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Bitcoin's halving could force miners to risk operating in cheaper locations with less reliable electrical grids

Phil Rosen   

Bitcoin's halving could force miners to risk operating in cheaper locations with less reliable electrical grids
  • Bitcoin's upcoming halving could make it harder for smaller mining companies.
  • The CEO of Core Scientific, a mining industry leader, anticipates higher costs post-halving.

Bitcoin's price has soared this year with ETF-fueled demand surging ahead of the April halving event that market experts say could deliver a shock to the supply of the cryptocurrency.

The halving is a seismic event for miners, and the industry and infrastructure responsible for bringing tokens online. After April, the reward given to miners will be cut in half, from 6.25 bitcoin per block to 3.125.

Adam Sullivan, the CEO of Core Scientific, one of the largest bitcoin miners in North America, said larger firms will have the advantage of scale going into the halving.

Sullivan expects to see the bitcoin network continue to spread out and decentralize, and smaller mining companies may have to look for more cost-effective solutions as infrastructure and electricity become more expensive and the rewards shrink.

"We expect to see more miners in smaller sites with lower power costs," Sullivan told Business Insider. "While power costs in some developing economies may be lower than in developed nations, bitcoin miners must evaluate the relative risks associated with operating in these locations to arrive at the best outcome for their business."

Following the halving, 6,000 mining computers will be refurbished and sold to miners overseas, mainly in developing-economy countries like Ethiopia, Tanzania, and Uruguay, according to a Colorado-based crypto wholesaler.

Developing economies tend to have shakier electricity grids, often driven by "less reliable transmission infrastructure," Sullivan said.

More mining activity in those places could lead to more risks, increased downtime, and power interruptions.

Higher operating costs, in Sullivan's view, could be worth the bigger up-front investment if it means greater certainty for grid uptime and business.

"Lower power pricing with greater downtime may negate the benefits of establishing operations in those locations," he said.

Ahead of the halving, miners have pulled in record profits, according to Deutsche Bank data. Strategists wrote in a March note that bitcoin's hot streak resulted in all-time highs for daily mining revenue.

Still, as Core Scientific's Sullivan noted, the lower miner rewards post-halving can lead to an immediate reduction in profits.

"The last halving took place in May 2020, reducing the miner reward from 12.5 to 6.25 bitcoins per block," Deutsche strategists said. "Miners saw their profits significantly reduced overnight. Many were forced to shut down outdated rigs that became unprofitable to operate."

But even as it's about to become more difficult for miners, past cycles show that the halving event itself is jet fuel for bitcoin's price.

In the 12 months after the last three halvings in 2012, 2016, and 2020, the price of bitcoin climbed 8,069%, 284%, and 559%, respectively.

"The 2024 macro context is so favorable to bitcoin, it feels unlikely that miners will throw in the towel if they are remotely profitable," Ruth Foxe Blader, a venture capital investor with Foxe Capital, told Business Insider. "Simply put, if the unit economics still work, then we won't see a significant change in the mining landscape."

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