Major mining firms expect the Bitcoin halving to reduce profitability and cause an increase in network fees, which could challenge the existence of less efficient miners.
The Bitcoin halving will likely wreak havoc on small, less efficient Bitcoin miners but should be no issue for wellestablished players, according to industry executives.
In under a month, Bitcoin miners face the reality of reduced block rewards, which is anticipated to significantly impact profitability and income. Bitcoin mining CEOs tell Cointelegraph that the efficiency and scale of mining operations will be critically important as firms clamber for a share of the reduced rewards.
Marathon Digital, considered one of the largest mining firms in North America, is among the players that have long been planning for the halving. The firm’s chief growth officer Adam Swick tells Cointelegraph the halving will be a test to reveal the most efficient and well-funded entities.
“While the immediate effect is reduced rewards and profitability, these companies are typically more resilient given their greater access to capital and efficient operations,” Swick explains, warning that smaller operations that are marginally profitable might not survive the halving at all.
The importance of operational efficiency, balance sheet management and capital structure for miners will also come to the front, according to OceanBit co-founder Michael Bennet.
“Miners with debt burden and maturing securities will sell opportunistically as we continue to break all-time highs to reduce their debt service during the post-halving cycle when the competition becomes more fierce and operational efficiency becomes king,” Bennet said.
History also plays a role, as miners have had four years to forecast and plan how to manage operations. Stronghold Digital Mining CEO Greg Beard noted that previous halvings forced mining companies to adapt to lower-margin environments. As profitability margins are reduced, Beard says miners must sell BTC to pay for more efficient miners:
Swick made a similar prediction, noting that Bitcoin’s new all-time high may temporarily increase profitability due to higher transaction fees and the subsequent demand for mining services, but will later put pressure on it instead.
“If miners have not developed sufficient resources to weather the halving, we’ll likely see some organizations sell off their BTC reserves, or even divest from operation sites in extreme cases, in order to maintain capital,” Swick says.
The Bitcoin halving is hardwired into the blockchain’s code. Every 210,000 blocks mined, which takes four years on average, sees the block reward paid to miners slashed in half. What started at 50 BTC per block mined in 2009 will become 3.125 BTC when the fourth halving occurs in April 2024.
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The Bitcoin mining hash rate has steadily risen to new all-time highs ahead of the fourth halving. Source: Blockchain.com
The network is also the most competitive it has ever been, with considerable hashing power competing for block rewards. Stronghold’s CEO says the situation may change as less efficient miners face the reality of less profitability:
Marathon’s chief growth officer adds that the build-up to the halving has provided ample opportunity to obtain capacity.
In December, Marathon announced it would acquire two operational Bitcoin mining sites from Generate Capital with the deal to be completed in early 2024. Marathon said the deal would reduce its cost of mining a single Bitcoin by 30%.
Stronghold’s CEO adds that the build-up to the halving has already led to a “quartering of mining economics” led by miners adding capacity to their machinery without the price of Bitcoin appreciating in lock-step.
Happy halving
Miners are under no illusion about the reality of decreased block rewards and the potential impact of profitability. Yet, there seems to be an air of confidence from industry players.
Swick predicts a significant consolidation within the Bitcoin mining world, stemming from profitability concerns and the potential need to sell off sites. He also expects to see the development of technologically advanced mining hardware and large operation sites being built, as well as improved energy harvesting solutions that allow miners to subsidize costs.
