Will BTC Mining Still Be Profitable After The Bitcoin Halving 2020?
More Bitcoin in fewer hands…
The Bitcoin Halving 2020 is just around the corner and it’s already shaking the market. A wave of purchases ahead of the May 12 event has been pushing Satoshi’s currency notably in the last week.
The week ended with Bitcoin adding nearly 10% to briefly position itself about $10,100. As expected, the trading volume in the cryptocurrency market was up 20%. This bullish dynamic was mainly supported by traders and investors moving away from their existing altcoin positions and jumping on the Bitcoin run.
Logically, the capitalization of the altcoins market plummeted, while the share of the world’s most popular cryptocurrency increased. Market participants are no strange to this particular movement since it’s practically identical to the one observed in mid-2019.
Expectations are running high in the crypto space, although most of them are entirely based on a historical pattern. Following the previous two halving events in 2012 and 2016, Bitcoin registered sharp growth that led to its peak off $20,000 back in 2017.
That said, the popularity of Bitcoin increases ahead of the event as people from all over the board wants a piece of the cake before “it’s too late.” Google Trends makes a great job as evidence:
As outlined in a recent article, the impact of Bitcoin Halvings on prices is still a matter of discussion and there’s no clear understanding of how the event will impact the price this time.
However, there is certainty about one thing: miners will suffer the most. With the mining reward dropping to 6.25 BTC, the break-even point of mining will double. At the current block reward of 12.5 BTC, the situation for miners looks like this:
Without getting into many details, the chart above shows that miners are still profitable even with old pieces of equipment such as the legendary Asic S9. And the most advanced models start generating profits at quotes between $4,500 and $5,100.
Fair enough. Why should you care about these levels? Well… Here’s the thing: Bitcoin’s price has never been below breakeven levels of mining devices by more than 10 percent. At least not until now.
Following the Bitcoin Halving 2020, the picture will turn to this:
As seen on the chart, even flagship mining equipment will struggle to record gains at current values. Only large companies, such as Bitmain and Canaan, can afford to operate in the actual landscape. For the mining industry, this halving could trigger a massive shutdown of the small-sized mining firms.
However, the break-even levels don’t depend exclusively on the price of electricity. Another factor that weighs on the profitability of mining is the network power. If miners are forced to shut down, the network power will inevitably decrease. And that will result in a lower break-even point for the remaining players. Higher profits for fewer miners.
Typically, the network power is known as “hash rate”, which represents the computational power that Bitcoin miners need to use to validate transactions on the blockchain.
Over the years, the correlation between Bitcoin and the hash rate has been extremely high, outlining a clear relationship between these variables. Back in 2016, they were correlated at 86.2%, while in 2017 the correlation reached a peak of 91.5%.
That said, we estimated key support levels of Bitcoin by reducing the hash rate between 40% and 50% from current values. Sounds excessive? It isn’t. Only in 2018, the hash rate fell by 40% for several weeks.
Based on this data, the aftermath of the Bitcoin Halving 2020 could lead to a fall of Bitcoin to the area of $5,000 — $6,000. The decrease of the price will most likely be gradual and the bearish trend might extend until the beginning of the Autumn season.
Disclaimer: This analysis is provided by an external partner for informational purposes only. Crypterium will not be held responsible for any inaccuracy in the data. You should not construe any such information or other material as legal, tax, investment, financial, or other advice.
Cryptocurrencies are risky and may not be suitable for all investors. Ensure you understand the risks involved as you may lose all your invested capital. The past performance of cryptocurrencies is not a reliable indicator of future results.
