Bitcoin: How miners prepared for halving

Running like Swiss clockwork, Bitcoin will experience the 4th halving in its history on 19 April, an event that occurs every 210,000 blocks, i.e. roughly every four years (you can follow the countdown live here).

When it takes place, the issuance of new bitcoins will be halved, reducing miners' rewards from 6.25 to 3.125 bitcoins per block mined (roughly every ten minutes).

Of course, this event is being closely scrutinised by miners as it will require an economic adjustment on the part of these players at the heart of the infrastructure.

👉 A doubling of costs for miners

"Halving the reward means that miners' costs will mechanically double," explains Romain Nouzareth, co-founder of SATO Technologies, a mining company based in Canada and listed on the Toronto Stock Exchange. "This upheaval is generally absorbed by the rise in the price that has always accompanied halving, but as this is never guaranteed, you have to be able to anticipate all situations," he warns.

In fact, each halving (2012, 2016 and 2020) has always been followed by a major price surge a few months later, but this is impossible to predict because it depends on investor appetite.

For many miners, the aim is therefore to improve their competitiveness via the acquisition of new state-of-the-art machines, capable of mining more bitcoins than their competitors. This partly explains the rise in hashrate in the months leading up to halving, a sign that competition between miners is increasing ahead of halving.

Hashrate refers to the computing power deployed by all miners on the network.

"This renewal of the fleet of machines sends a good signal to the market for listed companies like Marathon and helps to reassure investors," analyses Saimi Barragan, boss of Startmining, a mining company based in France.

👉 Miners connected to renewable energy sources boost their competitiveness

The secondary market then sees a large number of second-hand machines flooding in. This is a godsend for miners, who can take advantage of attractive electricity tariffs (such as when it comes from renewable sources like those from hydroelectric dams). This allows them to continue mining while remaining profitable, even if they don't have the most efficient machines.

"Properly maintained, an asic (the machines specially designed to mine bitcoins, ed. note) can last up to 8 years, or even longer with the recycling methods that are being perfected," explains Sébastien Gouspillou, CEO of BigBlock Green Services, a company that mines exclusively using renewable energy.

👉 A drop in hashrate generally observed

For miners who are unable to keep up, due to a lack of investment capacity to acquire new asics and not having affordable electricity, it is often time to quit.

This results in a momentary drop in hashrate after halving. These drops were 25% in 2012, 11% in 2016 and 25% in 2020 respectively, playing into the hands of the most competitive miners who have planned the halving well.

"Some miners knowingly choose to unplug their machines so as not to mine at a loss for a few months. Others, often newcomers, are forced to close up shop because they did not properly anticipate the effects of halving," insists Romain Nouzareth. "Halving can also finish off those who are already in a bad way financially," he adds.

👉 A 2024 halving unlike any other

But the 2024 halving is shaping up to be unlike any other. The reason for this is the approval of Spot Bitcoin ETFs in the United States on 11 January, which has triggered significant demand for the asset and a sharp rise in its price (+42% since this event).

"This is the first time we have seen such a rise before the halving," notes Sébastien Gouspillou. Thus, it is entirely possible that the new liquidity has already been injected into the market via ETFs, limiting the bullish impact in the coming months.

"This early rise has bought time, but it will be interesting to see how the market behaves after this halving, which will in any case be unlike any other," concludes Romain Nouzareth.