Researchers at JP Morgan, a major global financial institution, anticipate that Bitcoin miners will experience difficulties with the hash rate. This approaches new record highs in advance of the forthcoming halving event in April or May 2024. The halving event, which happens about every four years, will slash miner incentives in half and present serious operational issues.
The halving event will raise the cost of producing Bitcoin by lowering the issuance incentive from 6.25 to 3.125 BTC. Fluctuating electricity prices and intense rivalry among miners are projected to increase the cost of production. This situation will apply pressure to miners, particularly those with higher operating costs.
JP Morgan’s analysis reveals that currently, it costs about $20,000 to mine one Bitcoin, and its current value stands at around $30,000. This analysis is based on an average global electricity cost of $0.05/kWh. However, miners’ use of different energy sources is indicated by the fluctuation of the hash rate. This offers a benefit to those who can access less expensive power.
JP Morgan Analysis: Implications for Bitcoin Miners
A slight increase in the price per kilowatt hour could result in a substantial increase in the cost of producing Bitcoin. For instance, a 1% rise would mean a $4,300 increase in production expenses. After the halving event, this sensitivity would increase to $8,600, exposing higher-cost producers to greater risk.
Miners have seen positive developments like institutional interest and investments from Galaxy Digital and Grayscale Investments. However, the diminishing excitement around cryptocurrencies poses an additional income challenge for them.
The cost of Bitcoin will need to significantly increase, as will transaction fees, to make up for the decreased block rewards. JP Morgan warns that sustained hash rate growth after the halving event depends on Bitcoin’s price surpassing production costs. Alternatively, a significant rise in transaction fees could support the hash rate increase.
The forthcoming halving event will stress-test Bitcoin miners, challenging their sustainability in the evolving cryptocurrency landscape. They must overcome these difficulties to endure.