Recent events in the Bitcoin mining industry indicate significant financial difficulties due to the decline in network fees and the halving of block rewards.
According to the researchers, these factors are shaping the economic space for companies approving Bitcoin transactions and could potentially force some of them to sell their digital assets prematurely to stay solvent. Kaiko’s research.
Diminishing Rewards and Pressure on Revenue
Kaiko Research has pointed to a worrying trend for Bitcoin miners: the combination of lower mining rewards and lower network fees is increasingly undermining their profitability. Since April, when the Bitcoin block reward was cut from 6.25 to 3,125 BTC, revenue has plummeted.
“Halving” is a regular event intended to limit the supply of Bitcoin, but often results in short-term financial hardship for miners.
Worse still, transaction fees, which can be a significant revenue stream during peak periods, have also fallen dramatically and now average between $3 and $5, down significantly (apart from a spike to $102 in early June) from the $45 seen in January.
Historically, halving periods have led to piercing price increases that helped miners recoup the loss in block rewards. However, the current market scenario is different, with BTC showing minimal price changes since the previous Halving.
According to Kaiko, this stagnation increases the risk of forced sales as miners may liquidate assets to cover operating costs such as electricity, salaries and equipment maintenance, given that their main sources of income have weakened.
The research firm noted:
The drop in fees coincides with a reduction in block rewards, to 3.125 from 6.25 BTC, which has prompted some miners to sell their holdings. This trend could continue, potentially causing forced selling in the coming months.
What’s more, the pressure on mining companies is likely to trigger a “wave of consolidation” in the industry as smaller operations may struggle to remain profitable.
Kaiko predicts an escalate in mergers and acquisitions, citing recent moves such as Riot Platforms Inc.’s attempted takeover of Bitfarms Ltd. and CleanSpark Inc.’s purchase of Griid Infrastructure Inc. These strategic moves are aimed at combining resources and increasing operational efficiencies among competing companies.
Bitcoin Market Dynamics and Long-Term Holder Behavior
Despite these challenges, the overall BTC market has recovered slightly, up 3% over the past week. However, this recovery is feeble, as evidenced by Bitcoin’s failure to maintain a solid position above $63,000, currently hovering at $61,881.
Data from Bitfinex, which is adding to market volatility, suggests that long-term BTC holders have resumed selling their coins, a trend that was only briefly halted earlier in the year. This selling pressure from experienced investors could further destabilize the market.
“Long-term holders #Bitcoin are resuming selling, and the continued high level of profit-taking by long-term holders means that the near-term outlook for Bitcoin is uncertain.” #Bitfinex Alpha @Block__https://t.co/K4cPSqWmV9
— Bitfinex (@bitfinex) July 2, 2024
Featured image created with DALL-E, chart from TradingView
