Bitcoin Halving is a stress test for the miners

Bitcoin Halving is coming up next spring. This creates difficult conditions for Bitcoin miners, according to analysts at JP Morgan. Volatile electricity costs and competition for a higher hash rate increase production costs. The consequence: The upcoming halving in the April 2024 could become a stress test for the mining industry.

Because: The block reward is reduced from 6.25 to 3.125 BTC – a reduction in income for the miners. At the same time, the production costs of Bitcoin are increasing. Currently, the cost of mining one bitcoin is around 20,000 USD report. However, the volatility of the hashrate indicates that different energy sources are used. Miners with access to cheaper electricity generally have an advantage.

Increasing the cost per kilowatt hour by just one cent would increase the cost of producing Bitcoin by 4,300 USD. After the halving, that sensitivity would double to 8,600 USD – miners with higher electricity costs would face a problem, they say. JP Morgan expects similar conditions as at the end of 2022 – miners had to sell their holdings and partially file for bankruptcy.

Institutional investors: support for miners?

However, there is also good news for bitcoin miners. According to JP Morgan, the interest of institutional investors in Bitcoin mining has increased significantly. Both Galaxy Digital and Grayscale have invested in mining hardware. Tether is also participating in a multi-billion dollar renewable energy initiative in El Salvador. Accordingly, the stablecoin issuer wants to provide funds and technical know-how to set up a sustainable Bitcoin mining facility in the country led by President Nayib Bukele.

Meanwhile, Wall Street – apart from the Bitcoin spot ETF – is also interested in the oldest cryptocurrency. For example, the asset manager Vanguard supports the mining industry with 500 million US dollars.

After the halving: will the Bitcoin price explode?

JP Morgan comes to a conclusion: Both the Bitcoin price and the transaction fees must increase significantly to offset the halved block reward. The decrease in transaction costs – combined with the reduced ordinals hype – poses an additional challenge for the miners’ income.

According to the analysts, Bitcoin’s hashrate is unlikely to continue increasing at the same pace after the April 2024 halving. Except: The Bitcoin price increases sustainably. A scenario that has occurred after every halving so far.

After all: In the past, Bitcoin Halving always meant an increase in the Bitcoin price – at least in the long term. It took a while for this event to be “priced in”. But as a result, there were always bull runs in Bitcoin. The basic market mechanisms prevailed here: supply and demand. Demand is increasing, while the supply of new bitcoins is decreasing. As a result, the Bitcoin price was also able to rise significantly.