JP Morgan Says Next Halving Will Be ‘Stress Test’ For Bitcoin Miners

JP Morgan Says Next Halving Will Be ‘Stress Test’ For Bitcoin Miners

With the Bitcoin halving event scheduled to happen in the next spring, the increase in hash rate to record highs would mean headwinds for BTC miners.

According to analysts at JP Morgan, the cost of production are expected to increase because of the increasing competition amongst BTC miners and the volatility in electricity costs.

Halving event

The computational power that is required for mining a cryptocurrency is referred to as its hash rate. As for Bitcoin’s halving, it occurs after every four years and reduces the rewards of miners by half.

The latest Flows and Liquidity report from the global financial giant’s analysts said that the halving event that is scheduled to happen in April or May next year could prove to be a major test for BTC miners.

As per the report, this is due to the fact that the halving event would significantly reduce the rewards that BTC miners receive, as they would go to 3.125 from 6.25.

This means that miners would see a decline in their revenue and also see a rise in production costs simultaneously.

Therefore, even though the halving event is considered a positive one for the price of Bitcoin because the production cost has functioned as a floor historically, it can be challenging for Bitcoin miners.

The analysis

The global average cost of electricity was taken into account for the analysis at $0.05/kWh. CoinGecko dictates that mining one Bitcoin currently costs around $20,000.

As far as the price of the pioneer crypto is concerned, it is currently exchanging hands at $30,000. However, JP Morgan highlighted that a number of energy sources are used.

This is the reason behind the hash rate’s volatility, which means that the advantage lies with miners who use lower-priced power for mining Bitcoin.

As a matter of fact, the company stated that if the cost per kilowatt hour increases even by a single cent, it increases the cost of production of Bitcoin by a whopping $4,300.

Once the halving happens, this cost would double to $8,600, which means that higher-cost producers would see their vulnerability increase.

Good news

Nonetheless, this does not mean that there is no good news for miners. In fact, there is a silver lining for them.

Struggling miners have received considerable support due to the interest of institutional investors in Bitcoin mining.

Companies like Grayscale Investments and Galaxy Digital have also invested in mining rigs. The latter recently purchased a prominent mining facility from Argo Blockchain.

The former also bought an entity that deals in Bitcoin mining hardware. The report also said that the largest stablecoin issuer in the world, Tether, also plans to launch a Bitcoin mining facility in El Salvador.

Regardless, with the block reward reduction, there needs to be an increase in the transaction fee and the price of Bitcoin for miners to make profits.

Another challenge that miners are facing is the drop in the hype surrounding Ordinals and cryptocurrencies.

While daily Ordinals inscriptions had climbed to an all-time high recently, the same could not be said for Bitcoin fees.