Since its inception, Bitcoin has attracted the attention of countless investors and technology enthusiasts. One of the most eye-catching events is the "halving". Whenever Bitcoin experiences a halving, the market's reaction is often a dramatic price fluctuation, and the role of miners is particularly important in this process. This article will delve into the mechanism of Bitcoin halving, how miners affect the price of Bitcoin, and the economic principles behind it all.

Bitcoin halving refers to the process of halving the block reward generated in the Bitcoin network every ten minutes. The original intention of this mechanism design is to control the supply of Bitcoin and eventually limit its total amount to 21 million. The first halving occurred in 2012, when the block reward was reduced from 50 bitcoins to 25; the second halving occurred in 2016, when the reward was reduced to 12.5; and the latest halving was in 2020, when the reward was further reduced to 6.25. According to historical data, after each halving, the price of Bitcoin often ushered in a wave of increases, which is closely related to the behavior of miners.

Miners play a vital role in the Bitcoin network. They verify transactions and maintain the security of the network by calculating complex mathematical problems. As block rewards decrease, miners' income also decreases, which forces them to rely on the rise in Bitcoin prices to maintain profitability. In other words, the survival of miners is closely related to the market price of Bitcoin. When the halving comes, the market generally expects that the price of Bitcoin will rise. At this moment, miners will increase their computing power and increase their mining efforts, striving to obtain more Bitcoin before the price rises.

From an economic perspective, supply and demand are the basic laws that affect prices. The halving of Bitcoin directly reduces the supply in the market, and if demand remains strong, the price will naturally rise. For example, in the 2020 halving event, the price of Bitcoin began to gradually climb in the months before the halving, from about $8,000 to nearly $60,000. Therefore, miners are not only participants in this process, but also drivers of price fluctuations.

It is worth noting that the behavior of miners is not a single factor. Market sentiment, macroeconomic environment, policy changes, etc. may all affect the price of Bitcoin. For example, during the epidemic, global economic uncertainty intensified, and investors sought safe-haven assets, and Bitcoin's status as digital gold became increasingly prominent. In this case, even if the halving fails to directly drive up prices, miners may benefit from increased market demand.

In addition, the concentration of miners is also an important factor affecting the price of Bitcoin. As the difficulty of mining increases, small miners are gradually eliminated by the market, and the concentration trend of mining pools becomes more and more obvious. This means that a small number of large miners can control the computing power of the Bitcoin network, thereby affecting transaction confirmation time and transaction fees. This centralization phenomenon may lead to a decrease in market trust in Bitcoin, which in turn affects its price trend. Therefore, the position and behavior of miners in the Bitcoin ecosystem not only directly affects mining profits, but also indirectly affects the healthy development of the entire market.

After the halving event, miners' strategies often change. Many miners will choose to hold Bitcoin and look forward to selling it after the price rises to achieve higher profits. This strategy has been proven effective many times in history. For example, after the halving in 2016, many miners chose to sell when the price of Bitcoin reached an all-time high and received rich returns. This behavior not only ensures the income of miners, but also drives the market to rise further to a certain extent.

However, the strategy of holding Bitcoin is not without risks. If market sentiment changes or policy restrictions appear, miners' holding strategies may lead to losses. Therefore, before the halving, miners' market prediction and risk management capabilities are particularly important. How to find a balance in a volatile market has become a challenge that miners must face.

In this process, technological progress also plays an indispensable role. With the continuous development of mining technology, the computing power of mining machines has been continuously improved, which enables miners to obtain Bitcoin at a lower cost. Before the halving, many miners will choose to upgrade their equipment and improve mining efficiency to cope with the upcoming market changes. This technological iteration not only increases the income of miners, but also accelerates the security and stability of the Bitcoin network.

In addition, miners' sense of social responsibility has gradually received attention. As Bitcoin's environmental protection issues become increasingly apparent, more and more miners have begun to pay attention to the use of renewable energy. By adopting green energy, miners can not only reduce costs, but also enhance the social image of Bitcoin. Such a shift is not only a reflection of market demand, but also a commitment of miners to future sustainable development.

In the context of Bitcoin halving, the role of miners is becoming more and more important. They are not only the guardians of the Bitcoin network, but also a key factor in market price fluctuations. Each halving brings new opportunities and challenges, and the decisions made by miners in this process will largely affect the future direction of Bitcoin. Therefore, while investors pay attention to the price of Bitcoin, they should also pay attention to the dynamics and strategy changes of miners.

In short, the Bitcoin halving event provides a very challenging environment for miners, and their behavior plays a vital role in this process. By deeply analyzing the halving mechanism, miners' behavior, and market reactions, we can better understand Bitcoin's price fluctuations and the economic principles behind it. Miners' strategies, market sentiment, technological progress, and social responsibility are all important factors that affect the future of Bitcoin. As the Bitcoin market continues to evolve, the role of miners will continue to develop and change, becoming the key to our understanding of this digital currency world.

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The second Litecoin halving will take place on August 6th, while the next Bitcoin halving will take place in less than a year. We have already analyzed historical price behavior during halvings: but how do miners affect market prices?

Miners invest in specialized equipment to mine coins, and like any other industry, they need to make money. During the block reward halving, their income is cut in half. If mining becomes unprofitable, they will need to shut down their equipment - and they will only reinvest if the price rises back above the break-even point.

Therefore, when a halving occurs, miners really face two scenarios:

1. The price of Bitcoin rises to meet miners' income expectations and maintain the status quo.

2. The price does not rise, and miners are forced to shut down. Only mining farms survive, and the mining industry is temporarily centralized.

If the hash rate of BTC (or LTC) drops low enough (remember, this is a function of the mining energy invested in the activity), then the difficulty of mining will become easier - allowing more miners to come back online because it will become more profitable again.

Keep in mind that given the halving of miners’ block rewards, they will have fewer bitcoins to sell to the market each day.

So is the price increase a self-fulfilling prophecy?

In short: If we look at the propensity of miners to market their rewards, it probably is. As prices rise, miners sell fewer block rewards. And fewer large entities selling means that Bitcoin’s price is more likely to rise.

Miners control a lot of the selling pressure in the market. A good way to measure how much Bitcoin is actually bought and sold (not just traded) each day is to look at the volume on Coinbase Pro, a popular online exchange.

According to Coin Market Cap, BTC/USD volume on Coinbase
Pro averages $55 million. If the price remains constant, we can roughly estimate that half of that volume is selling pressure.

With an average of 144 blocks mined each day, at $9,000 per coin, miners are getting $1.3 million in rewards per day. As Bitcoin prices fall, miners need to sell a higher percentage of their block rewards to remain profitable. If every bitcoin mined is sold on the open market each day, this adds 5% to the selling pressure, which is enough to drive down the price of Bitcoin.

When do miners need to start selling?

Miners need to sell all their rewards when the cost of mining a block is close to the breakeven point. At current block prices, this equates to around $35,000 per bitcoin, but miners are currently selling more bitcoin on the market than they will be after the halving.

It is almost impossible to predict what the hash rate will be after the halving, but a good estimate of the breakeven point would be $7,000, meaning the price would need to stay above that level before the halving to prevent significant selling pressure.

Miners can collectively influence the price based on their selling behavior (although this does not necessarily mean it is a joint effort). If miners sell fewer bitcoins, the price of Bitcoin could rise, and as Bitcoin trades at a higher price, the block reward will decrease and miners can still make a profit from mining operations.

What about the long term?

Maria Shen found that the historic Bitcoin halving caused a short-term drop in hash power but had no long-term effects;
But this is because the price of Bitcoin has been rising to encourage more miners to gradually come back online. It can be assumed that this is at least partly due to miners' selling behavior.

As we have seen in the past, it is important that we see a sustained hash rate to achieve the price increase forecast after the halving when the Bitcoin price is stable or rising. These factors limit the amount of Bitcoin that miners can sell and stimulate the rise in Bitcoin prices.

If the price of Bitcoin can stay well above $7,000 before and after the Bitcoin halving next year, we may be able to see Bitcoin parabolic, which is exactly what investors dream of.