Three Factors That Will Prevent Miners from Surrendering after the Bitcoin Halving

Crypto specialists highlight four main factors that will stop this year’s Bitcoin halving from causing a wave of mining surrenders across the industry.

One thing that has been discussed in the crypto industry since the beginning of 2020 is the Bitcoin halving that took place this year. Rumor has it that the halving will give rise to a wave of miners giving up on mining Bitcoin. Still, many crypto specialists believe that it is naïve to think that thousands of Bitcoin miners will just close down after halving, thus dragging the price of the crypto asset down.

Some crypto professionals predict that the BTC price will fall as a consequence of the halving, a once-every-four-years event that occurred on May 11, 2020. “Halving” refers to a 50% reduction in the amount of BTC miners receive as a reward for each mined block. It considerably reduces miners’ yields. The miners who are hit hardest by the halving and tend to close down when halving comes around are usually those who are carrying too much debt or are small-scale miners.

As one digital asset executive once noted:

“The third Bitcoin Halving is going to be the harshest of all we’ve faced. Operational expenses are about to increase to 14000 USD, which is a 70% rise comparing to the current prices. At the time of previous halving the price was 10% lower than the operational expenses with the Price & HR falling by 20%. It is as sure as never that we are going to face more than 30% of miners giving in.”

The general idea is that a big reduction in miners can cause a so-called death spiral. When miners give up mining, they still have many bitcoins at their disposal, which they are likely to sell soon on cryptocurrency exchanges. Those sales create an overwhelming supply of BTC and convince more and more miners to leave and start selling.

The halving can seem intimidating, but by taking a good, hard look, we can see many indicators that can save the day. These indicators are the three main reasons that will stop miners from surrendering:

1. Dropping electricity prices in China and a drop in energy demand all over the world due to state lockdowns

2. A reduction in production costs

3. Bitcoin mining simplifications

Miners keep on storing bitcoin, assuming that the price will go up after halving.

Lower Prices for Chinese Electricity and a Drop in Energy Demand Worldwide

Recent data shows that more than 60% of all the computer power used for Bitcoin mining is provided by China. Some provinces in China suffer wet seasons with a lot of rain, which allows China to produce electricity from hydropower energy. During the wet seasons, when the water levels rise, hydropower plants produce more energy than they need.

As the power supply of Chinese power productions increase, large miners and mining farms have the opportunity to negotiate favorable prices and discounts on electricity for the months ahead, thus cutting down on production costs.

The whole world is now locked down due to the COVID-19 pandemic, and people are encouraged to stay home. Many production facilities are shut down, and thousands of middle-size plants and businesses have been closed for months. Therefore, the demand for electricity worldwide has decreased notably, making the main mining resource — electricity — a real bargain.

Cheap electricity, lower than ever oil prices, and the increasing amount of mining companies that are guaranteed to have the required amount of resources at their disposal all contribute significantly to a reduction in miner surrenders.

Volatile Currencies Resulting in Reduced Production Costs

Reduced values of state currencies may deeply affect local mining centers, such as the Russian ones, points out W. Gibbs, the chief executive officer of HASHR8.

Mining companies receive their total income in bitcoin, while all production costs are paid in the local currency. If money loses value and BTC price goes up, the mining companies have another source of additional income by economizing expenses as the local currency loses its price against bitcoin.

World politics and its influence on the crypto industry are rarely considered because crypto assets are not regulated and are decentralized, so the impact of the global economy is secondary. However, many current economic issues have created an environment for crypto to flourish. Therefore, it is highly unlikely that miners will start to give up their positions because of this year’s halving.

As Glibbs points out,

“Bitcoin Halving in 2020 may become the harshest we’ve seen, but it’s all a guesswork. No one has carried out a thorough study to discuss the present geopolitical or financial situation and the effect it may have on Bitcoin prices and mining.”

Managing the Complications of Bitcoin Mining

When the price of bitcoin drops, mining rewards decline due to the halving, and fewer are people mining bitcoin, the whole mining process dilemma instantly comes down to keeping a stable block interval.

Mining bitcoin is the process of adding transactions by using computer hardware and, thus, creating new coins and receiving rewards in the form of BTC. The system regularly monitors the level of proficiency and resources needed to mine every 2,106 blocks as the amount of computing resources rises or falls.

The system that regulates mining complications prevents a wave of miner surrenders because the mining process requires fewer expenses if the miners’ performance falls.