Bitcoin Halving Could Push Miners’ Net Profit Into Negative Territory

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The upcoming Bitcoin (BTC) halving, which is expected to take place in April 2024, could push miners’ profits into the red, Bloomberg reported on July 8.

Every four years, mining rewards for Bitcoin are halved. This event is known as the Bitcoin halving. Historically, all Bitcoin halvings have been followed by major bull runs, so investors are hailing the event. In 2012, 2016 and 2020, the price of BTC increased by 8,450%, 290% and 560% in one year, after the halving events.

The upcoming halving will reduce mining rewards from the current 6.25 BTC to 3.125 BTC. So far, BTC miners have compensated for the loss of mining rewards after each halving by increasing their efficiency through technological advancements.

BTC price increases have also worked in favor of miners, who could sell their holdings at significant profits. However, the report notes that things will get tougher next year as miners face rising electricity costs and debt burdens.

Less efficiency, less profit

Jaran Mellerud, crypto mining analyst at Hashrate Index, told Bloomberg that almost half of Bitcoin miners have less than optimal efficiency in their mining operations. Therefore, these miners are likely to struggle after the next halving.

Mellerud said the equilibrium price of electricity from the most common mining machine is expected to drop from $0.12/kilowatt-hour to $0.06/kWh after the halving. However, he said that around 40% of BTC miners operate at a cost per kWh above $0.06/kWh.

Therefore, miners with operating costs above $0.08/kWh and those without mining rigs are likely to be significantly impacted by the halving, Mellerud added.

Wolfie Zhao, head of research at TheMinerMag, the research unit of mining consultancy BlocksBridge, said:

If you count everything, the total cost for some miners is way above the current Bitcoin price.

Net profits will turn negative for many miners with less efficient operations.

Additionally, many of the biggest mining companies are still trying to reduce their debt, which is eating away at their profits. Global mining industry debt has fallen from $8 billion in 2022 to around $4.5 billion to $6 billion currently, estimates Ethan Vera, COO at Luxor Technologies.

Additionally, mining difficulties hit an all-time high in June, indicating that competition among miners is increasing. As a result, miners’ profit margins are shrinking. Kevin Zhang, senior vice president of Foundry, said BTC prices would need to reach $50,000-$60,000 next year for miners to maintain the same profit margins.

Preparations may not be enough

In Q1 2023, 14 publicly traded miners spent between $7,200 and $18,900 to mine one BTC, according to data from TheMinerMag.

According to Zhang, miners are preparing for the halving by being more sophisticated with their electricity costs and securing prices from their electricity providers in advance.

Tiffany Wang, CEO of BTC miner Lotta Yotta, noted that while all miners need to be prepared for the halving, many miners will end up being driven out of the market.

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