Contrary to popular belief, this halving will likely not cause a major decrease in the network's hashrate. After Bitcoin’s first three halvings, the hashrate plummeted by 25%, 11%, and 25%, and it appears many analysts and miners are expecting (or hoping for?) a similar hashrate reduction this time.

I concur with Pennyether's prediction that the forthcoming Bitcoin halving is expected to result in a modest decrease in the hashrate, ranging from 5 to 10%. This prediction is also not far from that of Hashrate Index, which sits at 3-7%.

Jaran Mellerud is CEO of Hashlabs Mining. This op-ed is part of CoinDesk's "Future of Bitcoin" package, published to coincide with the Halving in April 2024.

This cautious forecast stems from the present high profitability of Bitcoin mining, driven by its high price, and the observation that approximately 70% of Bitcoin's hashrate was introduced since January 2022, operating under mining economics that at times were less favorable than those now anticipated post-halving.

Additionally, the hashrate is expected to quickly bounce back from this slight dip. In the past three halvings, the network recovered its pre-halving hashrate levels within an average of 57 days. This trend highlights an important perspective: halvings should not be viewed as events that lower the hashrate, but rather as brief pauses in the hashrate's relentless upward trajectory.

The hashrate's robustness is further enhanced by the continuous efforts of miners to update their equipment with the newest and most efficient models. This strategy is anticipated not just to offset any short-term reductions in hashrate, but is also likely to lead to a significant uptick in hashrate in the forthcoming months.

In essence, the upcoming Bitcoin halving is likely to be a brief hiccup in the network's hashrate trajectory, rather than a significant setback.

Data from CoinMetrics highlights that most of the industry currently operates with relatively inefficient machines like the Antminer S19J Pro. These miners require an operating cost of $0.05/kWh or lower to maintain healthy gross profit margins post-halving.

However, with the average hosting rate in the United States sitting just below $0.08/kWh, as indicated by Hashrate Index, many U.S.-based miners could face cash flow challenges after the halving and thus be forced to undertake massive fleet upgrades.

Bitmain's launch of its new machines, including the S21, T21, and S21 Pro — each boasting efficiencies below 20 J/TH — arrives just in time for the halving. This development is prompting many U.S.-based hosting providers to push their customers to switch from S19J Pro to S21 models. Given the high hosting fees in the U.S., this push can be seen as a necessity rather than a choice.

Referring to the chart above, it's evident that the S19J Pro models are unlikely to generate positive cash flow when hosted at $0.08 per kWh, considering their direct bitcoin production cost stands at $75,000. Thus, miners facing higher operational expenses must transition to more efficient hardware, such as the Antminer S21 or similar models, to maintain profitability.

While upgrading to the latest machines allows operations to continue even in high-cost environments, it's hardly a viable long-term strategy. The necessity to constantly update hardware, often before the previous investments are recouped, underscores the unsustainability of such an approach.

My underlying message is clear: if you need to use the latest-generation hardware to stay cash flow positive, your operating costs are too high.

Bitcoin mining is one of the most free and competitive markets globally, a market that Adam Smith himself would admire. This inherent competitiveness fuels a relentless pursuit of innovation, especially during challenging periods such as the halving events. In response to the pressures exerted by the halving, miners are adopting some of the most inventive strategies to maximize the utility of their existing resources.

One such strategy is underclocking, a process in which the machines’ electricity consumption is reduced to increase the energy efficiency and reduce costs. This process, which can be facilitated by third-party firmware like LuxOS, significantly improves machine efficiency — a critical adaptation in an environment where margins are thin. The movement towards underclocking is likely to gain momentum.

Moreover, the quest for increased profitability extends beyond operational tweaks to include novel revenue-generating approaches. A compelling example comes from Hashlabs in Finland, where we are undertaking a project taking advantage of several revenue streams to boost mining profitability.

In Finland, we have diversified our income streams to include selling waste heat from our miners to a district heating system, earning fees for contributing to the stabilization of the electric grid, and strategically selling electricity back to the market during periods of high spot prices. These ancillary revenue channels are significantly bolstering the profitability of our mining operation.

The upcoming halving is set to act as a catalyst, driving miners worldwide to emulate Hashlabs by exploring and implementing creative strategies to augment their profits.

The fierce competitiveness that defines the current state of the mining industry is prompting many, especially public miners, to explore new horizons. Increasingly, there's a move towards AI computing, with companies like Iren and Hive Digital Technologies leading the charge.

The trend towards diversification is expected to pick up momentum over the challenging coming months. Yet, the dynamics of the mining industry are cyclic. Predictions for a bull market in 2025 portend a reversal of this diversification trend. As the value of bitcoin potentially climbs, miners may set aside their diversification strategies in favor of maximizing returns from mining, diving back into the fray with renewed vigor on extracting value from every hash.

This shift between diversification and focused mining reflects the broader ebbs and flows of the market. Miners' strategies evolve with the market, balancing between seizing immediate opportunities in new industries and preparing for the next upsurge in bitcoin mining profitability.

Currently, the United States commands a substantial portion of the global hashrate, accounting for 40%, while China and Russia are also key players, contributing 15% and 20%, respectively. However, the industry is gradually shifting towards a more globally dispersed model, driven by the perpetual quest for cost efficiencies, especially cheaper electricity.

As miners brace for the upcoming halving, many are exploring emerging mining markets across Africa, Latin America, and Asia where electricity is exceptionally cheap. For instance, Bitfarms is making strides in Argentina and Paraguay; Bitdeer is expanding its capacity in Bhutan; Marathon is entering the United Arab Emirates and Paraguay; and Hashlabs is offering hosting solutions in Ethiopia.

The impending halving event acts as a catalyst for hashrate migration, compelling miners to venture beyond developed nations to secure more economical electricity sources. This move towards a more geographically decentralized mining network is poised to have a profound positive impact on Bitcoin. By distributing the hashrate more evenly across the globe, Bitcoin mining will not only become less susceptible to regional regulatory risks and power cost fluctuations but also align more closely with the decentralized ethos that underpins Bitcoin itself.

The forthcoming Bitcoin halving is eagerly awaited as a potential trigger for the next bull market. Yet, considering the current annualized issuance rate sits at an already meager level of 1.6%, and with nearly 94% of all Bitcoin already in circulation, the anticipated supply shock from this halving is likely to have a minimal impact on the bitcoin price.

The impact of the negative supply shocks in earlier halvings was profound, especially during the first halving when the annualized issuance plummeted from 25% to 12.5%, and the second when it dropped from 8.4% to 4.2%. However, in this upcoming halving, the decrease from 1.6% to 0.8% represents a much less significant shift compared to the dramatic changes observed in previous cycles.

Don't misunderstand my position; I still foresee a bull market in the wake of this halving. However, the growing demand, and not the meager supply decline, will be the main factor fueling the price surge.

I like Dylan LeClair’s analogy of the halving as a "global advertisement," suggesting that its principal effect on bitcoin's price is not so much the immediate result of decreased supply but rather the increased media attention and investor enthusiasm it generates. This heightened awareness could stimulate demand, turning the halving into a self-fulfilling prophecy of bullish market sentiment.

This perspective also aligns with insights from Daniel Polotsky questioning the continuing relevance of bitcoin's four-year cycle. While fluctuations in demand will persist, the impact of supply changes is becoming increasingly negligible.

At this point, the issuance rate of Bitcoin has become so low that its supply has a minimal effect on its price, which is now primarily influenced by demand. While the narrative surrounding the halving continues to be a strong driver and is expected to propel bitcoin into a new bull market, this influence is likely to diminish in the future. As a result, it's probable that bitcoin will eventually decouple from the four-year halving cycle.

I have great memories from the halving in 2020. The atmosphere within the Bitcoin community was electric with anticipation as we approached the moment when the block subsidy would be cut in half. This pivotal event sparked an incredible wave of bullishness throughout the summer of 2020, setting the stage for the monumental bull market of 2021. Although I remain skeptical that the modest reduction in supply due to this halving will significantly alter bitcoin's price equilibrium, the prospect of it igniting increased demand and investor enthusiasm is something I eagerly await.

From the vantage point of a miner, the halving presents more than just a potential market rally; it's an opportunity to introspect and innovate within our operations. It prompts us to explore new methodologies to reduce costs and enhance efficiency, ensuring our survival and success in this highly competitive field. The halving isn't just a test of resilience but a catalyst for evolution within the mining community.

As we look forward to the next halving, it is essential to remember the core ethos of Bitcoin. Bitcoin wasn't created for the miners; its heart beats for the hodlers. Miners play a crucial role, no doubt, servicing the Bitcoin network and ensuring its robustness. Yet, the true spirit of Bitcoin lies in its ability to empower holders, providing a decentralized alternative to traditional financial systems. The anticipation and excitement for the halving resonate not just among miners but throughout the entire community of Bitcoin enthusiasts and investors.

So, as we edge closer to this pivotal event, let's embrace the halving with open arms and a spirit of innovation. It's a reminder of the dynamic landscape of Bitcoin, a testament to its resilience, and a beacon of the exciting developments yet to come. To all hodlers and miners alike, let's gear up for the halving. Bring it on!