Bitcoin Mining Profitability May Not Decline Despite Impending Halving, Says Acheron Trading CEO
Summary:
Despite the upcoming Bitcoin halving, which will cut Bitcoin (BTC) supply issuance by 50%, Bitcoin mining profitability may not necessarily fall, says Laurent Benayoun, CEO of Acheron Trading. He argues that the reduction in mining incentives will likely be offset by a rise in network fees. The halving, scheduled for April 20, will cut block issuance rewards from 6.25 BTC to 3.125 BTC. However, the 2024 halving could see increased network fees due to Ordinals inscriptions and Bitcoin-native decentralized finance (DeFi), or BTCFi. Mining companies are expected to stay profitable if Bitcoin price stays above the $70,000 mark.
Despite the impending Bitcoin halving that will see Bitcoin (BTC) supply issuance decrease by 50%, the profitability of Bitcoin mining may not necessarily decline, argues Laurent Benayoun, the Chief Executive Officer of Acheron Trading during his interview with Cointelegraph: "It doesn't immediately mean that miners will be financially impacted by the halving, in fact, it could be the opposite... The reduction in mining incentives will likely be offset by a rise in network fees."
The Bitcoin halving, scheduled for April 20, will cut block issuance rewards to 3.125 BTC, from 6.25 BTC. Historically, smaller miners have shut down due to dwindling block rewards post-halving. Conversely, the 2024 halving is expected to experience a different scenario due to heightened network fees – a result of Ordinals inscriptions and Bitcoin-native decentralized finance (DeFi) or BTCFi, according to Benayoun.
"We're observing the growth in NFTs within the Bitcoin blockchain, and several projects are exploring the creation of DeFi within the Bitcoin network. These factors contribute to increasing network fees," Benayoun explained. These Bitcoin network fees serve as an incentive for miners to include a transaction in the next block. Current average Bitcoin transaction fees stand at $4.88 per transaction, which is a significant drop from $16.13 a month earlier on March 5. YCharts demonstrates that Bitcoin transaction costs have surged over 86% over the past year.
As long as the Bitcoin price stays above $70,000, mining entities should generally stay profitable, as noted by Joe Downie, Chief Marketing Officer of NiceHash, during his discussion with Cointelegraph: "Most miners would still yield profit if the price holds above $70,000, considering they are already making profit with the current block rewards even when BTC price is over $35,000... If it falls below that, they would likely incur losses.”
Over the past week, the price of Bitcoin has slipped by 4.3% to $66,851 as of 10:22 UTC. BTC has traded below the $70,000 mark since the beginning of April per data from CoinMarketCap.
Downie explains that beyond the price movements of Bitcoin, a company's mining profitability is contingent on the quality and power efficiency of its mining equipment: “Bitcoin halvings usually render older hardware less profitable due to reduced rewards for the machine's input. However, newer models that are more energy efficient will likely maintain profitability. So, the profitability doesn't depend on the mining farm's size, but rather on the type of mining gear they utilize.”
Bitcoin miners' revenue recorded its second-highest day in history on March 6, with earnings reaching $75.9 million, a day after Bitcoin's price surpassed the $69,200 record.
The market value growth of Bitcoin, along with the rising network fees, means that fewer miners will be pushed out of business compared to previous cycles, affirms Benayoun of Acheron Trading: "In earlier cycles of 2017 and 2021, less efficient miners were often forced to halt operations. However, this may not be the scenario this time, due to this surge in network fees.
Published At
4/5/2024 1:52:45 PM
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