The report highlights that the rapid growth in the Bitcoin hashrate is unlikely to continue at the same pace after the halving event.
As the next Bitcoin (BTC) halving event approaches, analysts at American investment banking giant JPMorgan Chase & Co (NYSE: JPM), led by Nikolaos Panigirtzoglou, recently highlighted its challenges for miners.
In a recent report, the analysts noted that the hashrate for Bitcoin has recently reached new all-time highs. This surge in hashrate signifies the escalating competition among miners as they gear up for the next halving event expected in the second quarter of 2024.
Challenges for Bitcoin Miners
The report points out that the event will decrease the block reward from 6.25 BTC to 3.125 BTC. This reduction will directly impact miners’ revenues, as they will earn fewer Bitcoin for their mining efforts. Consequently, miners will face a decline in their income, which raises concerns about the profitability and sustainability of mining operations.
Additionally, the report highlights that the reduction in issuance rewards effectively increases Bitcoin’s production cost. This is because, miners must cover their operational expenses, such as equipment, electricity, and maintenance, with a smaller number of Bitcoin.
Furthermore, the analysts emphasized that miners with lower electricity costs are expected to have an easier time sustaining their operations, while those with higher power costs may face challenges after the halving event is over.
Specifically, JPMorgan estimates that a 1% per kilowatt hour (kWh) change in electricity cost can lead to a $4,300 change in the production cost of Bitcoin. After the halving, this sensitivity is expected to double to $8,600, thus increasing the vulnerability of higher-cost miners.
The bank also highlights the rising competition among Bitcoin miners, reflected in the steep rise in the hashrate. The hashrate represents the total computational power dedicated to mining Bitcoin, and its increase indicates intensified competition within the mining industry.
As miners anticipate the halving event, more mining rigs are being deployed to capture a larger share of the diminishing block rewards. This influx of computational power contributes to the overall hashrate growth.
Hashrate Post-halving Event
The report highlights that the rapid growth in the Bitcoin hashrate is unlikely to continue at the same pace after the halving event. The analysts emphasized that without a sustained rise in the Bitcoin price above its production cost or a significant increase in transaction fees, the growth in the hashrate may be offset by the reduction in issuance rewards.
The potential slowdown in hashrate growth post-halving has implications for the mining ecosystem. If the Bitcoin price does not rise sufficiently or transaction fees do not increase significantly, miners may face profitability challenges. This scenario could lead to some miners exiting the market, particularly those with higher production costs or less efficient operations as we saw with series of bankruptcies last year
It is worth noting that the relationship between hashrate, Bitcoin price, and transaction fees is dynamic and susceptible to change. A persistent rise in the Bitcoin price or a considerable increase in transaction fees may encourage miners to continue investing in processing power, hence promoting hashrate growth.
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