The year 2024 is known as the year of Bitcoin. With the approval of the Bitcoin ETF, the upcoming Bitcoin Halving has begun to attract attention once again. As we know, Bitcoin Halving is an important mechanism designed in the protocol to control the supply of new Bitcoins coming into circulation. This year’s Bitcoin Halving is expected to occur in April 2024 when the block count reaches 840,000. The block reward will decrease from 6.25 BTC to 3,125 BTC.
What Will Happen After the Halving?
We can easily predict the annual inflation rate after Bitcoin halving. It reaches the current single block reward of 6.25 BTC and daily production is approximately 900 blocks. Thus, its annual production is calculated as 900 * 365. According to official data from CoinEx Explorer as of January 30, the total circulating supply of Bitcoin is 19,613,577.
Therefore, the current annual inflation rate is 900 * 365 / 19,613,577 = 1.67%.
The estimated annual inflation rate after the halving will be 450 * 365 / 19,613,577 = 0.83%.
This means Bitcoin’s annual inflation rate will drop from approximately 1.67% to 0.83%, falling below 1% for the first time.
Historically, halvings have reduced the rate of new Bitcoin production by reducing the reward for mining new blocks. This decline in supply growth often coincides with large Bitcoin price increases. Additionally, the predictable supply decrease combined with the expected increase in demand causes Bitcoin supply to tighten. As a result, there may be an insufficient amount of Bitcoin to purchase, resulting in price increases that encourage long-term Bitcoin holders to sell. Relevant data shows that Bitcoin prices rise to varying degrees after each halving, but these increases may not occur immediately.
What will be the effects of the halving?
While the halving may increase Bitcoin prices, it will likely have the biggest impact on miners as it directly affects their income. There are four main factors that affect miners’ earnings after the halving:
1. Decreasing Rewards
Bitcoin halving directly results in mining rewards being halved, meaning miners receive half the amount of Bitcoin when they mine a new block. With mining rewards decreasing, miners should pay attention to Bitcoin price fluctuations to better predict mining revenues.
2. Bitcoin Price Volatility
Fluctuations in Bitcoin’s market price also significantly affect mining revenues. If the price of Bitcoin increases after the halving, miners can get a higher value before and after the halving.
3. Mining Difficulty
The Bitcoin network adjusts mining difficulty based on changes in global miners and computing power, ensuring the average block generation time remains around 10 minutes. According to ViaBTC’s statistics as of January 30, Bitcoin mining difficulty was at 70.34T. As mining profitability decreases after this year’s halving, some miners may abandon mining, resulting in a decrease in mining difficulty. However, mining is a dynamic balancing process – when mining difficulty decreases, earnings naturally increase, allowing new miners to enter and difficulty to increase, thus reaching a new equilibrium.
4. Hash Rate Drop
According to the CoinShares report, after both the first Bitcoin Halving in 2012 and consecutive halvings in 2016 and 2020, the mining hash rate generally experienced a decline of around 9% relative to the trend line after each halving. This decline usually lasts for about six months.
However, the impact of the halving on miners is not entirely negative, as it can also lead to a process that means “less is more”. Let’s examine the general Bitcoin price trend from previous halvings:
· November 28, 2012 (1st Halving): The first Bitcoin Halving occurred three years after the creation of the Genesis block. The Bitcoin price did not increase significantly immediately before and after the halving, but in the months following the halving, the Bitcoin price experienced a significant increase.
· July 9, 2016 (2nd Halving): After the second Bitcoin halving, the Bitcoin price fluctuated before and after the halving. However, in the year following the halving, the Bitcoin price began to increase significantly and reached new highs.
· May 11, 2020 (3rd Halving): After the third Bitcoin halving, mining rewards decreased by 50% and block rewards dropped from 12.5 BTC to 6.25 BTC. The tightening of supply provided a bullish outlook for the asset, with the price of the token rising from $6,877.62 a month before the halving event (April 11, 2020) to $8,821 in the time of the halving event.
This year, Blockware Solutions analysts suggested that the 2024 halving could push Bitcoin’s price to a stunning $400,000.
Overall, the Bitcoin Halving’s impact on mining revenues is a combination of complex factors such as reward halving, market price fluctuations, and mining difficulty. The halving means miners face greater challenges and pressures. They must seek more efficient mining equipment and lower mining costs to maintain profitability and survive in a more competitive market. At the same time, this could accelerate the process of reshaping the mining industry and increase competition and concentration within the industry. The upcoming Bitcoin halving presents miners with a challenge and pressure, but also a survival dilemma.
How Do Miners Evaluate the Halving?
How should they overcome these challenges and survive? What are their perspectives on developing strategies for the halving? To investigate these further, the author interviewed several miners.
Miners who have a relatively positive attitude towards the Bitcoin halving have stated that revenue is the main concern for the mining community. They emphasized that they will continue mining regardless of revenue fluctuations brought about by the halving, as long as their revenue consistently exceeds the cost of electricity. For miners, the two main factors that affect their income are cryptocurrency price and hash rate. Since electricity costs are fixed, cryptocurrency prices and hash rate directly affect their final revenues. Some miners have noted that many machines may need to be shut down after the halving, based on the current price of Bitcoin (the price of BTC is $43,412.45, according to CoinEx market data as of January 30, 2024). They said that these machines can be restarted when the price reaches a certain level.
Another miner suggested that if Bitcoin’s price outlook after the halving is not optimistic, miners may upgrade their machine models or reposition their mining operations to control costs and preserve as much of their original revenue as possible. Miners in countries with high electricity costs began upgrading their machines six months ago, while some are considering moving to regions with lower electricity costs, such as South America and the Middle East. The Middle East is a preferred region for many miners as it has power systems perfectly suited for Bitcoin mining. The hot, dry climate in the Middle East causes significant fluctuations in power demand, producing excess power during certain periods when local power demand is low. Miners can use this excess power to balance the grid and increase their earnings.
However, some miners who do not have long-term plans prefer to temporarily shut down their operations before making their respective plans, waiting for market fluctuations and price changes. It was noted that the prices of mining machines generally increase when the cryptocurrency price is high and vice versa. Selling machines at high cryptocurrency prices or buying machines when prices are low can help them stabilize their income. Additionally, some miners noted that future mining earnings are difficult to predict, but holding cryptocurrencies provides visible returns, so they practice dollar cost averaging in a bear market approaching a bull market.
As is obvious to the mining community, post-halving plans differ from person to person. Most miners will make detailed plans based on profit-making timelines and also make preparations for the next phase by estimating mining difficulty. With Bitcoin halvings in the future, some miners have this mindset of “mining when they can, giving up when they can’t” because market changes always trump plans. Still, most miners are likely to make long-term plans ahead of the halving despite the latest plan deviating from the market.
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