Mining through the Bitcoin halving: Survival strategies for 2024

Bitcoin’s 4th halving event is scheduled to occur on April 22nd, at event block height 840,000. As each block, containing executed transactions, is mined, it is stamped with a block height, noting how many blocks have been generated before the latest one. 

This way, block heights create a chronologically ordered digital ledger, granting Bitcoin its mantle of decentralized transparency and security against double-spending. This also makes it instrumental in imposing the embedded halving logic on the entire Bitcoin network, occurring every 210,000 blocks.

Bitcoin halving is there as an algorithmic monetary policy. Unlike the arbitrary central banking, halving predictably controls the inflow (inflation) of new bitcoins by cutting in half the miner BTC rewards. The very first Genesis block in 2009 delivered 50 BTC to miners. After the fourth halving, miners will receive 3.125 BTC per block mined. 

The stark difference in these rewards translates to Bitcoin’s inflation rate. From over 1,000% to present 1.7%, Bitcoin’s inflation rate will once again be cut in half. And as less BTC is available in the supply, each Bitcoin becomes more valuable.

The inversely proportional relationship between BTC price and inflation rate. Image credit: woobull.com

Yet, Bitcoin halvings are just one of many factors impacting BTC price. One of the most severe halving impacts revolves around Bitcoin mining profitability. If BTC rewards become so low, would this force BTC selloffs from struggling mining companies? And if that is the case, wouldn’t the selloff pressure suppress BTC price?

Understanding the Halving and Its Impact on Miners

To understand the importance of something, it is best to imagine its absence. In the case of Bitcoin halving, its absence would mean that all 21 million BTC would have been immediately available upon the launch of the Bitcoin mainnet.

Conversely, that would greatly diminish BTC scarcity, especially given its initial unproven, novel proof of concept as a digital asset. After three halvings, Bitcoin scarcity has proven a successful foil against fiat currency debasement, as central banks tamper with their respective money supplies. In other words, halvings paced out the Bitcoin supply and demand dynamic, allowing for adoption to unfold.

And as Bitcoin adoption increased, the Bitcoin mining network became more secure. That’s because more Bitcoin miners elevate Bitcoin mining difficulty, which is auto-adjusted every two weeks. Following the reshuffling of the supply and demand dynamic, Bitcoin halvings typically result in multiple gains pre and post halvings.

BTC price moves within 500 days of each halving. Image credit: Pantera Capital

Likewise, the very purpose of Bitcoin mining difficulty is to regulate the rate at which new transaction blocks are added to the network (~10 min), after every 2016 blocks. Without this mechanism, Bitcoin mainnet would be less secure because miners could be disincentivized from participating.

With the Bitcoin mining difficulty, their profitability is auto-corrected. If too many miners unplug, the difficulty lowers, making it more profitable to mine regardless of cut rewards. If more miners onboard the network, the difficulty elevates, making it less profitable to secure the network (its computing power expressed in hash rate).

However, this is offset with BTC price rising over time, owing to its supply scarcity. When BTC mining rewards are cut in half, miners suffer a profitability hit. If the mining difficulty is not lowered, they must increase their cost-efficiency by reinvesting in operations’ upgrades. Accordingly, these miner cycles are called periods of accumulation and capitulation.

At peak BTC price highs, miners start selling to upgrade operations. Red spikes denote selling while green spikes denote BTC accumulation.

In the end, Bitcoin miners must carefully think ahead. Without overextending themselves in the expansion/debt department, they rely on BTC price boost to carry them through the halvings.

Challenges for Bitcoin Miners Post-2024 Halving

As of March 26th, the total hash rate of the Bitcoin network is 614.6 million TH/s, or 614.6 EH/s. Bitcoin miner revenue per TH/s is $0.10. To put this into context, Bitmain’s latest mining rig, Antminer S21 priced around $4,500, yields a hash rate of 188 TH/s while consuming 3500 Watts worth of electricity.

Some machines are even more powerful and expensive, such as the Antminer S21 Hyd 335T. Against the cost of these machines, miners must account for electricity costs, cooling, maintenance, debt interest payments and the cost of facilities themselves. Those companies unable to perform this balancing act will go bankrupt, as it happened to Core Scientific in 2022. 

For individuals using ordinary PCs and laptops, Bitcoin mining long ceased to be profitable. They would have to invest in specialized ASIC machines to go against the rising Bitcoin mining difficulty and subsequent increase in energy costs. The USG, reliant on central banking and currency debasement, is well aware of this fact.

At the end of January, the Energy Information Administration (EIA) began to explore how to cripple miners’ operations. By requesting mandatory survey data on their energy consumption, EIA would then relay findings to the Department of Energy (DoE) to enact restrictive policies. 

Owing to the swift legal action of Texas Blockchain Council (TBC) and Riot, this action has been halted as of March 2 filing.

Technological Advancements and Efficiency Improvements 

Bitcoin’s proof-of-work is the critical component of BTC value. It makes it possible for a digital asset to be anchored into physical reality via energy consumption and hardware assets. Otherwise, a multitude of cryptocurrencies could be created at low-cost, introducing noise in their valuation. 

But just as energy consumption is Bitcoin’s strength, it is also its weakness from a political standpoint. Case in point, Elon Musk revoked Bitcoin payment from Tesla in May 2021, triggering a major crash. Since those days, Bitcoin mining has gone green, having drawn 54.5% of energy from sustainable sources.

In addition to using regenerative hydropower, such as Norwegian Kryptovault, Bitcoin miners can put excess heat to good use. For instance, Kryptovault funnels this hot air to dry out chopped logs for the lumber industry. Many smaller mining operations took this approach to heat their homes.

Heating an entire home with #bitcoin mining pic.twitter.com/470jJ7PSGW

— Documenting ₿itcoin