabled by third-party firmware like LuxOS, underclocking significantly enhances machine efficiency — a crucial adaptation in an environment where profit margins are slim. The momentum toward underclocking is poised to escalate.

Furthermore, the pursuit of heightened profitability transcends operational adjustments to encompass innovative revenue-generating avenues. A notable illustration emanates from Hashlabs in Finland.

In Finland, they diversified their income streams by selling waste heat from miners to a district heating system, earning fees for contributing to electric grid stabilization, and strategically vending electricity back to the market during peak spot price periods. These supplementary revenue channels are fortifying the substantial profitability of their mining venture.

The impending halving is primed to serve as a catalyst, propelling miners worldwide to emulate Hashlabs by exploring and implementing inventive strategies to bolster their profits.

Diversifing from Mining

The intense competition characterizing the current mining landscape is compelling many, particularly public miners, to venture into new realms. There's a growing inclination towards AI computing, spearheaded by companies such as Iren and Hive Digital Technologies.

The trend toward diversification is anticipated to gain momentum in the challenging months ahead. However, the mining industry's dynamics are cyclical. Forecasts of a bull market in 2025 suggest a reversal of this diversification trend. With the potential surge in bitcoin's value, miners may sideline their diversification efforts to focus on maximizing returns from mining, re-entering the scene with renewed vigor to extract value from every hash.

This oscillation between diversification and concentrated mining mirrors the broader market's ebbs and flows. Miners' strategies adapt to market shifts, oscillating between seizing immediate opportunities in new sectors and gearing up for the next wave of profitability in bitcoin mining.

Bitcoin Mining will be more Decentralized

Presently, the United States dominates a significant share of the global hashrate, commanding 40%, while China and Russia also hold substantial positions, contributing 15% and 20%, respectively. However, the industry is progressively transitioning towards a more geographically dispersed model, driven by the continuous pursuit of cost efficiencies, particularly cheaper electricity.

As miners prepare for the impending halving, many are exploring emerging mining markets across Africa, Latin America, and Asia, where electricity costs are notably lower. For example, Bitfarms is advancing in Argentina and Paraguay; Bitdeer is expanding its capacity in Bhutan; Marathon is venturing into the United Arab Emirates and Paraguay; and Hashlabs is providing hosting solutions in Ethiopia.

The halving event serves as a catalyst for hashrate migration, prompting miners to venture beyond developed nations to secure more cost-effective electricity sources. This shift towards a more geographically decentralized mining network is poised to profoundly benefit Bitcoin. By distributing the hashrate more evenly worldwide, Bitcoin mining will not only become less vulnerable to regional regulatory risks and fluctuations in power costs but also align more closely with the decentralized principles that underlie Bitcoin itself.

Impact on the Bitcoin Price

The fourth Bitcoin halving is eagerly anticipated as a potential catalyst for the next bull market. However, considering the current annualized issuance rate stands at a modest 1.6%, and with nearly 94% of all Bitcoin already in circulation, the expected supply shock from this halving is likely to exert only a minimal impact on the bitcoin price.

The effects of negative supply shocks in previous halvings were significant, particularly during the initial halving when the annualized issuance plummeted from 25% to 12.5%, and the subsequent halving when it decreased from 8.4% to 4.2%. Nonetheless, in this upcoming halving, the reduction from 1.6% to 0.8% represents a far less substantial shift compared to the drastic changes witnessed in earlier cycles.

Summary

In the ever-evolving landscape of Bitcoin mining, the pursuit of innovation and efficiency remains paramount. The industry, characterized by fierce competition and cyclical trends, continually adapts to external pressures such as halving events and changing market dynamics.

miners are exploring inventive strategies to optimize resource utilization and maximize profitability. From underclocking machines to diversifying revenue streams through innovative approaches like selling waste heat and contributing to electric grid stabilization, miners are navigating the shifting terrain with resilience and creativity.

The Price of Bitcoin is also likely to Change greatly as it happened previously after the Halving events.