Bitcoin Miners Brace for Challenges in Upcoming Halving, JP Morgan Warns
Bitcoin miners are expected to encounter difficulties as the hash rate reaches new record levels ahead of the upcoming halving event in spring. Global financial giant JP Morgan warns that volatile electricity costs and intense competition among miners will drive up production costs. The halving event, which occurs approximately every four years, will reduce miners' rewards by half. In JP Morgan's Flows and Liquidity report, analysts, including Nikolaos Panigirtzoglou, express concern about the potential stress on Bitcoin miners during the April/May 2024 halving event. The reduction of issuance rewards from 6.25 to 3.125 BTC will result in a decline in miners' revenue and an increase in Bitcoin's production cost. While the halving historically had a positive impact on the Bitcoin price by acting as a price floor, it presents a challenge for miners. According to JP Morgan's analysis, based on an average global electricity cost of $0.05/kWh, the cost to mine one Bitcoin is around $20,000, while the current price stands at approximately $30,000. However, the volatility of the hash rate indicates the utilization of various energy sources, giving miners with access to lower-priced power an advantage. A mere one-cent increase in the cost per kilowatt-hour translates to a $4,300 rise in Bitcoin production costs. Post-halving, this sensitivity doubles to $8,600, increasing the vulnerability of higher-cost producers. Despite the challenges, there have been positive developments for miners. Institutional interest in Bitcoin mining has provided support, with companies like Galaxy Digital and Grayscale Investments investing in mining rigs. Galaxy Digital's acquisition of Argo Blockchain and Grayscale's establishment of a Bitcoin mining hardware-focused entity demonstrate this trend. Tether, the largest stablecoin issuer, also plans to invest in a Bitcoin mining site in El Salvador, further benefiting miners. However, the lower block reward necessitates a significant rise in the price of Bitcoin and transaction fees to offset the reduction. JP Morgan also notes that the decline in cryptocurrency hype poses an additional revenue challenge for miners, including the decreasing interest in "Ordinals." JP Morgan concludes that without sustained growth in the Bitcoin price above its production cost or a substantial increase in transaction fees, it is unlikely that the Bitcoin hash rate will continue to rise at the same pace following the April/May 2024 halving event. As miners prepare for the upcoming challenges, the Bitcoin market will closely monitor the impact of the halving event on mining operations and the overall ecosystem.