Bitcoin Halving, Mining Profitability, and Speculation: Understanding their relationships (2024)

FAQs

How does the Bitcoin halving affect mining? ›

Halving does exactly what it sounds like - it cuts that fixed income in half. And when the mining reward falls, so does the number of new bitcoins entering the market. That means the supply of coins available to satisfy demand grows more slowly. Limited supply is one of bitcoin's key features.

Factors Affecting Profitability - The profitability of Bitcoin mining depends on several factors, including the price of Bitcoin, mining difficulty, electricity costs, and the efficiency of mining equipment.

Currently, Bitcoin is exhibiting a pre-halving retracement characterized by bearish signals and lateral market movements.

Bitcoin halving is the process that reduces the rewards for mining bitcoin by half. A bitcoin halving event occurs every time an additional 210,000 blocks are added to the blockchain. The most recent halving event took place on April 19, 2024. The event cut the reward from 6.25 BTC per block to 3.125 BTC per block.

“Miners need their revenues to be more than their costs, like any business,” Malekan says. “What is likely to happen after the halving is that some miners will no longer be profitable, and they will stop mining.”

The halving happening in April will cut rewards for miners, and could drive the price of Bitcoin higher because of the lower supply of new coins. The most efficient miners will be the ones best equipped to handle the halving, industry players say.

2 Individuals began competing against powerful mining rigs with more computing power. Mining profits were slashed by the growing expenses for computing equipment, higher energy costs, and the increasing mining difficulty.

Bitcoin mining profitability is dictated by the current difficulty. The more people that are mining (and the more hash power, and electricity costs), the harder it is to turn a profit.

The computer hardware required is known as application-specific integrated circuits, or ASICs, and can cost up to $10,000. ASICs consume huge amounts of electricity, which has drawn criticism from environmental groups and limits the profitability of miners.

"We do not expect bitcoin price increases post-halving as it has already been priced in," analysts led by Nikolaos Panigirtzoglou wrote in a report on Wednesday, reiterating their previous similar views. "In fact, we see a downside for the bitcoin price post-halving for several reasons."

How long after halving does Bitcoin rise? ›

Typically, Bitcoin prices continue to surge for a good few months following a halving month, rising, on average, for seven months.

When its supply is reduced through halving, and if the demand stays constant or increases, we often see a ripple effect on the prices of other cryptocurrencies.

In a research note from Needham on Apr. 16, analysts said they expect the halving to only have a modest impact to miners' estimated EBITDA margins, despite the 50% reduction in revenue, since the price of bitcoin has been trading in the range of $60,000 to $70,000.

Bitcoin has experienced a minor decrease in its mining difficulty, a measure of how hard it is to find a new block and earn the reward.

However, a halving cuts mining rewards, so the endeavor becomes less profitable with each halving if prices remain the same or drop. The large-scale mining facilities needed to remain competitive require enormous amounts of money and energy. The equipment and facilities need maintenance and people to conduct it.

Bitcoin prices usually rise for several months following a halving event. However, this time, the market expects the halving to be different. The fourth Bitcoin halving event is almost upon us with, if history is any indicator, the cryptocurrency likely to see a post-halving surge.

The halving, however, poses an existential threat. If the halving causes Bitcoin to tumble, that would destabilize most of the other L1s with downward price action and selling pressure, weakening their treasuries and affecting ecosystem investment.

The latest adjustment, which occurred on April 10, increased the Bitcoin mining difficulty by 3.4% from the previous difficulty level of 83 trillion, which was set on March 28. The difficulty of mining Bitcoin (BTC) continues to grow ahead of the historic halving event, which is poised to cut miner rewards by 50%.

Bitcoin's network increases and decreases the hash rate (the amount of computing power) needed to mine the cryptocurrency. The more miners there are competing for a solution, the more difficult the problem will become.