As Next Bitcoin Halving Approaches, Miners Take Off

Rallies in the valuation of Bitcoin have led to a heyday for many mining firms. However, for some of the smaller or less-optimized firms, these gains may not be enough to ensure continued success.

The recent rally in Bitcoin’s price has gone on for several days with no signs of turning back, causing successes for miners; as the industry moves towards the next Bitcoin halving, victories like this will be the difference between life and death for many firms.

Bitcoin, by all accounts, is doing well. After a persistent slump from August to mid-October, Bitcoin’s price started to break free of its range in the mid-$20k range until finally cracking $30k on October 22. In the few days since then, a gradual incline has turned into a fairly dramatic rally, as the valuation has shot up just past $35k without any backslides or even major falters. Although the causes of this rally could be explained by a multitude of factors in the market, especially the buzz about a possible approval for the Bitcoin ETF, one correlation has been particularly clear: The success for Bitcoin has meant a rising tide for bitcoin miners.

According to new data published by Blockworks, some of the largest firms like Marathon Digital, Bitfarms and Riot Platforms have all been posting gains of between 17-19% since the price rally began. The report also noted that these gains are particularly noteworthy when put next to some of the hardships the industry has been facing: Not only has the hashrate for Bitcoin consistently stayed at an all-time high, marking increased competition for miners worldwide, but also the United States has seen energy prices start to rise in accordance with the onset of fall and the cooler months. The current low cost of mining ASICs has also been a factor in this competition, as cheaper equipment enables smaller firms to get off the ground. Still, despite these setbacks, Blockworks noted that these industry leaders have all overshot their estimated earnings on a consistent basis. 

So, this is all good news for the industry, right? Unfortunately, this bonus may end up being only one of the ingredients needed to stay afloat. The central issue, as CNBC has pointed out, is the upcoming halving: When the Bitcoin blockchain mandates that all mining rewards are cut in half, tumultuous periods may ensue. John Todaro, an analyst from the investment firm Needham & Company, was quoted as saying “Bitcoin prices holding steady…is not tenable for a number of crypto companies, and especially not for high-cost miners,” adding that “post halving, lower-cost miners will take market share while higher cost producers will need to cut hash power contributed to the network until bitcoin prices rise”. 

This difference between high-cost and low-cost mining might seem misleading, as though it may be true that some firms like Marathon have historically kept a high cost of mining, other large competitors use far more low-cost mining. Cost of mining is based on a number of different factors, and the cost of actual energy used is only a small fraction. For example, although many smaller firms have taken advantage of cheaper ASICs, new equipment is always under development to deliver vastly more efficient power usage. Although the initial price of models like the upcoming WhatsMiner M60 makes them prohibitively expensive for most businesses, the investment can cut down overhead overall. Similarly, CNBC notes that the largest firms are more able to weather periods of difficulty thanks to a diversity of invested assets. In other words, smaller miners can often have an oversized cost to their continued operation, while the largest firms have options to keep costs low or even eat big losses. The price of bitcoin will need to stay rising well over this current rally, the report claims, if these smaller miners wish to keep business as usual.

Adding fuel to the fire has been a study published by the United Nations on October 24 that saw circulation in major outlets worldwide. Assessing the environmental impact of Bitcoin, the study looked at the mining industry on a worldwide scale: Assessing the amount of energy used and the sources that this power came from. The report claimed that the majority of power worldwide comes from non-renewable sources by a considerable margin, with coal alone taking up 45% of its power estimates. Although Kaveh Madani, the study’s lead author, wrote that “Our findings should not discourage the use of digital currencies” and advocated for technological advancement and fair regulation. He added later in his final analysis, “you can’t stop thinking about the inequity and injustice implications of the unregulated digital currency sector.” Despite the good faith and open-mindedness of this original study, some of its more provocative numbers have been reprinted endlessly.

Considering that bad press is frequently a precursor to targeted legislation, it seems prudent to respond to many of these claims, beginning with the most obvious: The actual survey data that went into these numbers spans from 2020 to 2021. China banned Bitcoin mining in 2021, and before the ban Chinese miners were some of the most prolific and coal-hungry operations in the entire world. Data collected after the ban shows that the coal-powered mining industry has been cut in half, and renewable/nuclear energy options make up the majority of the pie today. Furthermore, as Bloomberg crypto analyst Jamie Coutts pointed out on Twitter, bitcoin-related emissions have not at all corresponded to the rising hash rate.

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He also added that the mining companies themselves are not the actual emitters of carbon, but purchasers from existing power plants, such as in the case of flared gas mining. When it is not profitable for an oil company to capture and resell natural gas from an oil source, it is frequently burned off on-site, the source of the iconic image of an oil derrick with a small flame burning on top. Although companies make deals with the oil drillers to use this flared gas onsite for Bitcoin mining, it is still classified as a non-green mining source even though the gas would still be burned without the mine. Coutts noted especially that the tremendous leaps in the hashrate alongside a stagnation in carbon emissions shows that the industry as a whole is making a greener transition, and all outside the range of the UN’s study. 

Ultimately, although environmental claims are an old favorite of Bitcoin’s naysayers when it comes time to publish criticism of the industry, it seems that the largest hurdle facing miners in the coming months will be the halving and the market forces themselves. This rally of profitability for everyone will surely benefit the most well-consolidated firms the most, as they invest in new equipment and revenue streams to weather a time of decreased profitability. But for the smaller and less-advanced firms, the runaway successes of this October may end up being only a mirage. Even if Bitcoin does continue at this rate, it may not be enough for much of the industry to survive, without a serious appraisal of their business strategy. Still, it is clear that Bitcoin mining as a whole will only emerge stronger from this challenge, as wide metrics support a sense of forward progress, no matter what happens with the price in the immediate future.