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As the highly anticipated 2024 Bitcoin halving event approaches, experts are cautioning that it could have detrimental effects on certain crypto miners. While previous halvings have contributed to Bitcoin’s price rallies, the upcoming event is expected to sound the “death knell” for some miners, according to Bloomberg.

Let’s explore the potential ramifications of the upcoming halving and shed light on the challenges faced by miners.

The Halving Event May Affect Over 50% of Miners? 

Giving it a point, according to Jaran Mellerud, a crypto-mining analyst at Hashrate Index, raised costs associated with mining operations will likely pose difficulties for many miners. Approximately half of the miners are expected to suffer due to their less efficient mining processes and higher expenses. 

Mellerud explains that after the halving, the break-even electricity price for the primary mining machine is predicted to decrease from 12 cents/kWh to six cents/kWh. This means that around 40% of miners have operating costs that exceed this threshold, making it challenging for them to remain profitable. 

Whereas, Wolfie Zhao, head of research at TheMinerMag, echoes these concerns, stating that the total cost for certain miners is already surpassing Bitcoin’s current price, making their net profits turn negative.

Mining Industry Debt is Hitting Hard

Complicating matters further is the fact that the Bitcoin mining industry is currently operating under significant debt. This debt, ranging from $4.5 billion to $6 billion, is a consequence of last year’s extended bear market and increased electricity costs. The migration of miners from China to North America following the domestic mining ban in 2021 has also contributed to increased borrowing. Limited access to the capital market for miners has made debt financing more readily available in the US, according to Zhao.

What are the Preparations? 

In anticipation of the halving, Bitcoin miners are taking proactive measures to protect their operations. These include locking in power prices, strengthening their financial reserves, and reducing investment activities. However, Tiffany Wang, CEO of Texas-based Bitcoin miner Lotta Yotta, believes that despite these preparations, numerous operators will still face significant challenges. Wang advises miners to save funds to sustain their companies during the high-risk halving year, as many are likely to be driven out of the market.

Profitability and Future Outlook

Having said that, to maintain profit margins after the halving, Bitcoin’s price would need to reach $50,000-$60,000 next year, considering the record-high mining difficulty observed in June. As the industry faces growing competition and potential profitability challenges, the road ahead for miners remains uncertain.

While the 2024 Bitcoin halving event brings excitement to many, it is a grave concern for miners. Higher costs and reduced profit margins, coupled with existing debt, make it difficult for many miners to stay afloat. 

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Filed under: Bitcoin - @ July 10, 2023 7:15 am