Miners Must Manage Expenses Ahead of Halvening

As the next bitcoin halvening approaches in six months, miners are urged to closely monitor their production expenses and block rewards to mitigate declining revenues, advises Leo Zhang, Principal at Iterative Capital Management, in this week’s episode of The Scoop. Zhang indicates that the impact of the upcoming halvening on the mining industry remains uncertain. Contrary to popular belief, a robust connection exists between hash rate and bitcoin price. Consequently, whether the market turns bullish or bearish for miners hinges on price movements. A report from Iterative Capital suggests that production costs could surge significantly post-halvening. For instance, a miner using Whatsminer M20s with an energy cost of three cents per kilowatt-hour incurs approximately $7,000 in production costs per bitcoin. However, should hash rates continue to rise and miners adopt a more cautious electricity pricing of seven cents per kilowatt-hour following the halvening, costs could reach nearly $17,000. Zhang reflects on the differences between the current mining environment and that from 2013 to 2016, a time when miners operated with less caution due to high profitability. Today, discipline in managing expenses and revenues is vital. To navigate these challenges, miners can implement several strategies. First, securing hardware at the lowest possible prices and minimizing electricity costs are crucial. Furthermore, miners must ensure adequate electricity supplies to prevent complications from overselling during low price periods. Additionally, seamless transactions from cryptocurrencies to fiat currencies are essential. Zhang notes, "There is no real efficient way to hedge, and the best you can do is keep your expenses as low as possible. I believe that mining as a business will increasingly require more financial management and become costlier to operate."