Bitcoin miners are unlikely to surrender after halving in 2020, and in particular are unlikely to encounter a “mining death spiral”. There are four main reasons.
A popular saying about Bitcoin ( BTC ) halving is that it may trigger the surrender of miners. However, it is too early to say that many miners will shut down in 2020, which will cause the price of cryptocurrencies to fall.
Some industry executives believe that after the halving of Bitcoin on May 12, the price of Bitcoin may fall. After the overall rewards of bitcoin miners were halved, their income also dropped significantly. Usually, it affects overly leveraged small miners, forcing them to shut down the miners.
Digital asset manager Charles Edwards said :
This will be the cruelest bitcoin halving in history. The production cost will double to US $ 14,000. 70% higher than the current price. The last time it was halved, the price was only 10% lower than the production cost.
Now if there is no worry about FOMO sentiment, a large number of miners are expected to surrender.
A common theory is that as miners surrender, they will start selling bitcoin on the cryptocurrency trading market and increase the huge selling pressure, which will cause more miners to leave and so on, thus causing the miners to fall into the mysterious “dig Mine death spiral. “
This year, there are many variables that may prevent this trend from happening. The four main reasons why miners will not surrender are: China’s electricity prices are cheaper, operating costs have fallen due to currency depreciation, global government blockades have led to lower energy prices, and adjustments to the difficulty of mining.
Miners continue to hoard bitcoin before halving, and prices are expected to rise Source: Bytetree
China’s electricity prices are cheaper and global energy demand is reduced
According to the latest data , China accounts for about 65% of all Bitcoin computing power.
In addition, China’s Sichuan Province is about to enter the rainy season. Many power service providers in Sichuan rely on hydropower . When the amount of water is sufficient, hydroelectric power plants can generate more electricity than usual.
The increase in power supply in Sichuan Province has allowed large mining centers in the region to negotiate electricity prices. In the coming months, large miners are likely to receive large discounted electricity prices, thereby reducing operating costs.
Global implementation of “home measures” and strict blockades have further reduced electricity consumption. Large factories and millions of small businesses closed for about two months.
Low electricity prices, record low global oil prices and industry-leading mining companies tend to hold large amounts of cash to buffer and greatly reduce the risk of miners surrendering.
Currency depreciation leads to lower operating costs
Whit Gibbs, CEO of Hashr8, said that the depreciation of the ruble may affect Russian mining centers.
All revenues of mining companies come from Bitcoin. However, operating costs are usually paid in the currency of the local country. When the price of bitcoin rises and the fiat currency depreciates, the mining company’s expenditure decreases because the local fiat currency depreciates against bitcoin.
Geopolitical risks in the global economy and their possible impact on mining Bitcoin have not been taken into account. Therefore, it is too early to say that miners may surrender in the second half of 2020.
This bitcoin halving may be the cruelest in history, but this is just the best guess. There was no comprehensive report last week to discuss the current geopolitical and economic conditions and how they will affect the price of mining / bitcoin.
Bitcoin mining difficulty adjustment
When the bitcoin price drops and the block reward decreases after halving, resulting in a reduction in the number of bitcoin miners, the difficulty of bitcoin mining will be automatically adjusted to maintain a stable block interval.
Bitcoin mining difficulty Source: Blockchain.com
“Mining” refers to the production of new bitcoin as a reward for contributing computing resources to the network. If the calculated force (also referred to as hashes rate) decreased (or increased), then the network out of 2,016 blocks each will automatically adjust mining difficulty whole bit token.
The mining difficulty adjustment mechanism prevents a large number of miners from surrendering, because when the computing power decreases , the mining cost of Bitcoin will decrease.