JPMorgan: Bitcoin Miners to Face Significant Challenges Due to Halving Event

Banking giant JPMorgan has reported that the upcoming Bitcoin halving event, which is expected to take place in April 2024, will result in a significant stress test for Bitcoin miners due to the reduced block reward and increased production costs.

The Biggest Obstacle for Bitcoin Miners: Electricity Cost

In a report published on July 13, JPMorgan strategists led by Nikolaos Panigirtzoglou stated that miners with lower electricity costs will be better equipped to handle the outcome of the halving event, while miners with higher electricity costs may be negatively affected.

The Bitcoin halving event, which occurs approximately every four years, halves the reward given to miners in terms of Bitcoin to control inflation in the network and create a scarcity of BTC over time. The event effectively reduces the rate at which new BTC is introduced into the market. The block reward, currently at 6.25 BTC, will be reduced to 3.125 BTC in the expected April 2024 halving event.

A $0.1 Increase in Cost Can Add $8,600 to Production Costs

According to JPMorgan analysts, while the Bitcoin halving event is generally seen as a positive event that impacts the price of Bitcoin, it poses significant challenges for Bitcoin miners due to increased production costs. The analysts noted that a $0.1 change in electricity cost per kilowatt-hour (kWh) results in a $4,300 change in Bitcoin’s production cost. This sensitivity will double to $8,600 after the halving, potentially increasing the vulnerability of producers.

According to analysts, the increasing total computing power, or hash rate, of Bitcoin indicates heightened competition among miners in the lead-up to the halving event. The analysts also added that they do not expect Bitcoin’s hash rate to continue rising at the same pace after the halving, unless there is a significant increase in transaction fees that can compensate for the decrease in rewards and exceed the production cost.

The report concludes with a note stating that the current decrease in hype surrounding Bitcoin will lead to additional income reductions for miners, highlighting a potential threat to their revenue.