Bitcoin halving may push miners’ net profit into negative territory

The next Bitcoin (BTC) halving, set to occur in April 2024, could plunge miner profits into the red, Bloomberg reported on July 8.

Every four years, mining rewards for Bitcoin are slashed in half — this event is known as Bitcoin halving. Historically, all Bitcoin halvings have been followed by major bull runs, so investors welcome the event. In 2012, 2016, and 2020, the price of BTC increased by 8,450%, 290%, and 560% in a year, after the halving events.

The upcoming halving will cut mining rewards from the current 6.25 BTC to 3.125 BTC. Until now, BTC miners have made up for the loss of mining rewards after each halving by increasing their efficiency with technological advancements.

The BTC price rallies have also worked in the favor of miners, who could sell their holdings at large profits. However, the report noted that things will become more challenging next year as miners deal with increasing electricity costs and debt burden.

Less efficiency, less profit

Jaran Mellerud, crypto mining analyst at Hashrate Index, told Bloomberg that nearly half of the Bitcoin miners have less than optimal efficiency in their mining operations. Therefore, these miners are likely to struggle after the next halving.

Mellerud said that the break-even electricity price of the most common mining machine is expected to drop from $0.12/kilowatt-hour to $0.06/kWh after the halving. However, he said around 40% of BTC miners operate at a higher cost per kWh than $0.06/kWh.

Therefore, miners with operating costs above $0.08/kWh and those that do not own mining rigs are likely to be drastically impacted by the halving, Mellerud added.

Wolfie Zhao, head of research at TheMinerMag, the research unit of mining consultancy BlocksBridge, said:

“If you count in everything, the total cost for certain miners is well above Bitcoin’s current price.

Net profits will turn negative for many miners with less efficient operations.”

Moreover, many of the largest mining firms are still trying to reduce their debt, which is eating into their profits. The debt of the global mining industry has reduced from $8 billion in 2022 to around $4.5 billion to $6 billion at present, Ethan Vera, COO at Luxor Technologies, estimates.

Furthermore, mining difficulty hit a record high in June, indicating that miner competition is rising. As a result, miner profit margins are on the decline. Kevin Zhang, senior VP at Foundry, said that BTC prices would have to rise to $50,000-$60,000 next year for miners to retain the same profit margins.

Preparations may not be enough

In Q1 2023, 14 publicly-listed miners spent between $7,200 and $18,900 to mine one BTC, data from TheMinerMag shows. BTC halving is expected to double the cost of mining to around $40,000, the Bloomberg report noted, citing JPMorgan estimates.

According to Zhang, miners prepare for the halving by being “more sophisticated with their power costs and secure the pricing from their power providers in advance.”

Tiffany Wang, CEO of BTC miner Lotta Yotta, noted that while all miners need to be prepared for the halving, “a lot of miners will eventually be driven out of the market.”