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Despite two separate skids below the $60,000 threshold on geopolitical concerns over the past week, the unit price of Bitcoin (BTC) managed to recover to around $64,500 by Friday morning. The rebound comes just in time for the network’s long-anticipated fourth halving, which is now less than 60 blocks away. That means, in less than 11 hours, the reward associated with a miner “solving” a new block of transactions in the canonical chain of previous blocks (hence, blockchain) will be slashed from 6.25 BTC to 3.125 BTC. The halving is a critical pillar of Bitcoin’s programmatic monetary policy, occurring once every 210,000 blocks – equivalent to roughly four years’ time. This gradual reduction of Bitcoin’s inflation rate will continue automatically until 2140 when the final Bitcoin is mined. As it stands, nearly 19.7 million BTC of the hard-capped 21.0 million limit (or 93.8%) has been mined, exemplifying just how scarce new Bitcoin will be throughout the next century.

Moreover, more than 45% of the circulating supply has not been transacted in three years or more, despite the significant price volatility which has characterized that period. This suggests that long-term adopters of Bitcoin have made a large portion of the supply relatively illiquid, demonstrating resilience against both large run-ups in price, as well as significant drawdowns. Patience has rewarded that cohort well. Since the last halving on May 11, 2020, the price of BTC has appreciated by roughly 650% – skyrocketing from around $8,600.

In the simplest terms, the Bitcoin network can be understood as a public ledger of instantly verifiable transactions. The currency in which this ledger is denominated is BTC and each transaction is loaded into a “block” of other transactions which stores all of the data associated with them. Mining is an output of computing power that serves to verify the sequencing of blocks and avoid any double-spending of coins. Miners utilize a hashing algorithm to successfully find a random number known as a “nonce” that solves a block. This process takes about 10 minutes on average, according to a Poisson distribution, meaning that 144 blocks are mined per day. Those blocks, therefore, produce a total of 900 BTC on a daily basis – soon to be just 450 BTC. This reward function is how new BTC is created and distributed into the network.

The cumulative power of all mining activity on the Bitcoin network is referred to as the hash rate. Per Blockchain.com data, the 7-day moving average of the hash rate touched an all-time high of 638.6 million terahashes per second (TH/s) on April 16, up 87.6% YoY and more than 5x greater than it was at the last halving. This indicates that resources dedicated to acquiring increasingly scarce BTC have grown exponentially, irrespective of the price Bitcoin has traded for throughout that period.

The Bitcoin network has long been the largest concentrated sum of computing power in the world and a huge portion of that network is now made up of publicly traded companies. As of Q3 2023, public miners constituted 28% of Bitcoin’s total hashrate. That figure is likely to rise as large enterprises maintain significant access to capital, especially as the valuation of their equity and balance sheet assets rise. In February, Forbes reported that leading publicly traded miners had 1.2 gigawatts (GW) of expansion currently under development in anticipation of a continued rush for Bitcoin hash rate.

Marathon Digital (MARA), the largest public miner by market cap, has seen its shares more than quadruple since the start of 2023. Meanwhile, the amount of Bitcoin MARA holds in reserve has jumped by 5,149 BTC over the same period, reaching a sum of 17,381 BTC in its most recent quarterly report. That accumulation is equivalent to an increase of nearly $918.0 million in USD terms. Much like an oil producer’s valuation will largely be tied to the price fluctuations of crude futures, the value of miners’ equity is highly correlated with Bitcoin’s market price.

Though miners hold some Bitcoin in reserve, they must also sell a large portion of the cryptocurrency they’ve mined to pay for their overhead, electricity, and facilities, as well as debt payments and other costs of doing business. If BTC prices were to remain static around current levels for a whole year, Bloomberg estimates the mining industry would face a loss of around $10 billion in revenue as a result of the halving. The potential for reduced earning power per block could be a daunting prospect for miners that are not as financially equipped; especially if BTC’s price were to drop in the near-term. For example, Marathon Digital executives have said they would use the excess of “dry powder” on the balance sheet to help the company roughly double its hash rate by the end of 2025. These kinds of hardware purchases are critical to supporting a miner’s competitiveness. However, not all miners will be able to scale their hash power at the rate of MARA, suggesting a wave of M&A may lie ahead in the crypto mining space. This could take place via consolidation of whole companies, as well as through the purchase and sale of facilities or equipment.

March 25, 2024: SEC Reportedly Probes Ethereum Foundation but Would Struggle to Backtrack on ETH’s Commodity Status →

March 5, 2024: Bitcoin’s Dominance over Crypto Holds Strong Amid New ATH, ETF Hype Could Help Ethereum Pick up the Slack →

February 12, 2024: Bitcoin Rebound Revives Miner Shares Ahead of Highly-Anticipated Halving, Hash Rate Touches All-Time High →

January 17, 2024: New BTC Funds See Strong Net Flows in First Few Trading Days, Interest May Shift to Potential ETH ETFs →

January 9, 2024: Bitcoin ETF Decision on Deck as Optimism Builds, Level of Inflows Could Steer Crypto’s Course Ahead →

December 4, 2023: Gold and Bitcoin Break Out, Greenback Stagnant on Rising Expectations for Earlier Rate Cuts →

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