The future of Bitcoin mining is at a pivotal point. With the upcoming halving event, expected to take place in 2020, miners are set to experience reduced cash flow amidst rising costs. Miners now find themselves in a very different reality to the early days of Bitcoin, where profits were high and regulatory scrutiny was low, and they must adapt to survive.
What Is the Halving Event?
Bitcoin investors own bitcoin because they believe it will rise in value and the halving event, due to take place in May 2020, may well provide this. “Halving” will cut the amount of bitcoin that can be mined from around 900 per day to 450, making the asset even scarcer while providing a deflationary measure to bolster it as a store of value. The halving before in 2016 saw a 142% surge in Bitcoin’s price, supporting the notion that history may repeat itself.
The Rise of Costs
The same halving event that will likely increase bitcoin’s value will decrease the profitability of mining. Fewer minable Bitcoin means less profit while the rising costs of running operations present a bottom-line challenge for miners as it squeezes them on both ends. This squeezing is made even more severe, thanks to the policy of the US Federal Reserve and its aggressive hiking of interest rates.
“Bitcoin’s price plummet in the second half of 2022 caused a cascade of bankruptcies for companies that took on too much debt and pursued high priced growth, and a similar dynamic is likely on the horizon. Miners must prepare for the formulaic turbulence ahead by acting cautiously, keeping more cash on hand and making their operations leaner” – Samir Tabar, CEO of Bit Digital.
Miners can prepare themselves for the turbulence ahead by enacting precautions, such as keeping more cash on hand and making their operations leaner. Developing a strong balance sheet and diversifying revenue is more important than ever, guarding against formulaic turbulence, business cycles and wasting carried interest as they remain conservative yet aware of changing conditions.
Innovation, such as the flywheel model, presents several opportunities for miners, and collaboration between Bitcoin and Ethereum should be encouraged. Miners must hold themselves accountable, demonstrating to their communities that their business interests run parallel to loyalties to the country.
Summarising, while everything may be harder about Bitcoin mining today than it was years ago, with good preparation and careful management, a renewed future for Bitcoin miners could be on the horizon. With everything changing so rapidly, miners would do well to control their own fate and carve out a sustainable future for their companies.
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[h/t Sam Tabar]