Bitcoin miners may be facing “severe” income stress in the near future, according to a recent report by analytics firm Glassnode. The report predicts that after Bitcoin’s next block subsidy halving, miners will encounter fresh challenges that could have a significant impact on their profitability.
One of the main factors contributing to this potential income stress is the increasing competition among miners. The hash rate, which represents the combined processing power deployed to the Bitcoin blockchain, has reached record highs. While this surge in hash rate indicates a growing interest in Bitcoin mining, it also implies unprecedented conditions for miners trying to make a living at the current price levels.
Glassnode points out that ordinal inscriptions are currently helping miners generate additional revenue. These inscriptions act as “packing-fillers” that turn empty blockspace into a source of income. As the demand for blockspace increases, miner revenues are expected to be positively affected.
However, despite this boost in revenue from inscriptions, the proportion of income received from fees remains modest compared to historical standards. Additionally, the amount of hashrate competing for these rewards has increased by 50% since February, as more miners and newer ASIC rigs come online. This increase in competition sets the stage for a future showdown in April 2024 when miner rewards per block will drop 50%, doubling the production cost per BTC.
Glassnode presented two models for estimating the price at which miners, on aggregate, fall into the red. According to one model, the most efficient miners on the network have an acquisition price of around $15.1k currently. However, after the halving, this level is projected to double to $30.2k, putting the majority of the mining market under severe income stress.
Another model put the average miner acquisition price at $24,300 per Bitcoin, which is around 8% below the current spot price. These figures suggest that miners may struggle to cover their costs after the halving takes effect.
Despite these concerns, some analysts, such as Filbfilb, co-founder of trading suite DecenTrader, remain optimistic about how miners will handle the build-up to the halving. Filbfilb believes that miners are incentivized to ensure that prices are well above marginal cost before the halving. He suggests that they may collude, whether consciously or not, to send prices higher before their revenue is halved.
Furthermore, Filbfilb anticipates that smart money will be “buying the rumor” of the halving, contributing to Bitcoin supply dynamics. This smart money will likely accumulate Bitcoin in anticipation of the event, further impacting the amount of BTC being minted.
In conclusion, while Bitcoin miners are currently benefiting from ordinal inscriptions, increased competition and the upcoming halving could pose significant challenges to their profitability. The report by Glassnode suggests that miners may face severe income stress, which could ultimately impact the overall Bitcoin market.