Bitcoin Miners Face Potential Losses at Upcoming Halving
Fidelity Digital Assets has warned that Bitcoin miners could face losses if the price of Bitcoin remains under $80,000 after the upcoming halving in April. The company released its 2024 market outlook, highlighting the growth of Bitcoin, the state of miners, and possible perspectives for the near future.
Bullish narratives have been on the rise in recent months, with growing adoption in Latin America and the approval of spot Bitcoin ETFs by the US SEC. However, Fidelity analysts suggest possible miner losses if the price of Bitcoin does not surpass $80,000. The upcoming halving in April will see block rewards reduced by 50%, resulting in a slash in revenues.
Despite this potential challenge, halvings are typically associated with bullish momentum around the cycle, and it is expected that the price of Bitcoin will soar post-halving to cover these losses.
Bitcoin miners faced a turbulent season leading up to the halving year before the recent price surge. The bear market in 2022 led to a 55% price drop that took miners underwater. The winter saw miners selling their Bitcoin reserves, pivoting to Artificial Intelligence (AI) computing, and selling equipment to stay afloat.
Spot ETF Approval Impact on Bitcoin Price
In a turn of events, institutional inflows recorded in Q2 2023 on the heels of an imminent spot BTC ETF approval led to price upticks. Miners moved back into profit and are hedging assets to build capacity for the upcoming reward slash. At present prices above $45,000, miner revenues are at $40 million, up $10 million on average. However, for present profits to remain stable, the price of Bitcoin needs to soar to $80,000.
“In a scenario where the price does not rise to $80,000 before the halving, some miners will inevitably be mining at a loss. The mining industry is accustomed to small margins because the difficulty adjustment tends to act as a governor on margins, keeping the cost of production close to the spot price.”
Bitcoin Ordinals Impact on Miner Revenue
While spot Bitcoin approvals have sparked bullish momentum, it is not the only driving force for miners. The rise of Bitcoin Ordinals has created a new revenue base for miners to hasten recovery. Fidelity Digital suggests that 2024 will see more interest in Ordinals effectively elevating miner fees.
Analysts added that Ordinals present a net positive for the network. Despite initial backlash, they have created new opportunities for miners. The issue of blockchain congestion remains in the spotlight due to last year’s mempool clog that significantly increased transaction fees.
“While its use case for transferring digital art or text may not sustain interest over time, Ordinals present new capabilities that were not previously thought possible. The additional fee revenue is most likely a welcome sight to miners as well.”
By staying informed about potential challenges and opportunities for Bitcoin miners in 2024 and beyond, you can make informed decisions about your crypto investments and understand how market shifts might affect your portfolio.
Remember that these insights from Fidelity Digital Assets are just one perspective on how miner profitability could be impacted by various factors such as price movements and technological developments within the crypto space.
Stay tuned for more updates on how these trends unfold and how they might impact your crypto investment strategy moving forward!
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