Darwinism may soon defeat some Bitcoin (BTC) miners. This is because the battle for “survival of the fittest” will begin in April next year due to the halving, which occurs once every four years and will cut the mining reward for creating new Bitcoins by 50%.
Prepare for half-life
To prepare for this disruptive event, large companies are securing newer, more efficient mining machines. But as they figure out how to survive and profit from the halving, they may also consider absorbing smaller miners.
Just ask Marathon Digital, the largest publicly traded miner in terms of hash rate (the computing power used to run the Bitcoin network). The company last week said it had set aside more than $800 million in cash and bitcoin (approximately 116 billion yen, equivalent to 145 yen to the dollar) to “take advantage of strategic opportunities, including industry consolidation” ahead of the halving. He said that he would increase funding.
Meanwhile, another major miner, Hut 8, just completed a merger with privately held US Bitcoin.
Miner CleanSpark has been buying up depressed crypto assets since the bear market began, and has amassed around $170 million worth of assets to “take advantage of the opportunities that the halving may present.” He said it was secured.
And institutional-grade miner Riot Platforms just ordered 66,560 new mining machines for $290.5 million in a bid to stay ahead of the competition.
The stage is set for fierce competition.
“Leading up to the halving and in its aftermath, miners will need to focus on strategic planning. The adage ‘If you’re not growing, you’re dead’ applies,” said Galaxy Mining. said Amanda Fabiano, a former president of the company who started an industry consulting services firm.
In fact, according to mining consultancy Blocksbridge, more than 10 publicly traded mining companies have already committed to purchase mining machines worth more than $1.2 billion by 2023, including around $750 million. The contract for the dollar portion was reportedly concluded in the past two months.
Grow no matter what
So why did this happen? And why are miners rushing to prepare for the halving?
Simply put, the Bitcoin halving will make it more difficult to obtain and mine new Bitcoins. Halving is a preset in the Bitcoin network’s code to reduce Bitcoin’s inflationary pressures, where the reward for successfully mining a Bitcoin block is halved.
Let me explain it in an easy-to-understand manner for those who are not familiar with crypto assets (virtual currency). Consider extracting a finite natural resource like gold or oil from the ground. The more we mine, the less resources we have left, which increases the value of the resource but also increases the cost of extraction.
The equivalent of Bitcoin and crypto asset mining is the halving, which is a classic example of the supply and demand cycle creating scarcity-driven asset value. This is what Satoshi Nakamoto, the creator of Bitcoin, believed, and in fact, Bitcoin may be more scarce than gold.
Looking back, halvings have caused the price of Bitcoin to rise exponentially, creating huge amounts of wealth for investors. However, it is a difficult event for the miners.
During the third halving of 2020, the price of Bitcoin rose from about $8,500 to nearly $18,000 in a few months, but the reward for successfully mining a block was reduced from 12.5 BTC to 6.25 BTC. .
At the next halving, it will drop further to 3.125 BTC, and mining competition will become even more intense.
In previous halvings, there weren’t that many large scale miners, and even fewer listed. Many companies entered the sector in the run-up to the 2021 bull market, with returns of nearly 90% at its peak. As the price of Bitcoin approached $70,000, miners became more and more profitable, many of them spending more and taking on debt to grow faster.
Investors, including traditional finance companies, generously provided cash to fuel miners’ growth, encouraging ferocious spending and growth.
All of that came crashing down in the 2022 bear market. Profitability deteriorated, and several major miners filed for bankruptcy. Access to capital markets was cut off. Many of the miners still in operation are barely surviving, waiting for the next bull market to rescue them.
The rise in Bitcoin prices in 2023 was largely fueled by optimism that U.S. regulators would approve Bitcoin exchange-traded funds (ETFs) from BlackRock and others, giving miners some relief. ing.
However, the Bitcoin network’s hash rate has hit an all-time high (evidence of increasing competition), block mining difficulty has hit an all-time high, soaring energy prices, intense regulatory scrutiny, and depletion still remain. The mining situation, including the capital market, remains difficult.
Wave of industry restructuring
Miners that have grown too quickly are currently struggling with cash flow and are looking for a ray of hope. Struggling miners need to cut costs, shore up their balance sheets and increase capital, all of which could be catalysts for M&A in the industry.
Cost reductions “will be a major driver of the upcoming consolidation in the mining industry. Expenses such as executive compensation and insurance premiums will benefit from economies of scale in the post-halving environment,” said mining services company Luxor Technologies ( said Ethan Vera, COO of Luxor Technologies.
M&A takes many forms and can be complex. However, one trend that may stand out, according to Vella, is the merger of private miners with public companies.
“Following the momentum in Bitcoin prices, shareholders of private and public mining companies will look for avenues to liquidate some of this position through public companies. “To gain access, they will merge with publicly traded companies or shell companies,” Vella said.
Miners will likely use the Hut 8 merger as a case study in merging entities with strong balance sheets and high growth opportunities, Vella added.
Fabiano gave a similar answer when asked how things would play out.
“Medium-sized and small-scale miners should prioritize positioning themselves at the lower end of the cost curve. Given the capital constraints in the market, M&A is also an option. We need to focus on the growth story that will define our future.”
The jungle law of “the fittest” is about to be unleashed on the mining industry.
｜Translation and editing: Akiko Yamaguchi, Takayuki Masuda
｜Original text: Bitcoin Halving Is Poised to Unleash Darwinism on Miners