Halving is coming: the profound impact of Bitcoin reward halving on miners and prices

As a decentralized digital currency, Bitcoin has experienced many market fluctuations and technological evolutions since its launch in 2009, and the "halving" event has attracted widespread attention. Whenever the block reward of the Bitcoin network is halved, the income of miners and the market price of Bitcoin will be significantly affected. This article will explore in depth how the halving of Bitcoin rewards affects the operating conditions of miners and the price fluctuations of Bitcoin, and analyze the economic logic and market dynamics behind it.

First, it is necessary to understand the halving mechanism of Bitcoin. In the Bitcoin network, the Bitcoin reward received by miners will be halved for every 210,000 blocks mined. This mechanism is set to control the total supply of Bitcoin and ensure its scarcity. Initially, miners could get 50 Bitcoins for each block mined, and in the last halving in 2020, this reward has been reduced to 6.25 Bitcoins. According to the design of Bitcoin, the next halving is expected to take place in 2024, when the reward will be further reduced to 3.125 Bitcoins. The impact of this change on miners cannot be underestimated.

While miners' income has decreased, the market demand for Bitcoin has not weakened. On the contrary, halving events are often accompanied by high enthusiasm in the market. Many investors regard it as a precursor to rising Bitcoin prices. Historical data shows that after halving events, Bitcoin prices usually experience a round of increases. For example, after the halvings in 2012 and 2016, Bitcoin prices rose several times, respectively, which made many investors look forward to the upcoming halving. In this case, although miners' direct income has decreased, the rise in Bitcoin's market price can offset miners' losses to a certain extent.

However, the market does not always react as expected. The price fluctuations brought about by the halving event are often affected by a variety of factors, including market sentiment, macroeconomic environment, and technological development. Taking the halving in 2020 as an example, although the market generally expected prices to rise, in the months after the halving, the price of Bitcoin experienced certain fluctuations, falling to around $6,000. This situation reminds us that although historical data provides a certain reference, the complexity of the market makes predictions difficult.

Under the dual influence of miners and the market, the future direction of Bitcoin is full of uncertainty. Many analysts believe that the halving event will drive the value of Bitcoin upward, but this does not mean that the price will definitely continue to rise. On the contrary, changes in market sentiment and the external economic environment may have a significant impact on the price of Bitcoin. For example, factors such as global economic recession and stricter policy supervision may have a negative impact on the demand for Bitcoin.

In this context, miners need to adjust their strategies more flexibly to cope with the challenges brought by halving. Some miners may choose to upgrade their equipment and improve mining efficiency to reduce unit costs; others may seek diversified investments, including participating in other blockchain projects or investing in other digital assets. In addition, miners may also consider joining mining pools to share costs and risks through collective mining. The implementation of these strategies will not only help miners maintain profitability after halving, but also enhance the stability of the Bitcoin network.

How will the Bitcoin reward halving affect miners and Bitcoin prices? For most of this year, the Bitcoin network has been running faster than expected, which has further led to a significant increase in Bitcoin issuance. How will the Bitcoin reward halving affect miners and Bitcoin prices? Let's take a look at the details below.

1. Nearly 20,000 additional Bitcoins were mined in the past year

According to the original ten-minute mining rate designed by Satoshi Nakamoto, about 144 blocks can be mined a day.

However, according to trustnodes, an average of 147.64 blocks have been mined per day in the past year. This means that nearly 4 additional blocks are mined every day. Based on the current reward of 12.5 BTC per block, this is equivalent to an additional 50 Bitcoins per day, a total of about 18,250 Bitcoins. Calculated at current prices, it is worth about $132 million.

According to BTC.com data, 53,889 blocks were actually mined in the past year, while 52,560 blocks should have been mined according to the original mining rate. This means that nearly 1,500 blocks or nearly 20,000 bitcoins were mined extra.

2. Factors that cause the Bitcoin network to run too fast

1. Bitcoin computing power maintains an upward trend

On November 8, the difficulty of Bitcoin mining dropped by 7.10% compared with the previous two weeks. In addition, according to Tokenview data, in terms of mining data, the average computing power of Bitcoin in the past seven days was 88.01
EH/s, and the average computing power in the past 24 hours was 78.7 EH/s. The computing power of the entire network reached a high of 110
EH/s on November 23 and then declined significantly; the total number of blocks produced in the entire network yesterday was 122, 3 fewer than the previous day, and the average block production time was 708.2 seconds, 17 seconds more than the previous day, and the total transaction fee on the chain was 39.87 BTC.

But overall, Bitcoin computing power has maintained an upward trend, so the overall operation speed of the Bitcoin network has gradually accelerated.

Bitcoin Hashrate in November 2019

With the recent sharp drop in Bitcoin prices, the volatility of hashrate is strong. However, the price drop may also be due to the fact that inflation has been higher than expected. Although the additional mined Bitcoin accounts for only a small part of the total inflation rate, it has increased the supply by more than $100 million, and miners may have begun to sell Bitcoin instead of holding it.

2. Bitcoin Reward Halving Effect and Scarcity

It is well known that the halving of Bitcoin rewards will reduce the new supply by 50%, and scarcity is an important factor in the price of Bitcoin.

Xiaocong’s previous article pointed out that as of mid-to-late October, excluding Bitcoins that can be proven to be lost and assumed to be lost (permanently lost), the actual circulating supply of Bitcoin is 16.3 million, leaving less than 3 million Bitcoins available for mining.

Of course, miners want to frantically mine Bitcoin before the halving, which is a key factor in the faster-than-expected operation of the Bitcoin network.

Xiaocong’s latest data shows that the Bitcoin halving is expected to take place on May 15 next year, less than 170 days away from the halving.

(Image source: bitcoinblockhalf)

3. How will Bitcoin halving affect miners and coin prices?

As for how Bitcoin mining rewards halving will affect BTC prices, Cobo founder Shenyu recently said in an exclusive interview that "Bitcoin halving is a fatal blow to existing miners, and their income is directly reduced by half. If the coin price does not fluctuate drastically at this juncture, it may cause the mining machines that currently account for about 50% of the electricity costs to be unable to mine, because their marginal income is less than the marginal cost, and they can only choose to shut down. If the coin price does not rise sharply during the halving, the computing power of the entire network will drop sharply, and the payback period of the mining machine will be longer.

Primitive Dovey Wan, founding partner of Ventures, holds the same view. He pointed out that on November 8, the difficulty of Bitcoin mining fell sharply for the first time in 2019, with a drop of about 7%. The price drop was mainly due to the closure of low-end mining machines, and partly due to the end of the rainy season, when cheaper surplus hydropower is no longer widely available. If the price of Bitcoin does not double when the Bitcoin halving occurs, many miners will face serious difficulties.

Xiaocong checked the latest data from F2pool and found that based on the current difficulty of Bitcoin mining across the entire network, at an electricity price of 0.38 yuan/kWh, there are 4 Bitcoin mining machines at the shutdown price. Among them, the mainstream mining machine S9 is approaching the shutdown price. On November 25, the mainstream mining machine once fell below the shutdown price.

In addition, Bitmain founder Wu Jihan targeted Bitcoin mining. The halving of mining revenue indicates that cryptocurrencies are cyclical in nature, just like the halving of Litecoin, but the halving of Bitcoin may be different from the halving of Litecoin. BTC's bear and bull markets are prolonging each time. It is possible that the bull market will not come when the halving is halved. I personally think there are still many uncertainties about the impact of future halvings. Wu Jihan believes that now is a good time to invest in mining. If I were a miner, I would not stop mining and would continue to invest in mining equipment. Wu Jihan said that we are currently in a short-term price correction. It is very important to have a long-term perspective. I am negative about the halving raising the price of the currency, but I am positive about the long-term price trend of Bitcoin. If the price of the currency remains unchanged after the halving, the efficiency of existing equipment must be improved, and there must be a trade-off between efficiency and computing power.

For miners, halving means direct economic pressure. Miners' income depends on block rewards and transaction fees, and halving events directly reduce miners' block rewards. With high electricity and equipment costs, many small miners may face operating difficulties. Take Chinese miners as an example. In the past few years, many miners have chosen to exit the market due to rising electricity prices and equipment depreciation. After halving, miners' profit margins are further compressed, which may lead to the withdrawal of some miners, thereby affecting the computing power of the entire network.

In addition to price fluctuations, the halving event may also trigger intensified competition among miners. As small miners withdraw, the remaining miners will face less competition, which may lead to the centralization of computing power among the remaining miners. Although the centralization of computing power may bring higher returns in the short term, in the long run, this centralization may weaken the decentralized nature of the Bitcoin network and increase the risk of the network being attacked. In addition, the concentration of computing power may also lead to changes in the cooperative and competitive relationship between miners and form a new market pattern.

In addition, the halving event also provides new opportunities for Bitcoin investors. Many investors regard halving as an entry opportunity and believe that buying Bitcoin before and after halving can obtain considerable returns. As more and more institutional investors enter the market, Bitcoin investment enthusiasm is also rising. This trend not only drives up the price of Bitcoin, but also injects more liquidity into the entire cryptocurrency market.

From a more macro perspective, the Bitcoin halving event is not only a game between miners and prices, but also a profound reflection on the economic model of digital currency. As a new form of currency, the value of Bitcoin is not only reflected in its scarcity, but also closely related to its position in the global economic system. Under the influence of halving, the future direction of Bitcoin will continue to attract the attention of investors, miners and policymakers.

Overall, the halving of Bitcoin rewards will have a profound impact on miners and Bitcoin prices. Although this event has brought short-term profit pressure, it has also brought new opportunities and challenges to the market. Miners must maintain the ability to adapt flexibly in the ever-changing market environment, while investors need to find a balance between rationality and sensibility. In the future, the evolution of Bitcoin will continue to be intertwined with the global economy, technological development and market sentiment, forming a complex and vibrant digital currency ecological landscape.

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