CoinShares Predicts Post-Halving Miner Exodus

Many Bitcoin miners may struggle to remain profitable following the completion of the fourth quadrennial Bitcoin halving in late-April, according to a new report from CoinShares.

The report said a recent surge in the number of active miners coupled with the upcoming reduction in BTC block rewards will threaten the profitability of many validators after the Bitcoin halving occurs in April. CoinShares estimates an average production cost of $37,856 per BTC after the forthcoming Bitcoin halving — which will reduce the rate of new Bitcoin issuance from 6.25 BTC to 3.125 BTC per block.

“The Bitcoin mining network has grown by 90% in 2023, raising questions about its environmental sustainability and profitability,” CoinShares said. “Post-halving, higher-cost miners may struggle due to decreased immediate income… Only a handful of miners are expected to operate profitably if Bitcoin prices remain above $40,000.”

CoinShares said Bitcoin’s hash rate increased by 104% last year, indicating a dramatic increase in competition for block rewards. However, the report forecasts a decline in network hash rate as inefficient miners struggle to remain profitable due to reduced block rewards and increased mining difficulty after the halving.

“Regardless of whether there are 2 or 2 million miners, the amount of new Bitcoin created remains constant until the next scheduled halving event,” CoinShares said. “If the collective hashpower of the network increases significantly, the mining difficulty will adjust upwards to keep production rates on target, consequently pushing higher-cost miners out of the market.”

Bitcoin's four-year cycle

The CoinShares report comes as the price of BTC is reeling after the long-anticipated approval of the first U.S.-based spot Bitcoin ETFs manifested as a sell-on-the-news event. BTC last changed hands for $42,550, down 12% from last week's local top of $48,500, according to CoinGecko.

Despite the pull-back, many pundits are tipping that the upcoming halving will precipitate future BTC price gains, with the year following past Bitcoin halvings hosting meteoric bull markets for digital assets.

CoinShares noted that while some miners may view increasing BTC prices as a sign that mining may offer greater profits for miners, increasing difficulty resulting from the influx of network hash rate coupled with the reduction in block rewards may actually drive down miner returns.

CoinShares compiled data showing that network hash rate has historically ramped up in the lead up to past Bitcoin halvings before dropping off after the event. The report said hash rate fell by an average of 9% over the six months following past halvings as inefficient miners were purged from the network after being rendered unprofitable.