The price of Bitcoin may experience a slowdown after the upcoming halving event, which could have negative consequences for high-cost public miners in the United States. This could potentially lead to some miners relocating offshore.
Jaran Mellerud, founder and chief mining strategist of Hashlabs Mining, suggests that investors may realize that these mining companies are barely profitable if the price of Bitcoin does not rise significantly after the halving. Mellerud is closely monitoring the three to four-month period following the halving to assess the impact on miner profitability due to the reduction in block rewards.
According to CoinMarketCap, the next Bitcoin halving is expected to take place on April 24. This will decrease Bitcoin miner rewards from 6.25 BTC ($321,000) to 3.125 BTC ($160,500). It is worth noting that previous halving events have typically been followed by a surge in the price of Bitcoin.
In the last halving event on May 11, 2020, Bitcoin was priced at $8,750. Five months later, in October, it surged over 430% to $61,300 by mid-March 2021.
However, if Bitcoin fails to experience a significant price increase within the three to four-month period, Mellerud suggests that a significant number of miners, especially those paying high hosting rates of $0.07 per kWh or more, may have to shut down their operations. Many of these inefficient miners are based in the United States.
As a result, Mellerud predicts that some of Bitcoin’s hash rate will shift from the U.S. to countries with cheaper electricity rates, particularly in Africa and Latin America.
Concerns about profitability arose in late January when Cantor Fitzgerald reported that 11 publicly-listed Bitcoin miners would not be profitable after the halving if Bitcoin’s price remained around $40,000. However, with Bitcoin’s current price at $51,000, only four of the 13 mining firms would fall below the profitability threshold.
Mitchell Askew, head analyst at Bitcoin mining firm Blockware Solutions, argues that most U.S. public miners will remain profitable due to their low electricity rates, especially those that have invested in more efficient machines during the bear market. Askew disagrees with Mellerud’s claim that inefficient miners are primarily located in the U.S., stating that they only make up a small percentage of Bitcoin’s total hash rate, and any loss in hash rate in the U.S. would be insignificant.
Even if profitability becomes an issue, Askew believes that some U.S. miners will not move offshore. Some miners are bound by fixed hosting contracts that require them to continue mining regardless of profitability, while others mine specifically to acquire non-Know Your Customer Bitcoin and are less concerned with profitability.
Mellerud identifies Ethiopia, Nigeria, and Kenya as the African countries best-positioned to attract a larger share of the hash rate if a mining migration occurs. Ethiopia, in particular, has an abundance of hydropower and has already seen Chinese miners moving there to mine Bitcoin. Mellerud expects Ethiopia to capture 5-10% of Bitcoin’s total hash rate in the next few years. Argentina and Paraguay are highlighted as the most promising mining countries in South America.
Overall, there is uncertainty surrounding the impact of the halving on miner profitability and the potential migration of hash rate from the U.S. to other countries. Both Mellerud and Askew present different perspectives on the situation, with Mellerud emphasizing the risks and potential consequences, while Askew believes that most U.S. miners will remain profitable and have reasons to stay put.