Recent developments in the Bitcoin mining industry suggest greater financial pressure due to reduced network costs and halved block rewards.
These factors create an economic environment for companies that verify Bitcoin transactions and may force others to sell their digital assets early to stay afloat, according to Kaiko Research.
Declining Rewards and Income Pressures
Kaiko research revealed this worrying trend for Bitcoin miners: the combination of reduced mining rewards and low network costs is increasingly challenging their profitability. Since April, when the Bitcoin block mining reward was cut from 6.25 to 3.125 BTC, the income has been decreasing.
This “Halfing” is a common event intended to limit the supply of Bitcoin but often leads to temporary financial difficulties for miners.
Adding to the issue, transaction fees, which can provide important cash flow during peak trading periods, have also fallen sharply, currently averaging between $3 and $5, a significant drop (except for a spike to $102 in early June) from the $45 seen in January . .
Historically, periods following slowdowns have led to price increases that have helped miners offset losses in block rewards. However, the current market situation is different, BTC shows little price changes since the previous Trouble.
According to Kaiko, this suspension increases the risk of forced sales as miners may use up their holdings to cover operating costs such as electricity, wages, and equipment maintenance, given that their sources of income are dwindling.
The research firm noted:
The drop in payments is accompanied by reduced block rewards, down to 3.125 from 6.25 BTC, leading some miners to sell their holdings. This trend may continue, which may result in forced sales in the coming months.
In addition, pressure on miners may cause a “wave of consolidation” in the industry, as smaller operations may struggle to remain profitable.
Kaiko expects an increase in mergers and acquisitions, citing recent initiatives such as the effort by Riot Platforms Inc. to acquire Bitfarms Ltd. and the purchase of CleanSpark Inc. of Grid Infrastructure Inc. These strategic moves aim to pool resources and improve efficiency among competing firms.
Bitcoin’s Market Dynamics and the Behavior of Long-Term Holders
Despite these challenges, the overall BTC market has recovered slightly, with a 3% increase in the past week. However, this recovery is not easy, as evidenced by the failure of Bitcoin to maintain a strong position above the $ 63,000 mark, with its price rising and currently sitting at $ 61,881.
Adding to the market volatility, data from Bitfinex suggests that long-term BTC holders have resumed selling their coins, a trend that was halted earlier in the year. This selling pressure from seasoned investors may further fuel market volatility.
“They are not in charge for a long time #Bitcoin they are resuming their sales, and the continued high levels of profit taking by long-term holders means that the near-term outlook for Bitcoin is in jeopardy. ” #Bitfinex Alpha @TheBlock__
– Bitfinex (@bitfinex) July 2, 2024
The featured image was created with DALL-E, a Chart from TradingView
