Scenarios for the planned halving event in April have started to emerge. Accordingly, in previous halving cycles, potential outcomes often discussed included a so-called Bitcoin “death spiral.” This notable scenario involves a significant drop in profitability due to miners being forced to leave the network, followed by a decrease in hash rate.
Noteworthy Statements for the Halving
Considering that it takes two weeks for Bitcoin mining difficulty to adjust to changes in the hash rate, many analysts had previously predicted that the network would struggle with longer block times and transactions not being processed on time.
Blockstream CEO Adam Back is adamant that such a scenario is not possible, reflecting on past catastrophic theories during previous halving events. The cryptographer, who led the development of the proof-of-work algorithm used in the Bitcoin ecosystem, adds that these scenarios never materialized and economic data shows that miners will be in a better position by 2024:
“Mining profitability has more than doubled this year. So even if it were to halve, they would still be in a better position than in January, and the hash rate has been rising throughout this period.”
Back also emphasizes that sophisticated mining firms have made in-depth calculations to account for the potential effects of the halving process, and these calculations historically include a decrease in hash rate and some miners capitulating:
“Those who quit mining will be the least efficient ones. Miners with equipment that consumes 35 to 40 joules per terahash are literally twice as bad in terms of efficiency.”
The expert also claims that Bitcoin’s price increase in 2023 to over $40,000 is more than double the increase in hash rate. Back believes that the next halving event could occur without a drop in hash rate, which would reduce miners’ profitability to levels seen in mid-2023:
“Perhaps we could see a continuous general upward trend in hash rate throughout the halving.”
Mining Sector in 2024
The year 2024 will be a test year for the Bitcoin mining sector, and rising hash rates in the first half of the year may lead some miners to cease operations due to a decline in the Bitcoin price.
While larger players with healthy balance sheets and reserves manage to continue operations during this period, many mining companies have started to increase their capacities in anticipation of the Bitcoin halving event and historical price increases, following the previous cycles within 18 months. As experts also point out, the year 2024 will largely depend on Bitcoin’s price performance and the efficiency of mining operations.
