JPMorgan Warns Bitcoin Miners Facing ‘Stress Test’  in Upcoming Halving

JPMorgan analyst admits that unless Bitcoin price and transaction fees rise, mining firms will struggle to offset the block reward set to lower after the upcoming halving. 

JPMorgan analysts led by Nikolaos Penigirtzoglu predict the mining segment to plunge into headwinds despite the hashrate realizing new record highs in anticipation of the halving event. Most Bitcoin miners would struggle following the halving in the next spring. Mining firms would confront volatility in electricity costs.

Rising Production Cost Would Strangle Miners as Rewards Decline

Also, global financial bank analysts anticipate fierce competition among the firms would push the production cost higher. The analyst identified the hash rate as the computational power deployed in mining cryptocurrency. The report detailed that the event takes four years to occur. They indicated that the upcoming event will occur in April-May 2024. Its occurrence would lower the rewards miners reap from executing each block.

Panigirtzoglou indicated that the bitcoin has from 6.5 to 3.125 per every block mined. The Flows and Liquidity report released by the bank decries that the having will compel the miners to contend with reduced revenue. 

The emergence of rivalry would increase the cost of producing Bitcoin. Although Bitcoin halving yields a positive effect to spark price rally considering the product cost historically been the floor. Such would pose a critical challenge for Bitcoin mining firms.

The analysis estimated that miners would incur $20000 from a global electricity cost average of $0.05/kWh to produce a single Bitcoin. With the bitcoin price hovering around $30000, miners should pursue lower-priced power to increase profitability. The greatest lies in miners’ pursuit of lower electricity costs considering a time when a volatile hash rate shows reliance on multiple energy sources. 

The analysts forecast that increasing the electricity charges by 1% would result in a $4300 increment in the Bitcoin product cost. JPMorgan’s report illustrates that the post-halving era would double the energy cost to $8600. Such an occurrence would expose the mining firms with higher production costs to declined margins. 

Will Increased Institutional Interest in Bitcoin Save Miners from Looming Stress Test?

The JPMorgan report shows that increased institutional interest in Bitcoin mining offers a reprieve to struggling miners. Recently, Grayscale Investments and Galaxy Digital have invested in mining rigs. Grayscale established an entity that offers Bitcoin mining hardware, with Galaxy Digital acquiring Argo Blockchain.

The report acknowledged the announcement by Tether to devote resources to the El Salvador-based Bitcoin mining site. The move by the leading stablecoin issuer shows increased interest in crypto mining activity.

The report observed that the Bitcoin price and transaction fees should rise to ensure the mining firms offset the declined block reward. JPMorgan added that the miners will confront declining revenues as the crypto hype is reducing daily. The analysts noted that the hype surrounding Ordinals is plunging daily, indicating a likely decline in miners’ revenue. While the daily Ordinals inscriptions rose to an all-time high, Bitcoin fees could hardly sustain the highs.

The JPMorgan analysts held that it is unlikely that the Bitcoin hash rate would sustain the current rise past the 2024 halving event. Such is likely if the Bitcoin price fails to rally above the production cost. Also, miners would face a strangling future unless the transaction fees realize huge increments to offset the decline in the issuance rewards. 

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