Get Ready for the Next Two Bitcoin Halvings: Understanding the Changes and Analyzing Potential Future Mining Profits
Bitcoin mining has come a long way since its beginning in 2009, and the upcoming halving events are set to bring significant changes to the industry. As a miner, it's crucial to understand how these halvings will impact the overall mining landscape and what you can expect in the future.
Halvings
First, let's understand halving and why it matters for miners. A halving is a predetermined event that occurs every 210,000 blocks - every 4 years, during which the block reward for miners is cut in half. This means that after each halving, the reward for successfully mining a block will be reduced and in the short term - affecting the profitability of mining.
The first halving occurred in 2012, reducing the block reward from 50 to 25 bitcoins. The next halving is set to occur in April of 2024, and the reward will be reduced from the current 6.25 BTC to 3.125 BTC. The halving after that is expected to occur in 2028, further reducing the reward to only 1.56 BTC.
It's important to note that while the block rewards are decreasing, the total hashrate (nethash) of the Bitcoin network continues to increase. The increasing hash rate means that the competition among miners is getting stronger, making it even more challenging to successfully mine new blocks.
Threats to Bitcoin mining profitability
There are four threats to sustaining current Bitcoin profitability:
Only halvings are certain to happen and are certain threats to the profitability of Bitcoin mining. Whereas difficulty, el. price and bitcoin prices can increase or decrease. While these can negatively affect profitability, they can also affect profitability positively.
If the difficulty decreases and/or price increases and the block reward stays the same, we can expect higher mining profitability.
On the other hand, if difficulty is increased by x2, and the price is increased by x2, then we can expect the same profitability given that the block reward stays the same.
What will happen with mining profitability after 2024 Bitcoin halving?
The momentary profitability will definitely decrease by half of what we make now. Simply because the block reward will be half of what it was before.
After some time, we should expect the price to increase simply because of the supply/demand. Lower block reward means less supply on the sell side.
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How much should the price of Bitcoin increase to sustain the current profitability after 2024 halving?
If the Bitcoin block reward is halved, the price of Bitcoin must double to what it is now. This is true only if the Bitcoin mining difficulty stays the same as now (which probably won't). I expect the nethash to increase by around 33% until the 2024 halving - based on the current projections of network hashrate growth. This means that the difficulty will also increase by 33%. Thus the Bitcoin mining profitability will be 33% lower even if the price of Bitcoin is doubled.
To do the calculation, we must first double the price of Bitcoin to even out the halved block rewards and then add 33% of that price to even out the difficulty increase.
If we want the Bitcoin mining profitability to sustain the current levels after the next halving and nethash increase, the price of Bitcoin should be around $58 500 by May 2024.
What will happen with the mining profitability after 2028 Bitcoin halving?
2028 might seem far away, but it is only 5 more years until the block reward is halved again to 1.56 BTC.
Until 2028, I expect the Bitcoin network hashrate to at least double again from 400EH to 800EH. The difficulty will obviously follow and double also.?
How much should the price of Bitcoin increase to sustain the current profitability after the 2028 halving?
If we do the same calculations as above, the reward will half again; thus, the Bitcoin price should be multiplied by 2.
Since the difficulty will most likely double (based on the current year-to-year growth) from 2024 to 2028, we should multiply the price by 2 again.
The Bitcoin price after 2028 halving should be around $230 000 to sustain the profitability we are experiencing now.
Summary
Note that the current profitability is not great - or at least not what we were used to in the 2021 bull run. If we wanted to see similar profits as we did in 2021, the price of Bitcoin should be x3 of whatever I wrote above. Can we expect the Bitcoin price to be $180 000 in the optimistically expected 2024 bull run or even $700 000 in the 2029 bull run?
Notice: All of the above assumptions are educated guesses and do not take into account the potential efficiency gains by ASIC devices. I think that there will be fewer efficiency gains from the chip itself as the modern ASICs are already running on the latest 5nm technology. Immersion cooling will increase the efficiency of mining.
All of the above assumptions are purely based on the educated guess and are not necessarily true. Leave a feedback comment if you agree or disagree with the above statements.