Bitcoin Halving Approaching in April: What to Expect?

Historical patterns show Bitcoin typically surges by 200–300% following halving events. For instance, after the last halving in May 2020, Bitcoin's value soared sevenfold over the next year, hitting an all-time high of $69,000.

However, what lies ahead, especially with the halving still over a month away and the BTC price ALREADY nearly mirroring its previous ATH? This development has puzzled many, as such a market pattern seems unprecedented. Let's explore potential future scenarios and scrutinize the underlying factors.

Mining Earnings: A Current Snapshot 

As of this article's publication, miners receive 6.25 BTC per mined block, equating to approximately $315,000. However, this amount doesn't account for the myriad of operational costs such as rent, equipment purchase and upkeep, electricity bills, taxes, staff wages, and financial obligations. 

The increasing difficulty in solo mining has led to the formation of mining pools, where miners share profits in proportion to their contributed computing power. Yet, the key indicator of mining profitability remains the net margin between earnings and expenses. Several factors influence this profitability:

• The market price of the mined BTC;
• Current mining difficulty;
• Costs and performance of mining equipment;
• Electricity consumption rates;
• Legal and tax environments.

These factors together determine the breakeven point for BTC mining. Miners neither gain nor lose if the market price matches the mining cost. However, falling prices below production costs could lead miners towards bankruptcy.

Present-Day Mining Costs for BTC

Considering the United States hosts about 35% of the global mining capacity (according to the University of Cambridge), calculating the production cost within the U.S. offers a practical perspective.

Bitcoin Mining Map. Source: ccaf.io

In the realm of industrial-scale operations, including the world of cryptocurrency mining, the United States sees electricity prices pegged at $86 per megawatt-hour, translating to $0.086 per kilowatt-hour. The mining landscape is constantly evolving, with the overall difficulty metric dynamically adjusting to reflect the network's hash rate, currently at 605.33 EH/s. As we rounded off February 2024, this figure stood at 81.73 T.

The rule is simple: the higher the hash rate, the more challenging the mining. Source: Explorer.btc.com

Setting aside potential unforeseen costs such as equipment maintenance, the estimated expense of mining one Bitcoin hovers between $18,000 and $20,000.

This estimation gains further credence following the tumultuous fallout from the FTX scandal in 2022, which saw Bitcoin's value plummet below $16,000, culminating in the downfall of several mining entities.

The Profitability Puzzle of 2024 Mining

It's noteworthy that certain mining pools, rendered inactive during the 2022–2023 downturn, opted for bankruptcy over liquidating their coin inventories at a loss. Now, with BTC prices reaching $69,000, mining income could potentially exceed expenditures by more than threefold.

However, the April halving could fundamentally alter this dynamic. The production cost per coin could jump to $36,000–$40,000, as miners will receive half the amount of BTC for the same effort. Should market prices fall below this, miners may likely hold onto their assets. This particularly applies to “new” coins mined post-halving.

For mining ventures to remain viable, Bitcoin's market price must outstrip production costs twofold. Therefore, a post-halving surge to the $80,000–$100,000 bracket becomes crucial for miners. Absent such a rally in the months following the halving, mining could tread into unprofitable territory for a significant stretch of 2024, if not the entire year. Nevertheless, the recent impressive surge to $69,000 injects a dose of optimism into the mining community.

In response, astute companies are likely to amass significant Bitcoin reserves, strategically poised to navigate through potential market downturns. This stash could serve as a financial buffer, liquidated as needed to support operational necessities.

The Halving's Ripple Effect 

Mining significantly influences the Bitcoin market by supplying the bulk of BTC available. Miners benefit from limiting their coin sales to artificially improve the supply-demand balance, thereby adjusting BTC's price.

This underpins the consistently positive impact of halving events on Bitcoin's long-term valuation, enhancing its scarcity and complicating its production process. The market, in turn, is expected to compensate with higher valuations.

Historical precedents in 2012, 2016, and 2020 corroborate this trend, with Bitcoin's price experiencing significant upticks in the year following a halving. This pattern is anticipated to persist.

Further exploration of halving's enduring influence on Bitcoin's price dynamics can be found in our dedicated article.

Satoshi's Master Plan

Behind Bitcoin's creation lies the calculated foresight of its anonymous founder. The system designed by Satoshi Nakamoto inherently ensures the continuous appreciation of Bitcoin's value through both an increase in the network's hash rate and the quality of mining equipment (to compete for blocks, miners must upgrade their gear to more modern standards).

The inherent design of Bitcoin's mining ecosystem safeguards against becoming entirely non-viable. Should an excessive number of miners exit, a reduction in difficulty would follow within two weeks, simplifying the mining process and restoring profitability. This equilibrium ensures mining's attractiveness, with the hash rate and difficulty levels poised in a perpetual cycle. 

This meticulously balanced system averts the risks of significant overvaluation or devaluation of Bitcoin. Even after 2140, when all bitcoins have been mined, miners will still earn from transaction fees. The future value of 1 BTC is a tantalizing prospect, indeed.