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Bitcoin Halving Sparks Fears of Miner Cash Out and Price Impact, But Could Reinvigorate PoW

Last Updated April 17, 2024 11:58 AM
Eddie Mitchell
Last Updated April 17, 2024 11:58 AM
By Eddie Mitchell
Verified by Peter Henn
Key Takeaways
  • Bitcoin miners appear to be holding their BTC stacks ahead of the halving.
  • Proof-of-Work (PoW) energy consumption remains contentious.
  • A bull run could be delayed by some months through this halving cycle.

With the Bitcoin Halving set to take place in a matter of days, anticipation is mounting across the market to see if this cycle will initiate yet another bull run, but it seems as though miners are yet to make their play.

The interplay of BTC’s price, the network’s hash rate, and the efficiency of mining operations determines the direction of the market. It seems this cycle is playing out very differently compared to previous halvings. Also, the change in how Bitcoin rewards miners could have an impact on the entire concept of a Proof-of-Work consensus mechanism.

Are Bitcoin Miners Selling?

Halving events can put a strain on mining operations, historically requiring them to sell accumulated Bitcoin (BTC) tokens and upgrade their equipment to maintain competitiveness in the face of a significant slash to their potential earnings.

According to a Bloomberg report , Bitcoin miners could lose up to $10 billion in revenue this time around. This is because the 900 BTC awarded daily will shrink to 450 BTC. We must, however, point out that this projection is based on the current price of BTC.

Naturally, losses could be mitigated if there is a price rally. The problem is that there has already been a rally, spurred by 200,000  BTC tokens purchased between the spot Bitcoin exchange-traded fund (ETF) approval decision on January 11 and the end of March.

Historically, miners sell their BTC to recover from the impact of the block reward being halved in the bull run that follows. But it seems US-based mining farms are accumulating and holding their stashes now. Meanwhile, smaller operations may already be exiting mining pools.

As reflected by the acute miner sell-offs , a 20% drop in pre-halving hash rates , and a predicted further 15% to 20% reduction  during or after the halving, smaller mining operations around the world could no longer be viable, giving them no reason to sell. It is perhaps this fact alone that is shaping the dynamics of the most anticipated event in crypto.

How Much Could Miners Sell Around Bitcoin Halving?

Following the inevitable supply shock that will follow the halving event, analysts anticipate  miners could liquidate around $5 billion worth of BTC this year.

This selling pressure could persist for months following the halving, resulting in a sideways price movement similar to previous halving cycles. However, a prolonged period of price stagnation could be challenging for the overall crypto market.

However, these predictions are largely based on historical trends. Again, we could make the argument that that this halving cycle is occurring in a markedly different landscape.

Furthermore, miners had an easier time adjusting to the earnings slash as the bull runs that followed the 2012, 2016, and 2020 halvings saw the price of BTC multiply significantly, leaping around 93, 30, and 8 times, respectively.

As we have seen this year, past performance isn’t an indicator of future returns. Indeed, it seems that this year’s bull cycle was kickstarted a little earlier than investors may have wanted, thanks to demand for spot BTC ETFs outpacing mining production.

Bitcoin Halving Supply and Demand

As we recently discussed, the pending supply shock that is likely to occur as the block reward is cut from 6.25 BTC to 3.125 BTC could be more significant than previous cycles, which isn’t entirely a bad thing.

A supply shock in Bitcoin markets can result in rapid price movements and attract fresh capital from investors. However, without any major liquidations from miners, BTC could continue to hover around the $60,000-$70,000 price mark for months to come.

This is by no means bad news and may be healthy for the market. It is, however, unlikely we will see any major multipliers in price like we have done before.

But even if it only doubles, or triples in price, that’s a lot of money. Major players in the space such as CoinCodex, Gemini, and others anticipate BTC to break the $100,000 mark , and even peak $170,000 per BTC  by August 2025.

The PoW Side

Proof-of-Work (PoW), the consensus mechanism that governs the Bitcoin network and other cryptos, has had a somewhat rocky history given it’s rather high energy consumption comparable  to a small country.

In the face of this criticism, new mining equipment, technologies, and methods were developed to mine BTC. As noted earlier, halving cycles tend to prune outdated and less efficient mining rigs. This is, arguably, a net positive for PoW overall.

According to the Cambridge Bitcoin Electricity Consumption Index , Bitcoin mining has become more energy efficient since 2012. However, that hasn’t exactly translated into PoW requiring less energy.

Miners may seek greener energy sources to power new mining rigs that can do more and consume less resources. The reduced supply of BTC, meanwhile,  suggests the machines will need to ‘drill deeper’ to extract any value.

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