How Bitcoin miners can survive a hostile market

Only seven months remain before the next Bitcoin (BTC) halving in April 2024. It happens approximately every four years and is a deflationary process that cuts the production of new coins by 50%.

Bitcoin’s halving is one of the most high-profile events for crypto investors, and has historically led to an increase in Bitcoin’s price. However, its impact on the mining industry is a more complex issue. It reduces block rewards,  one of the primary revenue streams for miners. The 2024 halving will reduce it from 6.25 BTC to 3.125 BTC. That’s why miners must adapt their strategies to compensate for the reduced rewards resulting from the halving.

Let’s explore the strategies and alternative income sources that may help Bitcoin miners amid hostile market conditions.

Changing mindsets

Bitcoin mining involves a competitive process where miners vie for block rewards. This competition is driven by Bitcoin’s block time, which averages around 10 minutes per block on the protocol level. Whether the network’s computing power is relatively low at 1 kH/s or surges to a massive 200 million TH/s, the same block rewards must be distributed among miners.

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This competitive environment encourages miners to prioritize energy efficiency and the use of cost-effective hardware. With each halving event, where block rewards are cut by 50%, this trend towards efficiency gains momentum. As the cost of producing a single BTC is set to approximately double shortly after the next halving, miners will need to explore ways to optimize their profitability and focus on these three critical factors.

Bitcoin miners’ survival rests on these three whales

The first and most important “whale” is the cost of electricity. Even a modest fluctuation of 1 cent per kilowatt-hour (kWh) can lead to a substantial $3,800 variance in the production cost of BTC, according to JPMorgan. To bolster their post-halving profitability, miners are exploring sophisticated contracts and contemplating relocation to countries or regions where electricity prices are lower. They even consider power generation from stranded gas options. I believe that it’s crucial for miners to secure electricity rates at or below 5 cents/kWh to maintain profitability beyond April 2024.

The second major factor demanding miners’ attention is the efficiency of their equipment. For instance, daily BTC mining costs can be slashed by more than 63% when upgrading…