The forthcoming Bitcoin (CRYPTO: BTC) halving event in 2024 is set to pose a significant challenge for miners as they grapple with decreased rewards and escalating production costs, according to a report.
"Miners who have access to cheaper electricity will be better equipped to handle the aftermath of the halving event, whereas those dealing with higher electricity costs may find it difficult to stay afloat post the event," stated a team of JPMorgan Chase & Co (NYSE:JPM)strategists led by Nikolaos Panigirtzoglou, The Block reported.
In essence, the halving event will test the resilience and profitability of miners in a rapidly evolving landscape.
The Bitcoin halving, which takes place roughly every four years, slashes the reward for mining new Bitcoin blocks by 50%, effectively slowing down the creation of new Bitcoin.
This is done to manage inflation and preserve Bitcoin's scarcity over time.
The imminent Bitcoin halving will reduce the block reward from 6.25 Bitcoin to 3.125 Bitcoin.
Although Bitcoin's halving is generally perceived to boost Bitcoin's price, it presents obstacles for Bitcoin miners.
This is because the cost of production has traditionally served as a price floor, JPMorgan analysts noted.
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"Based on our current model of Bitcoin production costs, a one cent per kWh [kilowatt-hour] fluctuation in electricity costs results in a $4,300 change in Bitcoin production costs. This sensitivity would double to $8,600 post-halving, thereby increasing the risk for higher-cost producers," the analysts explained.
The competition among Bitcoin miners is also heating up in anticipation of the halving event, as evidenced by the increasing Bitcoin hash rate, which is the total computational power used to mine the cryptocurrency.
Analysts predict the Bitcoin hash rate may not continue to grow at the same rate after the halving event unless there is a consistent increase in Bitcoin's price above its production cost or a substantial rise in transaction fees to compensate for the reduction in issuance rewards.
"The current decrease in the excitement surrounding ordinals presents an additional hurdle for Bitcoin miners' revenues," the analysts concluded.
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