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Fidelity Digital Assets in a recent report stated that while Bitcoin holders traditionally wait for the mining rewards to halve every four years to anticipate price increases, miners need to actively develop strategies to plan for the upcoming event to prevent bankruptcy. Particularly after the halving event expected to occur on April 21, the amount of Bitcoin earned per block will drop by 50%.
The Halving Process and Bitcoin
According to analyst Daniel Gray, miners must maintain their current hash rates, energy consumption, and infrastructure, and face the constant competition of the entire network, which is trying to maintain profitability amidst the same challenges. Bitcoin miners tend to be bullish as they persistently mine a commodity they foresee gaining value over time. The report emphasizes that miners need to be proactive, not just maintain their position within the network, to make a profit.
Gray highlights that miners must continuously strive to increase their hashrate efficiency, secure lower-cost energy from more economical sources, and expand their infrastructure to adapt to new machines. However, considering the competitive environment, every miner is racing for the same resources.
Fidelity notes that the halving process creates significant challenges in the period following the event, as Bitcoin’s reward mechanism undergoes a sudden drop, requiring miners to have capital reserves to mitigate the decline in revenue.
Nevertheless, the report suggests that new layers could bring new use cases and attract more users as the protocol evolves. Despite the historical trend of weaker miners exiting the market post-halving, the industry has consistently recovered with increasing miner participation and hashrate, demonstrating the resilience of both the network and the sector. It was observed that the hashrate temporarily dropped before recovering after the 2012 and 2016 halving events.
JPMorgan Analysts Predict Halving Impact
Bitcoin’s recent surge above $69,000 is noteworthy, but JPMorgan analysts warn that the upcoming halving event could exert downward pressure on prices, potentially leading to a drop as low as $42,000.
According to analysts, Bitcoin’s production cost has historically been a floor for its price. Post-halving production costs could double to about $53,000, which might reduce the number of miners competing to produce Bitcoin, thereby decreasing the network’s hashrate. The projected $42,000 price level is also where analysts predict Bitcoin’s price will stabilize after the excitement of the halving event wanes post-April.
Alessandro Cecere, marketing director of mining company Luxor, states that even if the mining reward halves, miners could maintain their profitability if the price of Bitcoin reaches $100,000, allowing them to sustain their earnings over time.
