Bitcoin (BTC) mining has had a tumultuous journey in the previous year. The bearish market conditions, growing energy costs, and increased difficulty levels have made it increasingly difficult for miners to remain profitable.
Nonetheless, reports by a recent Twitter thread by Mitchell, a researcher at Blockware Solutions, the tides are shifting, and the outlook for Bitcoin (BTC) mining is looking positive.
Is The Future Of Bitcoin (BTC) Mining Bright?
Mitchell implies that to be positive tendency on mining, one must likewise be positive tendency on Bitcoin. Bitcoin has proven to be a resilient investment, with a fixed supply and a growing list of use cases. Mitchell outlines the capacity collapse of fiat banking and debt-ceiling increases as factors that make Bitcoin (BTC) an attractive investment.
The researcher outlines the impact of Application-Specific Integrated Circuits (ASIC) commoditization on miner profitability in his analysis. He points out the decreasing marginal efficiency profits of new ASICs mean that mid-generation machines won’t be be made obsolete by new-generation machines, and the network hashrate won’t be maintain its historical growth rate.
This has important implications for miner profitability. Because in the past, when new ASICs were released, older machines would quickly become obsolete, and miners who did not upgrade would be left behind.
Nonetheless, with new ASICs’ decreasing marginal efficiency profits, mid-generation machines can remain competitive for longer, allowing incumbent miners to remain highly profitable for longer periods.
In addition, the delay betwixt price bull runs and hashrate bull runs has increased, as acquiring new hashrate requires miners to secure a power source, build infrastructure, and acquire ASICs.
This implies that incumbent miners have been able to sustain their competitive advantage for longer time periods, as it takes more time for new miners to enter the market and increase the hashrate.
The Power Of Transaction Fees
Mitchell likewise discusses the role of transaction charges in Bitcoin (BTC) mining. Although while numerous may not like the idea of paying charges to inscribe jpgs on the chain, the scarcity of block space implies that demand for transactions will be high within a bull market. This will likely lead to charges that are higher than the 3.125 Bitcoin subsidy, further increasing miner profitability.
Higher transaction charges can significantly increase miner profitability, as they provide an extra source of revenue on top of the block subsidy. This is particularly important in times of low block subsidies, such as after each halving event when the block subsidy is reduced by half. In these situations, higher transaction charges could be necessary to maintain profitability for miners.
Another factor that Mitchell outlines is the tendency toward zero future supply of Bitcoin. Although while BTC’s supply will sooner or thereafter reach its limit, the dollar-denominated value of the remaining future supply is trending up. This implies that incumbent miners will be dollar-cost averaging at a whole lot of discount when Bitcoin (BTC) is currently worth higher prices.
In the end, Mitchell notes the tendency of declining exchange balances and increased Bitcoin adoption. As the halving decreases the price at which future supply becomes circulating supply, and more people adopt Bitcoin, there will be fewer Bitcoin on exchanges. This could further increase the scarcity of Bitcoin (BTC) and drive up its value, leading to even greater profitability for miners.
In general, Mitchell’s analysis implies that plenty of factors are contributing to sustained profitability for Bitcoin (BTC) miners. Although while the challenges of 2022 were whole lot of, the commoditization of ASICs, coupled with the capacity for higher transaction charges, increasing the dollar-denominated value of remaining future supply, and declining exchange balances, are all positive indicators for future of the Bitcoin (BTC) mining.
Featured image from iStock, chart from TradingView.com