Bitcoin Halving: Crucial moment for miners?

Next year, miners will receive less Bitcoin per block. U.S. bank J.P. Morgan sees problems and at the same time potential in the halving.

The next Bitcoin halving is expected around spring next year. This creates difficult conditions for Bitcoin miners, according to analysts at J.P. Morgan. Volatile electricity costs and competition for a higher hashrate increase production costs. The result: the coming halving in April 2024 could become a stress test for miners.

The reason: the reward for mining a block is reduced from 6.25 to 3.125 BTC - meaning less income for miners. At the same time, Bitcoin production costs are rising. Currently, mining a Bitcoin costs about US$20,000, according to the report. However, the volatility of the hashrate indicates different energy sources. Miners with access to cheaper electricity are generally at an advantage.

An increase in the cost per kilowatt hour of just one cent would lead to a $4,300 increase in Bitcoin's cost of production, the report said. After halving, this sensitivity would double to US$8,600 - miners with higher electricity costs would have a problem. J.P. Morgan expects similar conditions to the end of 2022 - miners then had to sell their stocks and some mining companies had to file for bankruptcy.

Institutional investors: support for miners?

However, there is also good news for bitcoin miners. According to J.P. Morgan, institutional investors' interest in bitcoin mining has increased significantly. Both Galaxy Digital and Grayscale have invested in mining hardware. In addition, Tether is participating in a multi-billion dollar renewable energy initiative in El Salvador. The stablecoin issuer plans to provide funds and technical know-how to build a sustainable bitcoin mining facility in President Nayib Bukele's country. Meanwhile, Wall Street is also interested in the oldest cryptocurrency - apart from the Bitcoin Spot ETF. Asset manager Vanguard, for example, is backing the mining sector with US$500 million.

After halving: does Bitcoin price explode?

J.P. Morgan concludes: both price and transaction costs will have to rise significantly to compensate for the halved block reward. The drop in transaction costs - combined with the reduced ordinal hype - thus poses an additional challenge to miners' earnings.

According to analysts, Bitcoin's hashrate is unlikely to continue rising at the same rate after it halves in April 2024. Unless: the Bitcoin rate rises. A scenario that has occurred after every halving so far.

After all, Bitcoin halvings in the past - at least in the long run - always meant a rise in the price. It took a while before this event was "priced in". But after that, there were always bull runs in Bitcoin. The basic mechanisms of the market kick in: supply and demand. Demand rises, but the supply of new Bitcoins falls. This allowed the Bitcoin price to rise significantly.

Click here to read more about the Bitcoin Halving.