The Bitcoin (BTC) halving is fast approaching, and already miners are swooping into action. Some are phasing out older mining hardware, while others are preparing to take equipment offline if the bitcoin price falls below certain thresholds after the halving.
But while the halving will obviously reduce mining rewards by 50% and a chunk of mining rigs will be turned off, miners hope to regain equilibrium in the event of any short-term volatility and bet on rising bitcoin prices.
Slower blocks and transactions for two weeks
As of writing, one bitcoin is worth around USD 7,170. Not bad, but it doesn’t sound like an awful lot when it is compared to an estimation by TradeBlock that the average cost of mining a single bitcoin stood at USD 6,851 in February and increased to USD 7,300 by the end of March.
At these prices, after the halving, it would cost miners almost USD 46,000 (again, on average) to earn the new BTC 6.25 block reward. This would leave successful (meaning, those we get the reward) miners with a loss of around USD 1,000 per block. As a reminder, there are around 144 blocks mined per day.
If hashrate and mining difficulty keep rising and miners swap their rigs with newer models (which obviously cost money to buy), things may end even worse than this after the halving. At the end of March, TradeBlock estimated that the gross cost of mining a single bitcoin might even reach USD 12,000 – USD 15,100.
Clearly, something has to give, and a range of miners and mining pools tell Cryptonews.com that they’re preparing to switch off mining units to decrease Bitcoin’s hash rate and, by extension, their costs.
“The BTC halving will have some impact on our business,” explains Qingfei Li, F2Pool’s chief marketing officer. “There will be a part of the mining machines switching off, and the hashrate of BTC will be reduced after the halving.”
Li also predicts that, during the first two weeks after the halving, “the speed of Bitcoin block generation will drop sharply, and the speed of Bitcoin transaction confirmations will decrease.”
As for how many mining machines will likely go offline after the halving, Li says that, for the industry as a whole, he foresees “40% or even more mining machines switching off in the first two weeks after the halving,” assuming that the BTC price remains stable.
But after these two initial weeks, Li suggests we will witness a gradual re-equilibration. “The hashrate and mining difficulty will be dynamically adjusted and reach a balance eventually,” he predicts. “At that time, the BTC network hashrate will stabilize between 65% -75% before halving.”
Different market positions
Of course, not all miners and mining pools share exactly the same outlook as F2Pool. For example, OKEx Pool is hoping to switch off less than 40% of its mining capacity.
“Our mining capacity and hashrate will remain nearly unaffected even if the bitcoin price reaches a lower level,” says Alysa Xu, the chief strategy officer at OKEx.
“I believe Antminer S9 will be the first lower-end mining rig model to be shut off since they make up about 30%-40% of the total Bitcoin hashrate. However, more than 90% of our users mine Bitcoin with higher-end models instead, such as Whatsminer M20S, Whatsminer M21S, and Antminer S17.”
As with Li, Xu says that, eventually, a new state of equilibrium will sooner or later follow, even with larger dips in bitcoin’s price.
Likewise, BitRiver – a Russia-based provider of co-location services for Bitcoin mining – is also expecting the Bitcoin halving to have a more modest impact on its operations.
“Only 15-20% of our total capacity would be under question here if the price dropped lower than our lowest estimates,” says CEO Igor Runets. “With access to likely the lowest electricity costs in the world and with advance risk calculations […] we are in a position to provide our clients with comfortable financial terms to phase out older generation hardware.”
But aside from reducing hashrate and dropping older hardware, how will miners adapt to the Bitcoin halving, particularly in cases where the price of BTC plunges?
“We have prepared some methods to increase mining revenue,” explains Qingfei Li. “The most direct one is the ‘BTC/BCH/BSV Auto-Switch’ function, which allows miners to keep mining the highest profitable coins and greatly improving the mining revenue.”
There’s also a possibility that some miners may sell their stocks of bitcoin in order to maintain cash flow during periods of reduced (or negative) profit. However, at least some miners say they’re unlikely to do this.
“We do not hold large stocks of BTC, but estimate that BTC and other scarce assets will continue attracting investors even when other markets generate losses,” says Igor Runets.
F2Pool’s Qingfei Li also believes that rising demand for bitcoin will compensate for the halving. Meanwhile, BitRiver’s Igor Runets says that other strategies besides offloading bitcoin will help miners maintain revenue streams.
“We offer a risk hedging service on OKEx Pool to help miners secure yields in advance with a maximum period of up to 180 days,” he explains.” They can lock in profits by hedging in a bearish market.”
Runets also hopes that bitcoin should appreciate in value over the longer term as it did after the two previous halvings. If this is the case, even if miners may have a rough few weeks following the Bitcoin halving, things will gradually pick up in time.
But as many of you know, past performance is no guarantee of future results. Conditions today are not the same as they were during the earlier halvings in 2012 and 2016 when Bitcoin was less mature and less known.
“There exist various differences to consider regarding the 2020 halving; such as less mining operator influence today vs prior halvings, general market risk associated with economic decline around the COVID-19 crisis, and increased mining cost efficiencies to levels greater than we anticipated as well as other factors,” according to TradeBlocks.
Also, the world doesn’t stop here – there are another 23 days prior to the halving estimated on May 12.
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