New research from analytics firm Glassnode has warned that Bitcoin miners could soon face “severe income stress” following the next block subsidy halving. The firm’s weekly newsletter, “The Week On-Chain,” predicts that miners will encounter fresh problems as competition in the industry continues to grow.
Currently, the hash rate, which is the estimated combined processing power deployed to the Bitcoin blockchain, has reached record highs. This indicates unprecedented conditions for miners who are trying to make a living at the current BTC price levels.
Glassnode notes that ordinal inscriptions are helping miners. These inscriptions act as “packing-filler,” turning empty blockspace into a source of revenue for miners. As blockspace demand increases, miner revenues are positively affected. However, the proportion of income received from fees remains modest by historical standards, even though it has increased between 1% and 4% compared to lows seen during Bitcoin bear markets.
The significant increase in hash rate, combined with the upcoming halving event in April 2024, poses challenges for miners. After the halving, miner rewards per block will drop 50%, effectively doubling the “production cost” per BTC. Glassnode presented two models for estimating the price at which miners, on average, would fall into the red. One model puts the acquisition price at around $15.1k, while the other model estimates a post-halving level of $30.2k, which would likely cause severe income stress for the majority of the mining market.
Despite these challenges, some analysts are more optimistic about how miners will handle the build-up to the halving. Analyst Filbfilb, co-founder of trading suite DecenTrader, believes miners will increase their BTC accumulation in advance of the event. He argues that miners are incentivized to ensure that prices are well above marginal cost prior to the halving to protect their revenue.
Additionally, Filbfilb suggests that smart money will “buy the rumor” over the halving, further assisting BTC supply dynamics. This means that investors are likely to increase their buying activity in anticipation of the halving and its impact on the amount of Bitcoin being minted.
It remains to be seen how exactly miners will navigate these challenges, but the evolving landscape of the mining industry and the upcoming halving event will undoubtedly have a significant impact on their profitability. As always, investors and readers are advised to conduct their own research and make informed decisions regarding investments in cryptocurrencies.