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As Halving Approaches, Miners Turn Record Profits into New Strategies

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The following is an excerpt from a recent edition of Bitcoin Magazine Pro, Bitcoin Magazine’s premium markets newsletter. To be among the first to receive this and other on-chain bitcoin market analysis straight to your inbox, Subscribe now.

With the next Bitcoin halving set to take place this month, miners are using record profits to adapt their business models to chaotic opportunities.

The halving is almost upon us. As the entire Bitcoin world eagerly awaits mining rewards to be cut in half, the potential for new revenue streams leaves us wondering how the space will react to new market conditions. In the past, halvings have typically been associated with Bitcoin prosperity, but they are also known to significantly shake up previous assumptions. We are already seeing some examples of these changes in the market; to name just one, larger miners have upgraded their equipment to ensure maximum efficiency. This has led to a fire sale of obsolete equipment by these companies, with thousands of mining devices being shipped to budding miners in Africa and Latin America. Ethiopia’s cheap hydropower has already attracted international capital to become a new mining hub, and much of that drilling is going there for pennies on the dollar.

In other words, mining companies are expecting a drop in production in the immediate future, but this has nevertheless encouraged the creation of new mining companies around the world and net growth for the industry. This is just one illustration of the type of unexpected opportunities that will take the digital asset sector by storm, and it’s up to Bitcoiners to seize them. For miners as a whole, the opportunities are certainly plentiful. March 2024 saw the highest monthly revenues ever recorded for the collective mining industry, just surpassing $2 billion. This is particularly notable because less than half of this revenue comes from transaction fees, a far cry from the situation in December where transaction fees exceeded mining rewards.

In December, the price of Bitcoin was much lower and the blockchain was plagued by congestion. Not only has this congestion suppressed the demand for purchasing Bitcoin, but it has also increased the demand for miners to process the blockchain. Simply resolving transactions on already mined Bitcoins accounted for a larger share of profits than mining and selling new Bitcoins, and this business became a lifeline for many small businesses. But today it seems that money is flowing everywhere. Bitcoin ETFs are gobbling up Bitcoin at extreme rates, more than 6 times miners’ actual production. This windfall even brought the interest of venture capital back to the forefront, further increasing the frenzy. Over the first three months of 2024, major exchanges collectively saw their Bitcoin reserves drop by almost $10 billion, revealing the immense demand for newly mined coins. With such market conditions, it is no wonder that miner profits have reached an all-time high.

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However, while this period of intense selling has certainly created an opportunity for miners, the halving also carries risks. These companies are in a mad race to get as much revenue as possible before the halving, and the race is so desperate for a simple reason: trend lines may provide encouraging data, but there are no real guarantees that the price of Bitcoin will increase accordingly once its supply is reached. reduce. The halving of hype and the runaway success of ETFs brought the price of Bitcoin to its all-time highs, but this record high was followed by volatility. Bitcoin has been oscillating around its big reference point since surpassing it without continuing to rally into an explosive spike. If the price of Bitcoin continues to move in unexpected ways, it will eventually wreak havoc on small businesses and drive industry consolidation.

Additionally, a particularly interesting development has emerged in the Bitcoin secondary markets. Since eager demand from ETF issuers and other financial institutions completely outstripped supply, some long-term holders (LTHs) have begun to fear a widespread liquidity crisis. Whales who were previously content to hold Bitcoin for years changed their behavior, obviously deciding that the time had come to finally make massive profits. In March 2024, long-term holders began selling their assets at unprecedented rates, reaping a disproportionate profit compared to other Bitcoin sellers. Obviously, a resource like this can’t last forever, but it’s an important reminder to some miners: just because you’re struggling to make ends meet after a halving doesn’t mean the industry ballast. Adapt, or space will find new ways to leave you behind.

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Nonetheless, miners large and small have not risen to the halving challenge. These runaway profits have allowed companies to invest in a wide variety of preparedness strategies, sometimes even radically upending their business models. For example, US company Arkon Energy previously operated more as an infrastructure company, seeing itself as a supplier to a clientele of independent miners. By announcing a major purchase of cutting-edge mining equipment on April 2, it joined an industry-wide trend of preparing for the halving with maximum-efficiency machines. However, rather than offering this equipment to its previous customer base, Arkon has stated its intention to pivot and simply mine Bitcoin itself. This simple change represents a step change in their overall business model, and they plan to continue by “aiming to make Arkon one of the most efficient miners in the world.”

Leading mining company Hut 8, on the other hand, has initiated a business model shift of its own, albeit in a slightly different direction. During a first-quarter earnings conference call in late March, CEO Asher Genoot acknowledged that 70% of the company’s revenue comes from mining assets, but that plans are expected to change somewhat in the future. halving approach. Hut 8 is still focused on upgrading its hardware and mining energy resources at new sites, like many other mining companies, but it is also investing in a new direction. This new focus is not a different asset, since its mining operations are focused on Bitcoin, but rather on the development of high-performance computing and AI operations. Genoot said that these new operations were “smaller today… But we are enthusiastic about this activity because we see it as a basis to be able to develop.” » He added: “You will see us continue to be creative in how we maximize the value of each machine,” emphasizing the need to maintain an enthusiastic and disciplined attitude towards existing mining operations.

These are just some of the new strategies adopted by miners to anticipate the halving. Companies have been preparing for months now and there is still time to develop additional new plans. At the time of writing, the halving will take place in less than three weeks, and the countdown to this event reveals the optimistic and celebratory attitude of Bitcoiners around the world. No matter what happens when the long-awaited day finally arrives, a few constants seem very reliable. There will be immense demand for the world’s leading digital asset, and the Bitcoin community will have the same spirit of innovation as always. Whether Bitcoin jumps immediately or behaves unpredictably, someone is sure to become a big winner eventually. For us Bitcoiners, this means there is a lot to look forward to.

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