Bitcoin Needs to Jump Above $15,000 after Halving
- Current cost of mining on bitcoin has risen to $7,300 and will further increase to $15,100 after the halving
Over the past few weeks, we saw the Bitcoin price tanking to $3,850 from February high above $10,500. After jumping above $6,000, the price of bitcoin is yet again hovering around this level.
This drop in BTC price turned miners’ profitability margin into the negative because while the price is around $6k, the cost of mining one bitcoin rose to $7,300, due to increasing hash rate, up from a month back’s $6,851 when Bitcoin was trading around $10,000.
As per cryptanalysis company, TradeBlock’s latest report, this cost of mining bitcoin would further increase to between $12,000-$15,000 after the halving.
6% profit margin after halving in 2012
Every four years or 210,000 blocks, the bitcoin network undergoes a reduction in new supply. In November 2012, we had our first such halving.
Leading up to the event in 2012, the hash rate of the network climbed to a high of 27 Th/s. An increase in hash rate means the resources committed to secure the network has also increased. As the resources dedicated to mining rises, so does the efficiency gains and/or mining costs.
Increasing hash rate needs to correspond with rising BTC price in order to maintain healthy profit margins for miners.
Three months before the halving in 2012, the breakeven cost to mine one bitcoin was $4.45 while the exchange price of Bitcoin was about $9.50. The network hash rate reached a near term peak following the halving which puts the gross cost to mine bitcoin after the halving at $12.68 while the Bitcoin price jumped to $13.50 that had miners operating in profit.
After the halving, the network hash rate declined but it was a modest dip and it didn’t sustain.
33% profit margin after halving in 2016
In 2016, three months before the halving, the hash rate reached a new high of 1,250,000 Th/s yet again. The estimated cost to mine one bitcoin at that time was $217 while the bitcoin price was $400.
After the halving, the network hash rate continued to climb and reached another high. Around that time, the largest mining equipment manufacturer, Bitmain, launched a more efficient mining device Antminer s9.
TradeBlock estimated the breakeven cost after halving at $453 after the halving while the price was around $600, allowing bitcoin miners to remain profitable.
Already negative 16% profit margin pre-halving
Now the third reward halving would occur at block height 630,000 that will cut the reward from 12.5 to 6.25 coins per block in mid-May. This time also, Bitmain began shipping its latest Antminer s17 this year. The new highly efficient model will add 27 Th/s more hash power but would also cost $600 more and consume 480 w more power than the existing model.
This puts the gross cost of mining one bitcoin at $7,300 before halving. But after halving, if the hash rate will increase at the same rate it did over the past three months, the estimated cost of mining after halving would be $15,100 and $12,600 if the hash rate stays flat.
Before the bitcoin price crashed about 40%, miners were operating at healthy profit margins but are currently at a negative 16%, unlike the last two times. If the miners have to be profitable yet again, the price of bitcoin needs to jump above $15,000.
However, these past halvings didn't go through the COVID-19 crisis. But the last two times, the network was also less mature.