The Bitcoin halving will likely wreak havoc on small, less efficient Bitcoin miners but should be no issue for well-established players, according to industry executives.
In under a month, Bitcoin miners face the reality of reduced block rewards, which is anticipated to significantly impact profitability and income. Bitcoin mining CEOs tell Cointelegraph that the efficiency and scale of mining operations will be critically important as firms clamber for a share of the reduced rewards.
Marathon Digital, considered one of the largest mining firms in North America, is among the players that have long been planning for the halving. The firm’s chief growth officer Adam Swick tells Cointelegraph the halving will be a test to reveal the most efficient and well-funded entities.
“While the immediate effect is reduced rewards and profitability, these companies are typically more resilient given their greater access to capital and efficient operations,” Swick explains, warning that smaller operations that are marginally profitable might not survive the halving at all.
The importance of operational efficiency, balance sheet management and capital structure for miners will also come to the front, according to OceanBit co-founder Michael Bennet.
“Miners with debt burden and maturing securities will sell opportunistically as we continue to break all-time highs to reduce their debt service during the post-halving cycle when the competition becomes more fierce and operational efficiency becomes king,” Bennet said.
History also plays a role, as miners have had four years to forecast and plan how to manage operations. Stronghold Digital Mining CEO Greg Beard noted that previous halvings forced mining companies to adapt to lower-margin environments. As profitability margins are reduced, Beard says miners must sell BTC to pay for more efficient miners:
“I expect some Bitcoin miners will feel pressure to convert BTC to cash to continue to show growth.”
Swick made a similar prediction, noting that Bitcoin’s new all-time high may temporarily increase profitability due to higher transaction fees and the subsequent demand for mining services, but will later put pressure on it instead.
“If miners have not developed sufficient resources to weather the halving, we’ll likely see some organizations sell off their BTC reserves, or even divest from operation sites in extreme cases, in order to maintain capital,” Swick says.
The Bitcoin halving is hardwired into the blockchain’s code. Every 210,000 blocks mined, which takes four years on average, sees the block reward paid to miners slashed in half. What started at 50 BTC per block mined in 2009 will become 3.125 BTC when the fourth halving occurs in April 2024.
The network is also the most competitive it has ever been, with considerable hashing power competing for block rewards. Stronghold’s CEO says the situation may change as less efficient miners face the reality of less profitability:
“I expect the hash rate will fall post-halving as less efficient machines are unplugged. The question is, what will be the extent of this decline?”
Marathon’s chief growth officer adds that the build-up to the halving has provided ample opportunity to obtain capacity.
In December, Marathon announced it would acquire two operational Bitcoin mining sites from Generate Capital with the deal to be completed in early 2024. Marathon said the deal would reduce its cost of mining a single Bitcoin by 30%.
Stronghold’s CEO adds that the build-up to the halving has already led to a “quartering of mining economics” led by miners adding capacity to their machinery without the price of Bitcoin appreciating in lock-step.
“The recent ETF approval supports the more recent run-up in Bitcoin price and has furthered the existing supply/demand imbalance, so miners who can keep costs low are set to win out the halving as Bitcoin price increases,” Beard said.
Happy halving
Miners are under no illusion about the reality of decreased block rewards and the potential impact of profitability. Yet, there seems to be an air of confidence from industry players.
Swick predicts a significant consolidation within the Bitcoin mining world, stemming from profitability concerns and the potential need to sell off sites. He also expects to see the development of technologically advanced mining hardware and large operation sites being built, as well as improved energy harvesting solutions that allow miners to subsidize costs.
“Mining will likely become increasingly decentralized as miners seek unique stranded energy assets and situations where they can be a value-add to energy producers, rather than just a customer.”
Bennet meanwhile predicts a significant upside for the price of BTC, reflecting directly on the impact of Bitcoin exchange-traded funds driving record levels of demand for Bitcoin. He highlights that BlackRock and Fidelity alone have accumulated an average of 5,000 BTC per day in the nine weeks since Bitcoin ETFs were approved in the U.S:
“As the daily issuance of new Bitcoin decreases from 900 to 450 with the halving, assuming global demand stays constant or increases, we’ll see continued growth in the price of Bitcoin.”
Bitcoin was trading at $65,000 with a total market capitalization of $1.2 trillion, ranking it as the tenth most valuable asset worldwide at the time of publication.
Institutional interest driven by the investments of Bitcoin ETFs and anticipation of the halving are macro-forces that make Stronghold’s CEO optimistic. “We must remember that we are still in the early stages of Bitcoin adoption,” Beard says.