A new report issued by financial powerhouse JPMorgan says the next bitcoin halving – which is presently scheduled to occur in 2024 – could make the playing field very difficult for crypto miners.
JPMorgan on the Next Bitcoin Halving
The bitcoin halving tends to occur every four years. Each time it happens, two things take place. One, the leadup causes the bitcoin price to shoot higher like nobody’s business. Traders are super happy as they are now witnessing great returns on the assets they already bought, and their portfolios are blowing through the roof. That’s the good news.
However, things are not especially great for miners, who often see their rewards cut in half (hence the term “halving”) from what they were over the previous four years. While their workloads may not go down, their payments do, and they’re now solving the harsh, quantum questions needing answers (and which lead to bitcoin being added into circulation) for a lot less cash.
Among the problems JPMorgan sees miners dealing with are higher electricity costs and greater degrees of competition. The company said in its report:
The upcoming bitcoin halving event in April/May 2024 could be a stress test for bitcoin miners. [It] would reduce the issuance rewards from 6.25 to 3.125 BTC, implying a reduction in miners’ revenue, effectively increasing bitcoin’s production cost at the same time. As a result, while bitcoin halving is seen as having a positive effect on the bitcoin price given the production cost acted historically as a floor, it poses a challenge for bitcoin miners.
Electricity costs will likely put the biggest damper on production levels. For example, a simple one-cent increase in general electricity costs could lead to an overall surge in bitcoin production financial requirements of more than $4,000. The report said:
Post halving, this sensitivity would double to $8,600, thus increasing the vulnerability of higher-cost producers.
Despite all the gloom and doom, JPMorgan managed to unveil some positive facts. The document states:
Institutional interest in bitcoin mining has provided support to struggling miners, with investments in mining rigs from companies like Galaxy Digital and Grayscale Investments. Tether, the world largest stable-coin issuer, also plans an investment in a bitcoin mining site in El Salvador.
Things Won’t Be Easy
However, JPMorgan questioned whether miners would want to keep up their present production levels or if new miners would want to run in given the lack of enthusiasm directed towards crypto as of late. The report said:
Going forward, it seems unlikely that the bitcoin hash rate will continue to rise at the same pace post the April/May 2024 halving event without any sustained rise in the bitcoin price above its production cost or a large increase in transaction fees that could offset the reduction in issuance rewards.