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In an analysis published by global financial giant JP Morgan, analysts have warned that Bitcoin miners are set to face headwinds as the hash rate reaches new record highs in anticipation of the upcoming halving event scheduled for next spring. The report highlights volatile electricity costs and intensifying competition among miners as factors pushing up the cost of production.
Hash rate, referring to the computational power used in cryptocurrency mining, plays a crucial role in the network’s security and overall functioning. The halving event, which occurs approximately every four years, will reduce miners’ rewards by half, posing additional challenges for their operations.
JP Morgan analyst Nikolaos Panigirtzoglou, along with colleagues, penned the analysis in the firm’s latest Flows and Liquidity report, which was shared with Decrypt, a renowned blockchain and cryptocurrency news platform. In the report, they explain that the upcoming Bitcoin halving event, slated for April/May 2024, could serve as a significant stress test for Bitcoin miners.
The report states, “[It] would reduce the issuance rewards from 6.25 to 3.125 BTC, implying a reduction in miners’ revenue, effectively increasing Bitcoin’s production cost at the same time. As a result, while Bitcoin halving is seen as having a positive effect on the bitcoin price given the production cost acted historically as a floor, it poses a challenge for bitcoin miners.”
According to the analysis provided, considering a global average cost of electricity at $0.05/kWh, it currently costs around $20,000 to mine a single Bitcoin. At the time of writing, Bitcoin’s market value stands at approximately $30,000, according to CoinGecko. However, JP Morgan emphasizes that the volatility in the hash rate indicates the utilization of various energy sources. This implies that miners with access to lower-priced power sources possess a competitive advantage.
The financial giant further elaborates on the cost implications, revealing that a mere one-cent increase in the cost per kilowatt hour translates to a staggering $4,300 increase in the overall cost of Bitcoin production. Following the halving event, this sensitivity is expected to double to $8,600, further magnifying the vulnerability of higher-cost producers.
JP Morgan’s report also highlights the role of institutional interest in supporting struggling miners. Investments in mining rigs from companies such as Galaxy Digital and Grayscale Investments have provided a lifeline to the industry. Galaxy Digital’s recent acquisition of Argo Blockchain and Grayscale’s spin-off entity focusing on Bitcoin mining hardware serve as prime examples of this trend.
The report concludes by noting that Tether, the world’s largest stablecoin issuer, plans to invest in a Bitcoin mining site in El Salvador, showcasing the expanding interest and involvement of major players in the mining sector.
As the Bitcoin mining landscape evolves, miners will need to navigate the challenges posed by rising production costs and intensified competition. The upcoming halving event will undoubtedly test their resilience and adaptability, shaping the future of the Bitcoin mining industry.