Bitcoin (BTC) miners are currently experiencing a boost in their profits due to ordinal inscriptions, but new research warns that they may face income stress in the near future. Glassnode, an analytics firm, predicts that miners will encounter difficulties after Bitcoin’s next block subsidy halving.
The competition among Bitcoin miners is rapidly increasing, as evidenced by the record-high hash rate, which represents the combined processing power deployed to the blockchain. Glassnode highlights that these conditions are unprecedented for miners trying to sustain their business at current BTC price levels.
Ordinal inscriptions, which act as “packing-filler,” are helping miners generate revenue by utilizing empty blockspace. As the demand for blockspace increases, miner revenues also increase. However, despite the boost in revenue, the proportion of income generated from fees remains modest compared to historical standards. Additionally, the amount of hash rate competing for rewards has increased by 50% since February, as more miners and newer ASIC rigs join the network.
This surge in hash rate sets the stage for an upcoming showdown. In April 2024, miner rewards per block will be halved, leading to a doubling of the “production cost” per BTC. Currently standing at around $15,000, the production cost will surpass $30,000, which is higher than the current spot price.
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Glassnode presents two models for estimating the price at which miners, on aggregate, will face financial strain. The first model compares issuance to mining difficulty and suggests that the most efficient miners on the network have an acquisition price of approximately $15.1k. However, the second model, the Difficulty Regression model, predicts that the price will double to $30.2k after the halving, potentially putting the majority of the mining market under severe income stress.
On the other hand, some experts are more optimistic about how miners will respond to the halving. Analyst Filbfilb, co-founder of trading suite DecenTrader, believes that miners will accumulate more BTC in anticipation of the event to ensure that prices remain well above marginal cost. This strategy is motivated by the fact that their revenue will be effectively halved post-halving.
Assisting BTC supply dynamics will be the smart money, which Filbfilb suggests will “buy the rumor” surrounding the halving and its impact on the amount of BTC being minted. This influx of smart money will contribute to the upward price movement of BTC.
While the research and analysis provide valuable insights into the potential challenges and incentives for Bitcoin miners, it’s important to remember that this information should not be considered investment advice. Every investment and trading decision carries risks, and individuals should conduct their own thorough research before making any decisions.
Overall, the future of Bitcoin mining profitability remains uncertain, with the impending block subsidy halving posing potential challenges for miners. However, market dynamics and the actions of miners and investors leading up to the event will play a crucial role in determining the outcome.
