Bitcoin’s Upcoming Halving: A Potential Trial by Fire for Miners, Says JPMorgan

• The forthcoming Bitcoin halving will decrease issuance rewards, resulting in a simultaneous reduction in miners’ revenue and an increase in Bitcoin’s production cost.
• Miners with lower electricity costs are likely to cope better, while those with higher power costs might struggle post-halving.

In the face of the escalating competition among Bitcoin miners, JPMorgan anticipates that the upcoming Bitcoin halving event, slated for Q2 2024, could be a crucial test for many in the sector.

The Double-Edged Sword of the Halving Event

JPMorgan’s research report, published on Thursday, emphasizes that the Bitcoin hashrate is consistently reaching new highs. A crucial milestone in the Bitcoin lifecycle, the halving event, will slice the issuance rewards from 6.25 BTC to 3.125 BTC. Consequently, it will effectively amplify Bitcoin’s production cost while trimming down miners’ revenues, the report underlined.

“Bitcoin halving is generally viewed as a bullish development for Bitcoin prices, as the production cost has traditionally acted as a price floor. However, it presents a daunting challenge for Bitcoin miners,”

wrote a team of analysts led by Nikolaos Panigirtzoglou.

In the world of proof-of-work blockchains like Bitcoin, the term “hashrate” refers to the collective computational power applied to mine and process transactions. JPMorgan’s analysis suggests that miners with access to cheaper electricity will likely weather the storm post-halving with greater ease. In contrast, miners dealing with higher energy costs may face significant struggles.

To further illustrate, JPMorgan estimates that a 1 cent per kilowatt-hour (kWh) change in electricity cost could instigate a $4,300 fluctuation in Bitcoin production cost. Following the halving, this sensitivity could spike to $8,600, intensifying the precarious situation for higher-cost producers.

The bank’s report also highlights the steep ascension of the hashrate, indicating a rise in competition among Bitcoin miners and the deployment of more mining rigs. Nonetheless, the analysts question the sustainability of this upward trajectory post-halving without either a substantial boost in Bitcoin prices over its production cost or a significant uptick in transaction fees to counterbalance the dwindling issuance rewards.