According to some mining experts, the Bitcoin network hashrate could face a 30% contraction just after the next halving, expected in April 2024.
As miners’ rewards shrink, miners’ profitability will decrease unless the cryptocurrency experiences price increases in the market.
Could all this pose a problem for Bitcoin and the rest of the industry?
We see it together in this article
Mining: hashrate at risk of drop with next Bitcoin halving
The next halving of Bitcoin could have some negative implications on the network’s hashrate, which would see a drop in conjunction with lower profitability for the cryptocurrency mining industry.
Taking this view are some experts such as Lucas Pipes and Colin Harper, who are respectively a director at B. Riley Financial and a content manager at crypto services company Luxor Mining.
The former has estimated a 15% to 30% drop in Bitcoin network computing power while the latter believes a 20% drop will be possible.
The main reason for this pessimism stems from the simple assumption that the Bitcoin halving will make operations more complex for miners, who will be able to count on a halved amount of minable digital gold per block.
In fact, with the next halving that will presumably take place on 11 April 2023 (in about 39,530 blocks), the “block reward” will drop from the current 6.25 BTC to 3.125 BTC, as stipulated by the protocol every 4 years.
This halving could likely lead to the shutdown of some mining machines by unprofitable miners, adversely affecting the network hashrate.
In any case, taking past data, we can see how this phenomenon also occurred in conjunction with the May 2020 halving, whereby the reward per block dropped from 12.5 BTC to 6.25 BTC.
In that context, in the 6 days following the event, the hashrate suffered a downward decline of about 40%, rapidly dropping from 135 EH/S to 80EH/S.
In any case, all this, besides the initial fear of Bitcoiner, did not bring serious repercussions with the metric recovering within a few weeks.
Currently, the computing power of the cryptographic network corresponds to 385EH/S, about 2.85 times the value recorded in May 2020.
In recent years, the amount of power allocated for mining purposes has grown at an extremely high rate, breaking historic highs year after year, with high probability that this will happen again in the future.
The relationships between the halving, hashrate and price of BTC
As mining operators anxiously await Bitcoin’s next halving, with potential fallout on the hashrate front, it will be interesting to note the upcoming price movements of the cryptocurrency.
Indeed, historically, with each halving that took place, as miners saw the amount of coins mined for each validated block halved, the price of those coins skyrocketed, generously offsetting the negative effects.
In fact, fewer coins mined corresponds to less inflation on a four-year basis, which brings less selling pressure to the markets and an appreciation of the asset.
At the very least, this is what happened in 2012, 2016, and 2020 during each halving of the Bitcoin network.
Going into more detail, after the first halving of Bitcoin in November 2012, the price of the cryptocurrency rose from $12.30 to $1,000 in December 2013, with the hashrate also increasing substantially, rising about 300 times.
Looking instead at data from the second halving of Bitcoin dated 9 July 2016, the cryptocurrency rose from around $650 to $19,000 in December 2017.
Here, the hashrate experienced a large increase, multiplying its share of computing power by about 15 times.
Finally, looking at data from the last halving that took place on 11 May 2020, BTC experienced price increases from $8,700 to $63,000 in April 2021, with the hashrate up 60% over that period.
Growth on both fronts here has been more modest, but is the result of the asset’s greater maturity and achievement of high market capitalization, as well as the already widespread presence of mining operators around the world.
It will be interesting to see how the price of digital gold will react after the fourth halving of miners’ rewards and to what extent the network hashrate will move.
In the meantime, all the various mining companies in the industry are preparing by upgrading their machines and purchasing next-generation hardware, which enables better performance with a lower energy cost.
Then again, the key to survival for those in the mining niche has always been this: waste as little energy as possible, minimize operating costs, optimize machine mining, and hope that BTC goes “to the moon.”
Good luck miners!
