Mining through the Bitcoin halving: Survival strategies for 2024

Bitcoin’s
4th
halving
event
is
scheduled
to
occur
on
April
22nd,
at
event
block
height
840,000.
As
each
block,
containing
executed
transactions,
is
mined,
it
is
stamped
with
a
block
height,
noting
how
many
blocks
have
been
generated
before
the
latest
one. 

This
way,
block
heights
create
a
chronologically
ordered
digital
ledger,
granting
Bitcoin
its
mantle
of
decentralized
transparency
and
security
against
double-spending.
This
also
makes
it
instrumental
in
imposing
the
embedded
halving
logic
on
the
entire
Bitcoin
network,
occurring
every
210,000
blocks.

Bitcoin

halving
is
there
as
an
algorithmic
monetary
policy.
Unlike
the
arbitrary
central
banking,
halving
predictably
controls
the
inflow
(inflation)
of
new
bitcoins
by
cutting
in
half
the
miner
BTC
rewards.
The
very
first
Genesis
block
in
2009
delivered
50
BTC
to
miners.
After
the
fourth
halving,
miners
will
receive
3.125
BTC
per
block
mined. 

The
stark
difference
in
these
rewards
translates
to
Bitcoin’s
inflation
rate.
From
over
1,000%
to
present
1.7%,
Bitcoin’s
inflation
rate
will
once
again
be
cut
in
half.
And
as
less
BTC
is
available
in
the
supply,
each
Bitcoin
becomes
more
valuable.

Yet,
Bitcoin
halvings
are
just
one
of
many
factors
impacting
BTC
price.
One
of
the
most
severe
halving
impacts
revolves
around
Bitcoin
mining
profitability.
If
BTC
rewards
become
so
low,
would
this
force
BTC
selloffs
from
struggling
mining
companies?
And
if
that
is
the
case,
wouldn’t
the
selloff
pressure
suppress
BTC
price?

Understanding
the
Halving
and
Its
Impact
on
Miners

To
understand
the
importance
of
something,
it
is
best
to
imagine
its
absence.
In
the
case
of
Bitcoin
halving,
its
absence
would
mean
that
all
21
million
BTC
would
have
been
immediately
available
upon
the
launch
of
the
Bitcoin
mainnet.

Conversely,
that
would
greatly
diminish
BTC
scarcity,
especially
given
its
initial
unproven,
novel
proof
of
concept
as
a
digital
asset.
After
three
halvings,
Bitcoin
scarcity
has
proven
a
successful
foil
against
fiat
currency
debasement,
as
central
banks
tamper
with
their
respective
money
supplies.
In
other
words,
halvings
paced
out
the
Bitcoin
supply
and
demand
dynamic,
allowing
for
adoption
to
unfold.

And
as
Bitcoin
adoption
increased,
the
Bitcoin
mining
network
became
more
secure.
That’s
because
more
Bitcoin
miners
elevate
Bitcoin
mining
difficulty,
which
is
auto-adjusted
every
two
weeks.
Following
the
reshuffling
of
the
supply
and
demand
dynamic,
Bitcoin
halvings
typically
result
in
multiple
gains
pre
and
post
halvings.

Likewise,
the
very
purpose
of
Bitcoin
mining
difficulty
is
to
regulate
the
rate
at
which
new
transaction
blocks
are
added
to
the
network
(~10
min),
after
every
2016
blocks.
Without
this
mechanism,
Bitcoin
mainnet
would
be
less
secure
because
miners
could
be
disincentivized
from
participating.

With
the
Bitcoin
mining
difficulty,
their
profitability
is
auto-corrected.
If
too
many
miners
unplug,
the
difficulty
lowers,
making
it
more
profitable
to
mine
regardless
of
cut
rewards.
If
more
miners
onboard
the
network,
the
difficulty
elevates,
making
it
less
profitable
to
secure
the
network
(its
computing
power
expressed
in


hash
rate).

However,
this
is
offset
with
BTC
price
rising
over
time,
owing
to
its
supply
scarcity.
When
BTC
mining
rewards
are
cut
in
half,
miners
suffer
a
profitability
hit.
If
the
mining
difficulty
is
not
lowered,
they
must
increase
their
cost-efficiency
by
reinvesting
in
operations’
upgrades.
Accordingly,
these
miner
cycles
are
called
periods
of
accumulation
and
capitulation.

In
the
end,
Bitcoin
miners
must
carefully
think
ahead.
Without
overextending
themselves
in
the
expansion/debt
department,
they
rely
on
BTC
price
boost
to
carry
them
through
the
halvings.

Challenges
for
Bitcoin
Miners
Post-2024
Halving

As
of
March
26th,
the
total
hash
rate
of
the
Bitcoin
network
is
614.6
million
TH/s,
or
614.6
EH/s.
Bitcoin
miner
revenue
per
TH/s
is


$0.10.
To
put
this
into
context,
Bitmain’s
latest
mining
rig,
Antminer
S21
priced
around
$4,500,
yields
a
hash
rate
of
188
TH/s
while
consuming
3500
Watts
worth
of
electricity.

Some
machines
are
even
more
powerful
and
expensive,
such
as
the
Antminer
S21
Hyd
335T.
Against
the
cost
of
these
machines,
miners
must
account
for
electricity
costs,
cooling,
maintenance,
debt
interest
payments
and
the
cost
of
facilities
themselves.
Those
companies
unable
to
perform
this
balancing
act
will
go
bankrupt,
as
it
happened
to


Core
Scientific

in
2022. 

For
individuals
using
ordinary
PCs
and
laptops,
Bitcoin
mining
long
ceased
to
be
profitable.
They
would
have
to
invest
in
specialized
ASIC
machines
to
go
against
the
rising
Bitcoin
mining
difficulty
and
subsequent
increase
in
energy
costs.
The
USG,
reliant
on
central
banking
and
currency
debasement,
is
well
aware
of
this
fact.

At
the
end
of
January,
the
Energy
Information
Administration
(EIA)
began
to
explore
how
to
cripple
miners’
operations.
By


requesting
mandatory
survey
data

on
their
energy
consumption,
EIA
would
then
relay
findings
to
the
Department
of
Energy
(DoE)
to
enact
restrictive
policies. 

Owing
to
the
swift
legal
action
of
Texas
Blockchain
Council
(TBC)
and
Riot,
this
action
has
been
halted
as
of


March
2
filing.

Technological
Advancements
and
Efficiency
Improvements 

Bitcoin’s

proof-of-work
is
the
critical
component
of
BTC
value.
It
makes
it
possible
for
a
digital
asset
to
be
anchored
into
physical
reality
via
energy
consumption
and
hardware
assets.
Otherwise,
a
multitude
of
cryptocurrencies
could
be
created
at
low-cost,
introducing
noise
in
their
valuation. 

But
just
as
energy
consumption
is
Bitcoin’s
strength,
it
is
also
its
weakness
from
a
political
standpoint.
Case
in
point,
Elon
Musk
revoked
Bitcoin
payment
from
Tesla
in
May
2021,
triggering
a
major
crash.
Since
those
days,
Bitcoin
mining
has
gone
green,
having
drawn


54.5%
of
energy

from
sustainable
sources.

In
addition
to
using
regenerative
hydropower,
such
as
Norwegian
Kryptovault,
Bitcoin
miners
can
put
excess
heat
to
good
use.
For
instance,
Kryptovault
funnels
this
hot
air
to
dry
out
chopped
logs
for
the
lumber
industry.
Many
smaller
mining
operations
took
this
approach
to
heat
their
homes.

Heating
an
entire
home
with

#bitcoin
mining

pic.twitter.com/470jJ7PSGW

—
Documenting
₿itcoin
????
(@DocumentingBTC)

December
28,
2022

Other
miners,
such
as
Crusoe
Energy
Systems,
attached
their
operations
to
oil
and
natural
drill
wells,
using
the
excess
gas
instead
of
setting
it
wastefully
on
fire.
On
a
larger
scale,
Bitcoin
miners
even
help
to
balance
the
electrical
grid,
as
noted
by
now
deceased
ERCOT
CEO
Brad
Jones.

The

#bitcoin
energy
debate
is
over.

Head
of
the
Texas
electrical
grid,
Brad
Jones
explains,
“#Bitcoin
mining
is
helping
balance
our
grid
and
is
driving
more
renewables
into
our
system”pic.twitter.com/kGYwAkOVv8

—
Documenting
₿itcoin
????
(@DocumentingBTC)

March
5,
2023

At
the
high
end,
Bitcoin
miners
are
turning
to
the
densest
and
greenest
form
of
energy
–
nuclear.
TeraWulf
began
its
construction
of
the


Nautilus
Cryptomine

facility
as
the
first
nuclear-power
Bitcoin
mining
operation.
At
2
cents
per
KW/h,
TeraWulf
is
looking
to
become
the
most
cost-effective
miner
in
the
world.

Within
the
next
halving
cycle,
much
is
expected
of


hydrogen

infrastructure
as
the
next
best
solution
to
nuclear
power.
However,
the
most
common
path
to
cost-effectiveness
remains
the
pooling
of
resources
in


mining
pools. 

What
to
Expect
In
the
Post-Halving
Landscape

Serving
as
a
currency
debasement
foil,
Bitcoin
provides
an
out
for
miners
as
well.
They
buy
time
with
debt
to
upgrade,
in
the
hopes
of
boosted
BTC
price
repaying
that
debt
down
the
line.
The
problem
is,
only
the
prepared
miners,
with
the
up-to-date
rigs
and
favorable
energy
costs
will
survive. 

After
all,
it
is
they
who
will
keep
the
Bitcoin
mining
difficulty
elevated.
Those
who
can’t
compete
will
leave
the
network,
making
the
job
easier
for
competitors
as
network
difficulty
is
auto-adjusted.
According
to
Luxor’s
base
case,
in
the
scenario
of
BTC
price
remaining
within
the
$66k
–
$66k
range,
3%
Bitcoin
miners
could
leave
the
network.

Furthermore,


Luxor
projects

Bitcoin
difficulty
to
reach
725
EH/s
by
the
end
of
the
year.
This
would
level
the
post-halving
hashprice
at
$53/PH/day,
aligning
with
the
flat
case
hashprice
projection.

Presently,
the
breakeven
hashprice
stands
at
$37.20/PH/day,
without
accounting
for
firmware
upgrades.
Other
companies,
like


Blockware
Solutions,
expect
hashrate
to
reach
~670
EH/s
by
the
end
of
the
year,
using
the
2020
halving
as
benchmark
when
the
hashrate
increased
by
30%
by
the
end
of
the
year.

Keeping
this
in
mind,
Bitcoin
miners
should
plan
for
long-term
scalability,
such
as
TerraWulf’s
investment
in
nuclear
power.
In
the
meantime,
to
hedge
against
uncertainty,
miners
could
take
advantage
of


Bitcoin
derivatives
products. 

Case
in
point,
several
trading
platforms
currently
exist
which
provide
exchange
traded
futures
as
the
mechanism
to
sell
forward
their
mining
productivity.
Just
as
in
traditional
markets
with
commodities,
miners
could
use
this
strategy
to
safeguard
against
BTC
price
fluctuations. 

And
with
recurrent
revenue
streams,
the
spike
in
operational
costs
could
be
lessened.
Likewise,
Bitcoin
mining
companies
can
diversify
and
offer
cloud
mining
services
with
enhanced


cloud
security.

Conclusion

Taking
all
of
its
elements
into
account,
Bitcoin
is
a
marvel
of
both
software
engineering
and
economic
theory.
It
turns
out,
it
is
possible
to
enact
monetary
policy
and
incentives
without
resorting
to
direct
centralized
tampering. 

Bitcoin
miners
play
a
key
role
in
this
digital
enactment.
Although
they
have
to
resort
to
the
Darwinian
play
of
the
survival
of
the
fittest,
the
unknowns
are
less
prevalent.
With
three
halvings
behind,
data
for
projections
is
there
to
take
advantage
of. 

The
only
question
remains,
which
Bitcoin
miners
aligned
their
financial
modeling
with
the
worst
bear
case?