As the Bitcoin halving event scheduled for April draws closer, various noteworthy scenarios are being discussed. Past halving cycles have brought up the possibility of a so-called “Bitcoin death spiral,” a situation where miners might be forced to leave the network due to a significant profitability drop and a subsequent decrease in hash rate.
Considering that it takes two weeks for Bitcoin’s mining difficulty to adjust to changes in hash rate, analysts have previously predicted challenges for the network, such as longer block times and delays in transactions. However, Adam Back, CEO of Blockstream, dismisses such catastrophic scenarios. As a leading cryptographer in the proof-of-work algorithm used by Bitcoin, he reflects on past halving events, stating that these scenarios never materialized and economic data indicates miners will be in a better position in 2024.
Back highlights that mining profitability has more than doubled this year, suggesting that even if it were to halve, miners would still be better off than in January, and the hash rate has been rising throughout this period. He also notes that sophisticated mining firms have made in-depth calculations to account for the potential effects of the halving, historically including a drop in hash rate and some miners capitulating.
According to Back, the least efficient miners, with equipment costing 35 to 40 joules per terahash, will be the ones to exit. He also claims that Bitcoin’s price increase in 2023, which was more than double the increase in hash rate, supports the possibility of the next halving event occurring without a drop in hash rate, potentially reducing miners’ profitability to mid-2023 levels.
The year 2024 will be a test for the Bitcoin mining industry, with rising hash rates in the first half potentially leading to some miners ceasing operations due to a decline in Bitcoin prices. While larger players with healthy balance sheets and reserves may continue operations, many mining companies have begun to increase their capacities in anticipation of the halving event and historical price surges, following the patterns of previous cycles. Experts suggest that 2024 will largely depend on Bitcoin’s price performance and the efficiency of mining operations.
