Upcoming Halving
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Bitcoin’s next halving could well trigger a tangible blow to the network’s aggregate hashrate, which will fall due to the diminishing profitability of mining. As as miners’ rewards decrease, their profits are likely to decrease as well, -unless, of course, the cryptocurrency makes up for the losses before the block reward decreases by increasing its price. This point of view
experts such as Director of B. Riley Financial Lucas Pipes and representing Luxor Mining, Colin Harper.
Pipes estimates a 15-30% drop in Bitcoin network processing power, Harper admits a 20% drop. The main reason for such pessimism is based on the assumption that halving Bitcoin will make mining operations more complex, and miners can expect half as much digital gold mined per block.
A little background: with the next halving (occurs on the Bitcoin network approximately every four years) expected to take place on April 11, 2023 at a height of 840 000 blocks (the current height at the time is about 802 095 blocks), the reward will drop from the current 6.25 BTC to 3.125 BTC.
Halving could lead to the shutdown of many mining devices as their use would no longer generate the desired revenue, negatively impacting the network’s hashrate, skeptical experts believe. However, such a fear has not historically been borne out in the long term so far.
Past reductions in awards
Let’s try to look to precedents. Consider the past halving that occurred in May 2020, when the reward per block dropped from 12.5 BTC to 6.25 BTC. Then within six days of the event hashrate dropped by about 40%. But other than a fleeting panic in the market it didn’t cause any serious repercussions: all metrics recovered to their previous values within a few weeks.
The crypto network’s processing power now corresponds to 415 exahesh/sec, almost three times the value recorded in May 2020.
In recent years, the specific hardware power allocated to cryptocurrency mining has been growing at an extremely high rate, surpassing historic highs year after year.
For this reason, miners are just as likely to look forward to Bitcoin’s next halving as a growth event. Indeed, historically, with each halving, as miners faced decreasing block rewards, the price of mined coins rose sharply, generously offsetting the negative effects.
The rise in value
Fewer coins mined could prove quite beneficial to Bicoin. In this context, it becomes particularly difficult to talk about network inflation metrics. Usually the value of a coin (unless other events occur) can rise by reducing its supply. This decline is also good because there is less money available to sellers and their leverage in the market is correspondingly reduced – sellers don’t have the same amount of the asset to sell as they used to, and this plays a critical role in maintaining past levels of demand for the asset.
At least that’s what happened in 2012, 2016 and 2020, during each halving of the Bitcoin network. In more detail, after Bitcoin’s first halving in November 2012, the cryptocurrency’s price went from $12.30 to $1,000 – by December 2013. Hashrate has also increased significantly -about 300 times in a year.
If you add to the analytics data from Bitcoin’s second halving on July 9, 2016, you can establish a pattern: the cryptocurrency rose again from about $650 to $19,000 in December 2017. The hash rate has also increased, and again significantly: by a factor of 15.
Data from the last halving, which occurred on May 11, 2020, confirms the pattern: the price of BTC rose from $8,700 to $63,000 in April 2021, with the hashrate increasing by 60% over that period.
Conclusion
Yes, the rate of hashrate growth is proving to be less and less time after time. But it can be said to be the result of “asset maturity” and is largely due to Bitcoin’s achievement of high market capitalization plus the extremely widespread adoption of mining around the world.
Against this backdrop, it will be very interesting to see how the bitcoin price and network hashrate react to the coming halving. Will the upward trend continue or will the pattern reverse this time?
No one has an unequivocal answer. However, miners are already in full swing to upgrade their machines and purchase next-generation equipment that offers higher performance with less energy consumption. This means that people believe that the key to successful mining is the following principle: spend as little energy as possible, minimize operating costs, optimize the mining procedure and count on the long-term growth of the BTC rate. In other words, the overall strategy has not changed, and the trend outlined above is still under little threat from miners.
This material and the information in it does not constitute individual or other investment advice. The opinions of the editorial staff may not coincide with the opinions of the author, analytical portals and experts.