What is the fate of Bitcoin miners post-halving? Crypto Exec Chips Inc

Following the successful completion of the much-anticipated fourth Bitcoin halving on April 20, miners' struggle to become profitable has begun.

The incident reduced the block rewards from 6.25 BTC to 3.125 BTC, reducing the assets produced daily. This has had a huge impact on the profitability of miners as they rely on transaction fees and high BTC prices.

Struggle for profit

Jag Kuner, head of derivatives at crypto exchange Bitfinex, said Bitcoin miners are expected to face significant pressure due to low block rewards and compressed profit margins. This could force inefficient firms out of business unless operating costs are reduced or the price of Bitcoin increases substantially.

“However, this change provides an opportunity for innovation and efficiency improvements in the sector. Miners can explore new regions with cheaper energy sources or invest in more efficient mining technology to maintain profitability,” Conner said.

As efficient mining entities move out of the market, mining may become more centralized among large and financially strong organizations. Many large mining companies have invested in new, efficient hardware to improve their operations by adding thousands of miners to their existing machinery. This can give them a bigger footprint and help them maintain their profitability.

Reliance on transaction fees

Conner explained that a potential offset to the reduced block rewards would be an increase in transaction fees, which could occur if demand for a transaction exceeds space in the blocks.

However, higher transaction fees can increase user costs and make the Bitcoin network less attractive for smaller transactions. Also, a long-term decline in Bitcoin's hash rate could undermine confidence in the network's security, negatively impacting BTC's adoption rate and value.

Bitcoin price performance

In addition to higher transaction fees, an increase in the value of BTC may offset the reduced block rewards. This is likely because the past half of Bitcoin's rallies have followed. However, the rise of BTC during this cycle depends on many factors, including demand, investor sentiment, and macroeconomic conditions.

Although there are mixed opinions regarding Bitcoin's post-halving performance, the tension in the Middle East could put a pause on the trend predicted by analysts. After Iran launched drones and missiles at Israel, market sentiment shifted from optimism to pessimism, Conner said.

“It remains to be seen whether this will affect the fundamentals, but sentiment is more cautious now than it was a week ago,” the Bitfinex executive added.