The year 2024 is known as the year of Bitcoin. With the approval of the Bitcoin ETF, the upcoming Bitcoin halving has once again become a focus of attention. As we know, Bitcoin halving is a key mechanism designed into the protocol to control the new Bitcoin supply entering circulation. This year's Bitcoin halving is expected to occur in April 2024 when the number of blocks reaches 840,000. The block reward will decrease from 6.25 BTC to 3.125 BTC.
What Will Happen After the Halving?
We can simply estimate the annual inflation rate after the Bitcoin halving. Based on the current single block reward of 6.25 BTC, the daily production is approximately 900 blocks, resulting in a yearly production of 900 * 365. According to the official data from CoinEx Explorer as of January 30th, the total circulating supply of Bitcoin is 19,613,577.
Therefore, the current annual inflation rate equals 900 * 365 / 19,613,577 = 1.67%;
The projected annual inflation rate after halving will be 450 * 365 / 19,613,577 = 0.83%.
This means the Bitcoin annual inflation rate will drop from around 1.67% to 0.83%, falling below 1% for the first time.
Historically, halving events have reduced the reward for mining new blocks, thereby lowering the issuance rate of new bitcoins. This reduction in supply growth typically coincides with significant bitcoin price appreciation. Additionally, the predictable decrease in issuance coupled with anticipated increasing demand is causing a tightening of the bitcoin supply. As a result, there may be insufficient bitcoin available for purchase, incentivizing price increases to encourage long-term holders to sell. Relevant data shows bitcoin prices have risen to varying degrees following each halving event, though not necessarily immediately.
What Impacts Will the Halving Bring?
While the halving may boost bitcoin prices, it will likely have the biggest impact on miners, as it directly affects their revenue. After the halving, there are four primary factors affecting the miners' earnings:
1. Reduced Rewards
Bitcoin halving directly results in a halving of mining rewards, meaning miners receive half the amount of Bitcoin when they mine a new block. With the decrease in mining rewards, miners will need to pay close attention to Bitcoin price fluctuations to better estimate their mining income.
2. Bitcoin Price Volatility
Fluctuations in the market price of Bitcoin also significantly impact mining earnings. If the price of Bitcoin increases after the halving, miners may potentially receive a higher value both before and after the halving.
3. Mining Difficulty
The Bitcoin network adjusts the mining difficulty based on changes in the number of global miners and computing power, to ensure that the average block production time remains at about 10 minutes. According to statistics from ViaBTC as of January 30th, the Bitcoin mining difficulty was at 70.34T. After the halving this year, as mining profitability decreases, some miners may abandon mining, leading to a decrease in mining difficulty. However, mining is a dynamic balancing process - if mining difficulty decreases, earnings naturally rise, leading to the entry of new miners and an increase in difficulty, thus reaching a new balance.
4. Hash rate decline
According to the CoinShares report, since the first Bitcoin halving in 2012, as well as subsequent halvings in 2016 and 2020, the mining hash rate has typically experienced a decline of around 9% compared to the trend line after each halving event. This decline usually lasts for approximately six months.
However, the halving impact on miners isn't entirely negative - it can also be a "less is more" process. Let's examine the general bitcoin price trend around 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 immediately show a significant increase before and after the halving, but in the months following the halving, the price of Bitcoin experienced a significant rise.
·July 9, 2016 (2nd halving): Following the second Bitcoin halving, the Bitcoin price fluctuated before and after the halving. However, in the year following the halving, the price of Bitcoin started to increase significantly, reaching new highs.
·May 11, 2020 (3rd halving): After the third Bitcoin halving, mining rewards decreased by 50%, with block rewards dropping from 12.5 BTC to 6.25 BTC. The supply tightening provided a bullish outlook for the asset, and the token's price surged from USD 6,877.62 one month before the halving (April 11, 2020) to USD 8,821 at the time of the halving event.
This year, analysts at Blockware Solutions have suggested the 2024 halving could potentially propel bitcoin's price to a staggering $400,000.
In general, the impact of Bitcoin halving on miner earnings is a complex combination of factors, involving reward halving, market price fluctuations, and mining difficulty. Halving implies that miners face greater challenges and pressure. They need to seek more efficient mining equipment and lower mining costs to maintain profitability and survive in a more competitive market. At the same time, this may also accelerate the reshaping of the mining industry, intensifying competition and concentration within the industry. The upcoming Bitcoin halving presents a challenge and pressure, as well as a survival dilemma for miners.
How Are Miners Viewing the Halving?
How should miners overcome these difficulties and survive? What are their perspectives on strategizing for the halving? To explore this further, the author conducted interviews with several miners.
Miners who hold a relatively positive attitude toward Bitcoin halving mentioned that income is the primary concern for the mining community. They emphasized that as long as their income consistently exceeds the electricity cost, they will continue mining, regardless of the fluctuations in their earnings brought about by the halving. For miners, the two main factors that affect their income are the cryptocurrency price and hash rate. Since electricity costs are fixed, cryptocurrency prices and hash rate directly impact their final income. Some miners expressed that based on the current price of Bitcoin (as of January 30, 2024, according to CoinEx market data, the price of BTC is USD 43,412.45), many machines may have to be forced to shut down after the halving. They mentioned that these machines can only be restarted when the price reaches a certain level.
Another miner suggested that if the outlook for Bitcoin's price post-halving is not optimistic, miners can choose to upgrade their machine models or relocate their mining operations to control costs and maintain their original income as much as possible. Miners in countries with high electricity costs have already started upgrading their machines as early as six months ago, while some are considering relocating to regions with lower electricity costs, such as South America and the Middle East. The Middle East is a preferred region for many miners due to its perfectly suited power systems for Bitcoin mining. The hot and dry climate in the Middle East leads to significant fluctuations in power demand, resulting in surplus power during certain periods of lower local power demand. Miners can utilize this surplus power to stabilize the grid and increase their earnings.
However, some miners without long-term plans choose to temporarily shut down their operations, waiting for market fluctuations and price changes before making corresponding plans. They indicated that machine prices tend to rise when the price of the cryptocurrency is high and vice versa. Selling machines during high cryptocurrency prices or buying machines when prices are low can help them find a balance in their income. Additionally, some miners mentioned that they engage in dollar-cost averaging when the bear market approaches a bull market, as future mining earnings are difficult to predict, but holding cryptocurrencies provides visible returns.
It is evident that for the mining community, post-halving plans vary from person to person. The vast majority of miners will make detailed plans based on their break-even timeframes, while also estimating the mining difficulty to make preparations for the next stage. With future Bitcoin halvings, some miners have adopted the mindset of "mine when possible, give up when not," acknowledging the unpredictable nature of the cryptocurrency industry, where market changes always outpace plans. Despite this, most miners are likely to make long-term plans in advance of the halving, even if the final plan may deviate from the market.
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