Bitcoin Halving: Breaking Down Profitability For Bitcoin Miners

The highly anticipated bitcoin halving event occurred last Friday, marking a significant milestone in the realm of digital currencies. Amidst minimal fanfare, the block reward for bitcoin miners was slashed in half, dropping from 6.25 BTC per mined block to 3.125 BTC per block.

The halving, occurring precisely at 8:09 p.m. ET, primarily impacts bitcoin miners, altering their block rewards and consequently affecting their profitability. By halving the rate at which new bitcoins are introduced into circulation, the cryptocurrency’s inherent scarcity mechanism comes into play, potentially shaping its long-term trajectory.

READ: Bitcoin Miners Bracing for Multibillion-Dollar Revenue Hit as Reward Halving Looms

The immediate aftermath of the quadrennial halving saw no substantial disruption to the broader markets, with the price of bitcoin maintaining relative stability around $65,000. However, the significance lies beyond the surface, particularly for miners, traders, and investors.

While the immediate impact may seem subdued, historical data suggests that halving events often precede significant price movements in the cryptocurrency. Market analysts note that trading volume typically surges in the months leading up to halvings, as investor interest intensifies and prices gather momentum.

Megan Stals, a market analyst at trading platform Stake, observed a notable increase in trading volume on crypto exchanges in March compared to February, indicating growing investor appetite.

From a technical standpoint, the halving event is not anticipated to have an immediate impact on bitcoin’s price. Nonetheless, numerous investors foresee substantial returns in the coming months, drawing from the cryptocurrency’s historical performance following past halvings. Following the halvings in 2012, 2016, and 2020, bitcoin’s price surged approximately 93x, 30x, and 8x, respectively, from the day of halving to the peak of its cycle.

Hash rates, a measure of the computational power used in bitcoin mining, also come into focus following the halving. The adjustment in block rewards could influence miners’ hash rate strategies, with implications for industry dynamics and profitability.

READ: Only Two Bitcoin Miners Will Be Profitable Post Halving — Report

A recent report by financial services firm Cantor Fitzgerald highlights potential profitability challenges facing 11 major publicly-traded Bitcoin miners following the upcoming halving event. Companies like Marathon Digital, Riot Blockchain, and Core Scientific may struggle to mine bitcoin profitably if prices do not significantly increase post-halving.

Specifically, Argo Blockchain and Hut 8 Mining are cited as potentially facing profitability issues post-halving, with current “all in” cost-per-coin rates of $62,276 and $60,360, respectively, at the current Bitcoin price.

The economics of mining

However, the halving event isn’t without its challenges, particularly for miners. The halving effectively halves industry revenues, prompting a wave of consolidation and potential business closures. Analysts speculate that this rationalization could ultimately benefit the remaining operators, leading to a more streamlined and efficient mining ecosystem.

“Miners face a profitability squeeze [after the halving] event, due to the increased compute power and energy needed to mint new coins,” said Stals. “Larger miners should have the resources to invest in new hardware and find more efficient energy sources, but each halving event makes it more difficult for smaller miners to stay in business.”

Bitfarms (TSX: BITF) still operated at a net loss in Q4 2023 – meaning the halving likely won’t treat them well. However, the quarter saw positive gross margin of $1.8 million, with $46.2 million in revenue against $44.5 million in costd of revenue. With 1,236 bitcoin mined for the period, the cost of revenue per bitcoin mined amounts to roughly $36,000.

In a hypothetical sense, with all things equal, should the mining output be halved as a supposed result of the halving event, the cost of revenue per bitcoin mined lands around $72,000 – which would be a loss against the current bitcoin price of $65,000.

Similar situations can be seen across the major bitcoin miners: Hut 8 Mining (TSX: HUT)Hive Blockchain (TSXV: HIVE)Marathon Digital (NASDAQ: MARA), and Riot Blockchain (NASDAQ: RIOT).

CompanyBitcoin minedCost of revenueCost of revenue/BTC minedReported cost per BTCEstimated cost of revenue/BTC mined post-halving
Bitfarms (Q4 2023)1,236$44,484,000$35,990$25,200$71,981
Hive Blockchain (Q3 2023)830$36,386,000$43,839$22,607$87,677
Hut 8 (H2 2023)1,244$34,302,000$27,574$18,815$55,148
Marathon Digital (Q4 2023)4,242$146,068,000$34,434N/A$68,868
Riot Blockchain (2023)6,626$254,333,000 (mining, hosting, & engineering)$38,384$7,539
(net of power credits)

While the data above attempts to approximate parallel comparison, it’s important to highlight certain intricacies and nuisances inherent in the data above. For instance, Riot Blockchain receives power credits, which can influence production costs depending on where these credits are applied.

Based on the current price of bitcoin, however, it could be surmised that with the current capacity to produce at the same level – now yielding half of the output – the bottomline could be redder than ever. So with the conclusion of the bitcoin halving event, investors are eagerly anticipating its impact on the cryptocurrency’s price and market dynamics in the upcoming weeks and months.

Following the initial halving in November 2012, bitcoin experienced a surge from approximately $11 to a peak of $1,100 in November 2013. Similarly, after the second halving in July 2016, the price soared from around $650 to nearly $20,000 by December 2017. Subsequently, the third halving propelled BTC to over $69,000 the following year.

“While bitcoin’s price has historically risen before and after each halving event, it has not always been a straight line up. Following previous halvings, prices have often pulled back before reaching a new peak around 220 and 240 days later,” Stals added. “The halving is often portrayed as a short-term event, but it can take several months to see the full effect.”

A promising indicator for bitcoin’s short-term price trajectory is the recent net inflow into bitcoin ETFs, suggesting that institutional investors are currently more inclined to buy rather than sell.

Of course, improving hash rates would also come into play in terms of the miners’ profitability. The more that they invest in increasing the mining power, the more bitcoin they can mine at a faster rate, potentially offsetting some of the effects of the halving event.

However, Stals cautions that investors should closely monitor trading activity, as significant one-off sales by large holders could adversely affect short-term prices and sentiment.

According to bitcoin analyst Noelle Acheson, referencing Bloomberg data, if the current cycle mirrors the previous one, bitcoin could potentially reach $450,000 in a year, or $270,000 if it resembles the 2016 cycle more closely.

However, utilizing Axios data, Acheson suggests that bitcoin’s price might climb to $350,000 (based on the previous cycle) or even $1.8 million (applying the 2016 cycle’s performance), potentially resulting in a staggering $35 trillion market capitalization for bitcoin.

The pseudonymous founder of Bitcoin, Satoshi Nakamoto, established a strict limit of 21 million bitcoins for mining. As each halving occurs, the pace of new bitcoin creation decelerates, with the projected completion of mining the final bitcoin anticipated around the year 2140.

Information for this briefing was found via Sedar, Edgar, Forbes, CNBC, and the sources and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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