Bitcoin’s hashrate will not drop by that much
Contrary to popular belief, this halving will likely not cause a major decrease in the network's hashrate. After Bitcoin’s first three halvings, the hashrate plummeted by 25%, 11%, and 25%, and it appears many analysts and miners are expecting (or hoping for?) a similar hashrate reduction this time.
Additionally, the hashrate is expected to quickly bounce back from this slight dip. In the past three halvings, the network recovered its pre-halving hashrate levels within an average of 57 days. This trend highlights an important perspective: halvings should not be viewed as events that lower the hashrate, but rather as brief pauses in the hashrate's relentless upward trajectory.
The hashrate's robustness is further enhanced by the continuous efforts of miners to update their equipment with the newest and most efficient models. This strategy is anticipated not just to offset any short-term reductions in hashrate, but is also likely to lead to a significant uptick in hashrate in the forthcoming months.
In essence, the upcoming Bitcoin halving is likely to be a brief hiccup in the network's hashrate trajectory, rather than a significant setback.
High-cost miners will be forced to upgrade fleets
Data from CoinMetrics highlights that most of the industry currently operates with relatively inefficient machines like the Antminer S19J Pro. These miners require an operating cost of $0.05/kWh or lower to maintain healthy gross profit margins post-halving.
However, with the average hosting rate in the United States sitting just below $0.08/kWh, as indicated by Hashrate Index, many U.S.-based miners could face cash flow challenges after the halving and thus be forced to undertake massive fleet upgrades.
Bitmain's launch of its new machines, including the S21, T21, and S21 Pro — each boasting efficiencies below 20 J/TH — arrives just in time for the halving. This development is prompting many U.S.-based hosting providers to push their customers to switch from S19J Pro to S21 models. Given the high hosting fees in the U.S., this push can be seen as a necessity rather than a choice.
Miners will find creative ways to increase profits
Bitcoin mining is one of the most free and competitive markets globally, a market that Adam Smith himself would admire. This inherent competitiveness fuels a relentless pursuit of innovation, especially during challenging periods such as the halving events. In response to the pressures exerted by the halving, miners are adopting some of the most inventive strategies to maximize the utility of their existing resources.
One such strategy is underclocking, a process in which the machines’ electricity consumption is reduced to increase the energy efficiency and reduce costs. This process, which can be facilitated by third-party firmware like LuxOS, significantly improves machine efficiency — a critical adaptation in an environment where margins are thin. The movement towards underclocking is likely to gain momentum.
Some miners will diversify away from mining
The fierce competitiveness that defines the current state of the mining industry is prompting many, especially public miners, to explore new horizons. Increasingly, there's a move towards AI computing, with companies like Iren and Hive Digital Technologies leading the charge.
The trend towards diversification is expected to pick up momentum over the challenging coming months. Yet, the dynamics of the mining industry are cyclic. Predictions for a bull market in 2025 portend a reversal of this diversification trend. As the value of bitcoin potentially climbs, miners may set aside their diversification strategies in favor of maximizing returns from mining, diving back into the fray with renewed vigor on extracting value from every hash.
Bitcoin mining will become more geographically decentralized
Currently, the United States commands a substantial portion of the global hashrate, accounting for 40%, while China and Russia are also key players, contributing 15% and 20%, respectively. However, the industry is gradually shifting towards a more globally dispersed model, driven by the perpetual quest for cost efficiencies, especially cheaper electricity.
As miners brace for the upcoming halving, many are exploring emerging mining markets across Africa, Latin America, and Asia where electricity is exceptionally cheap. For instance, Bitfarms is making strides in Argentina and Paraguay; Bitdeer is expanding its capacity in Bhutan; Marathon is entering the United Arab Emirates and Paraguay; and Hashlabs is offering hosting solutions in Ethiopia.
The impending halving event acts as a catalyst for hashrate migration, compelling miners to venture beyond developed nations to secure more economical electricity sources. This move towards a more geographically decentralized mining network is poised to have a profound positive impact on Bitcoin. By distributing the hashrate more evenly across the globe, Bitcoin mining will not only become less susceptible to regional regulatory risks and power cost fluctuations but also align more closely with the decentralized ethos that underpins Bitcoin itself.
Little impact on the bitcoin price
The forthcoming Bitcoin halving is eagerly awaited as a potential trigger for the next bull market. Yet, considering the current annualized issuance rate sits at an already meager level of 1.6%, and with nearly 94% of all Bitcoin already in circulation, the anticipated supply shock from this halving is likely to have a minimal impact on the bitcoin price.
The impact of the negative supply shocks in earlier halvings was profound, especially during the first halving when the annualized issuance plummeted from 25% to 12.5%, and the second when it dropped from 8.4% to 4.2%. However, in this upcoming halving, the decrease from 1.6% to 0.8% represents a much less significant shift compared to the dramatic changes observed in previous cycles.
Bring the halving on
The atmosphere within the Bitcoin community was electric with anticipation as we approached the moment when the block subsidy would be cut in half. This pivotal event sparked an incredible wave of bullishness throughout the summer of 2020, setting the stage for the monumental bull market of 2021. Although I remain skeptical that the modest reduction in supply due to this halving will significantly alter bitcoin's price equilibrium, the prospect of it igniting increased demand and investor enthusiasm is something I eagerly await.
From the vantage point of a miner, the halving presents more than just a potential market rally; it's an opportunity to introspect and innovate within our operations. It prompts us to explore new methodologies to reduce costs and enhance efficiency, ensuring our survival and success in this highly competitive field. The halving isn't just a test of resilience but a catalyst for evolution within the mining community.