For Crypto Miners, Bitcoin’s Halving Could Mean a Doubling in Costs

For Crypto Miners, Bitcoin’s Halving Could Mean a Doubling in Costs 1

Bitcoin investors speculate the upcoming halving could send prices skyrocketing to $90,000 or higher. 

To the operators of high-speed computers used to mine for bitcoin, the halving looks more like a doubling — of costs.

In a new report, the crypto-focused research firm TradeBlock estimates the average cost to mine a single bitcoin (BTC) could jump to $12,525 after the halving, expected in May. That’s nearly double the average cost of $6,851 now. Essentially, miners will have to run twice the number of computations, with a corresponding increase in electricity usage, to get the same amount of bitcoin they’re getting now. 

The estimated cost is also well above the current market price of about $10,300, providing an illustration of how the halving could turn the crypto-mining industry’s profitability upside-down if market prices don’t rise. 

The halving was programmed into bitcoin’s original network programming as a a bulwark against inflation when the cryptocurrency was created just over a decade ago. The idea was a predictable and ever-slowing pace of new supply of the cryptocurrency would help to stabilize bitcoin’s purchasing power — a contrast with government-backed currencies that can often be printed at will by human central bankers. 

What’s happening now is a lesson on the emerging economics of bitcoin’s commodity-like market cycles: Crypto mining companies are scrambling to get ready for the halving by upgrading their fleets of computers to include next-generation processor chips that are faster and more energy-efficient. 

Researchers at the U.S. bank JPMorgan Chase have described bitcoin miners’ average cost as the cryptocurrency’s “intrinsic value.” Think of it like oil drillers’ cost to pump an incremental barrel: If a drop in the market price renders oil unprofitable, many drillers will shut off the tap until prices rise again.  

TradeBlock’s estimated post-halving cost of $12,525 assumes the network’s current processing power, known as the “hash rate,” stays at its current level. The analysis also assumes an electricity price of 6 U.S. cents per kilowatt-hour, which is higher than the roughly 2 cents that some big crypto-mining firms say they can get from the local grid or through wholesale purchasing agreements. 

Another quibble-prone assumption is that roughly 30 percent of mining computers will “transition” to the latest technology, while 70 percent “remain on older devices,” according to TradeBlock. Some crypto-industry executives say it’s more likely many of the older-generation mining computers or “rigs” will become uneconomical after the halving, leaving faster machines to dominate the network.

Whatever the case, the threshold bears monitoring closely for bitcoin investors, says John Todaro, TradeBlock’s director of digital currency research.

“It’s very helpful to know what the miners are thinking, what the miners are doing,” Todaro said in a phone interview. “There might be some miners that are profitable at those levels, but not a lot of miners are going to be operating at a loss, and they might take their rigs offline.”

Disclosure Read More

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

About the author

E-Crypto News was developed to assist all cryptocurrency investors in developing profitable cryptocurrency portfolios through the provision of timely and much-needed information. Investments in cryptocurrency require a level of detail, sensitivity, and accuracy that isn’t required in any other market and as such, we’ve developed our databases to help fill in information gaps.

Related Posts

E-Crypto News Executive Interviews

Automated trading with HaasBot Crypto Trading Bots

Crypto Scams

Millions in Cryptocurrency Stolen by Scammers in the Last Month According to Tenable Research
November 24, 2021
Behind The Scenes: How this Crypto Community Responded to + $50m Hack
October 18, 2021
Crypto Scams
Crypto Scams Still Persistent In 2021, SEC Warns About Red Flags To Watch
September 9, 2021
Poly Network
Here’s How Hackers Stole Over $600 million in the Poly Network Attack
August 12, 2021
The World’s Most Infamous Crypto Hacks and Scams
July 31, 2021

Blockchain/Cryptocurrency Questions and Answers

How Does Bitcoin Casino Work + 2021 Beginner’s Guide
November 8, 2021
How to Buy and Sell Cryptocurrency
November 8, 2021
What Are Bitcoin Futures And How Will They Work In 2022?
November 4, 2021
The Unconventional Guide to Ethereum
October 28, 2021
ICo Presale
The Science Behind ICO Presales…
October 14, 2021

CryptoCurrencyUSDChange 1hChange 24hChange 7d
Bitcoin33,225 2.05 % 7.51 % 22.95 %
Ethereum2,190.1 3.17 % 12.46 % 34.75 %
Tether0.9946 0.54 % 0.86 % 0.57 %
Binance Coin338.75 2.18 % 11.53 % 32.06 %
USD Coin0.9955 0.99 % 0.42 % 0.42 %
Cardano0.9641 3.44 % 13.67 % 31.59 %
XRP0.5616 2.01 % 9.26 % 27.95 %
Solana81.78 3.54 % 19.16 % 44.72 %
Terra59.93 3.77 % 12.17 % 31.12 %
Polkadot16.02 3.32 % 13.61 % 42.24 %

Bitcoin (BTC) $ 33,579.00
Ethereum (ETH) $ 2,226.23
Tether (USDT) $ 0.996936
Binance Coin (BNB) $ 342.86
USD Coin (USDC) $ 0.998273
Cardano (ADA) $ 0.979843
XRP (XRP) $ 0.568199
Solana (SOL) $ 83.24
Terra (LUNA) $ 61.40
Polkadot (DOT) $ 16.35