Bitcoin miners are expected to face significant income stress due to the upcoming block subsidy halving and increasing competition, according to a report published by analytics firm Glassnode on Thursday. The report predicts that these factors could severely impact the profitability of Bitcoin mining operations.
The hash rate, representing the total processing power deployed to the Bitcoin blockchain, has hit record highs, indicating a surge in interest in Bitcoin mining. However, this increase also implies unprecedented conditions for miners trying to earn a living at current price levels.
Miners have been benefiting from ordinal inscriptions, which act as "packing-fillers" turning empty blockspace into a source of income. As demand for blockspace grows, miner revenues are expected to be positively affected. Yet, despite this revenue boost from inscriptions, the proportion of income received from fees remains modest compared to historical standards.
The report also highlighted that the amount of hashrate competing for these rewards has surged by 50% since February as more miners and newer ASIC rigs come online. This rise in competition is setting the stage for a significant challenge in April 2024 when miner rewards per block will drop 50%, effectively doubling the production cost per Bitcoin.
Glassnode presented two models estimating the price at which miners, on aggregate, fall into financial distress. According to one model, the acquisition price for the most efficient miners on the network is around $15.1k currently. However, post-halving, this level is projected to double to $30.2k, potentially putting a majority of the mining market under severe income stress.
Another model suggested an average miner acquisition price of $24,300 per Bitcoin, approximately 8% below the current spot price. These figures indicate that miners may struggle to cover their costs after the halving takes effect.
Despite these concerns, some analysts remain optimistic about how miners will handle the build-up to the halving. Filbfilb, co-founder of trading suite DecenTrader, suggested that miners are incentivized to ensure prices are well above marginal cost before the halving. He believes that they may collude, consciously or unconsciously, to push prices higher before their revenue is halved.
Filbfilb also anticipates that smart money will be "buying the rumor" of the halving, contributing to Bitcoin supply dynamics. These investors will likely accumulate Bitcoin in anticipation of the event, further impacting the amount of Bitcoin being minted.
In conclusion, while Bitcoin miners are currently benefiting from ordinal inscriptions, increased competition and the upcoming halving could pose significant challenges to their profitability. The report by Glassnode suggests that miners may face severe income stress, which could ultimately impact the overall Bitcoin market.
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