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Academy Industry Analysis Article

Major Bitcoin Miners Show Optimism Ahead of Halving: An In-Depth Look

2020.05.06 Hunain Naseer

With the halving less than a week away, Bitcoin (BTC) miners are in the spotlight. The competitive nature of their business and their role in maintaining the Bitcoin network means that the halving directly impacts their operations. 

OKEx reached out to Bitcoin miners and pools to get their perspectives on the halving and its implications for the entire ecosystem.

Block reward in perspective

Miners support the Bitcoin network by acting as auditors, verifying transactions and maintaining the blockchain ledger. Miners are incentivized via transaction fees and the so-called block reward, which is the number of Bitcoins generated — or “mined” — and awarded upon each successful block validation.

The block reward is also the only way new Bitcoins enter circulation and is set to continue until all 21 million are mined. However, this rate of emission does not remain constant and is regulated via block reward halving, a built-in mechanism that reduces the reward by 50% after every 210,000 blocks (occurring roughly every four years).

Total circulating Bitcoin over time. Source: Blockchain.com

Currently, the block reward stands at 12.5 new Bitcoins (about $115,000 at present market value) and has undergone two halvings — the first in November 2012 and the second in July 2016.

The third halving is expected to take place around May 12, 2020, and will see the block reward reduced from 12.5 to 6.25 BTC (around $57,500 at press time).

Bitcoin mining is a competitive business

At the current valuation of $115,000, the Bitcoin block reward presents a strong financial motive for miners to join and support the network. A new block is processed every 10 minutes, which results in the generation of 1,800 new BTC or $16.56 million in value every day.

However, since only one mining entity can claim one block reward, there is stiff competition and a race toward deploying progressively more powerful hardware for higher hashing power. This competition has forced the mining community to evolve over the years, shifting from early supporters and crypto enthusiasts to large companies and pools running mining farms with the latest in Application-Specific Integrated Circuit (ASIC) miners.

The Bitcoin network, in turn, responds to this surging hash rate by increasing the difficulty of mining new blocks, thereby maintaining the ledger’s integrity and not allowing any single entity to have absolute control over the blockchain.

Bitcoin network difficulty since inception charted on a logarithmic scale - source: Blockchain.com

Miners talk about the halving

OKEx turned to Bitcoin mining industry leaders to get their perspectives on the upcoming halving and its impact on the business as well as the network.

Bitcoin price increase and the Chinese flood season can alleviate miner woes

Jiang Zhuoer, the CEO of BTC.TOP, one of the top-10 Bitcoin mining pools, shared a bullish long-term view of the halving and believes a rise in BTC price can offset the earnings lost to reward halving:

“I think the halving will lead to a rise in the price of Bitcoin. In the previous two halvings, we saw a slow rise in price before halving, and price began to soar after halving... while halving will cut miners' earnings in half, it may also result in a rise in the price of Bitcoin."

He further cited the anticipated start of the flood season in China which typically results in cheaper electricity production as a positive for struggling miners.

“During periods of the flood season, electricity bills fall, largely offsetting the halving of output. During the flood season, the market price of electricity can be down by 40%,” he said.

Smaller miners will pivot

Marshall Long, an early Bitcoin miner, is currently running a mining farm in Canada and is working on setting up a new facility in the United States. In his view, miners who prepared for the halving in advance will not be affected much by it while smaller ones will likely “pivot to speculation mining or fringe tokens."

In terms of the network, Long believes the hash rate will rise significantly leading up to the halving. Post-halving, he expects Bitcoin price to drop early on, followed by the hash rate, and then a slow climb back to an all-time high.

New entrants can benefit over the next four years

Alejandro De La Torre, VP of Poolin, a top-three Bitcoin mining pool, shared his perspective in his latest post. According to him, “as new more efficient ASICS come online in the coming months and existing miners find lower electricity prices, old generation miners will inevitably be phased out.”

However, he adds that the halving gives new miners “an opportunity to enter a more stable environment given that efficiencies in 7nm & 5nm chips will likely remain profitable for the next 4 years or longer.”

Bitcoin price won’t fall too low

Kevin Huang, co-founder of Valarhash believes that Bitcoin prices will not fall very low post-halving and only miners operating in the 80w-100w range are likely to be shutdown.

He also cited the expected decline in energy costs following the Chinese flood season, and added that:

“In the long run, there's no doubt that the computing power of the entire network will increase, but after halving, as the older generation of mining rigs shuts down, the hash rate will go down for a while, and I estimate that it will fall into the 80e-90e range.”

Halving will drive the industry forward

Alina Yao, Head of OKEx Pool, one of the largest exchange-backed mining pools, remains optimistic, citing historic trends:

“Any loss caused by the reduction of block rewards is almost always compensated for by the increase in the price of Bitcoin and the bullish sentiment that comes with a contraction in the rate of money supply growth.” 

In terms of handling the current scenario, she shared how OKEx Pool always encourages miners to seek advanced hardware and cheaper electricity alongside managing a positive cashflow.

While she agrees many smaller miners will be priced out of the market post-halving, she believes this will only increase market competitiveness and drive existing players toward more efficient business practices.

Breaking down the halving’s impact

Given how the Bitcoin network, its miners, block rewards and BTC’s price are all inextricably linked, the halving has a wide-ranging impact on the factors highlighted below.

Reduced profitability

Bitcoin miners’ profits depend on the network’s difficulty, mining revenue and associated costs.

Network difficulty dictates capital investment in hardware, while profits are capped by the value of the Bitcoin mined minus electricity and operational costs.

Miners’ revenue (block rewards and transaction fees) varies with BTC price. Source: Blockchain.com

Since miners’ revenue is directly related to Bitcoin’s value, as shown in the chart above, the halving is a significant event because it instantly reduces miners’ revenue by 50%, provided all else remains constant.

Pressure to phase out older hardware

Depending on power consumption and hashing power output, each hardware miner has a breakeven cost, which comes under pressure as the reward is halved and profitability declines. Miners who can afford it often start phasing out older hardware months ahead of the halving.

Short-term surge in network difficulty leading up to halving

As the halving approaches, miners take a last stand of sorts and throw in all the hashing power at their disposal to try and claim as many of the pre-halving block rewards as possible. This naturally results in a short-term surge in network difficulty (it is near all-time-high currently), which will correct itself in the post-halving adjustment.

Small miners capitulate, big miners get bigger

With margins thinning out (or completely erased) and hardware upgrades required, smaller, less efficient miners will capitulate post-halving and will either shut down completely or shift toward mining other compatible proof-of-work coins.

Meanwhile, big miners will only get bigger and control larger proportions of the network’s hashing power, raising centralization concerns.

Technology upgrades to accelerate

With each new iteration, technology manufacturers bring out smaller processor chip designs that improve computational speeds at lower power consumption rates. For example, in 2016, miners were using 16nm chips, which have since been superseded by 10nm and 7nm chips, while 5nm chips are now becoming available.

These upgrades increase the efficiency of mining operations by saving on power costs and increasing profit margins. Post-halving, we can expect these upgrades to be hastened by large miners.

New miners will seek cheaper power sources

While existing miners are unlikely to switch locations at a large scale due to logistic issues, new miners joining the network post-halving are likely to seek cheaper power sources to achieve optimal profit margins. This can, over the years, result in a shift toward geographic locations offering attractive power tariffs and mining-friendly regulations.

Selling pressure on Bitcoin will be reduced

Miners are actually responsible for a large chunk of capital outflow from the Bitcoin network, as they sell their BTC to cover operational costs every month. This means there is constant downward pressure on Bitcoin’s price due to miners offloading their earnings on the market.

This outflow is the highest for miners with the lowest profit margins because they are unable to build any significant BTC reserves, as compared to more profitable miners.

As these inefficient miners are driven out of the business, this selling pressure can be expected to ease up and allow positive price appreciation.

Optimism prevails

Despite its inevitable immediate impact on miners’ bottom lines, the upcoming Bitcoin halving is considered a largely positive development. While smaller, less efficient miners may not survive this change, their departure is expected to benefit the ecosystem and contribute toward its maturity.

For those considering entering the space right now, the next four years can provide stability in terms of projections and planning, while well-managed existing players are prepared for the coming changes and continue optimizing their operations. 

Overall, from the miners’ perspective, the halving is not very different from the frequent price swings Bitcoin is known for but has the advantage of being scheduled, allowing forward-thinking businesses to plan ahead of time.

At the time of writing, less than 800 blocks are left before the reward halving, and Bitcoin has taken support from the zone between $8,700 and $9,000 and is quickly approaching the next resistance at $9,500.


Disclaimer: This material should not be taken as the basis for making investment decisions, nor be construed as a recommendation to engage in investment transactions. Trading digital assets involve significant risk and can result in the loss of your invested capital. You should ensure that you fully understand the risk involved and take into consideration your level of experience, investment objectives and seek independent financial advice if necessary.


OKEx Insights presents market analyses, in-depth features, original research & curated news from crypto professionals. 

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Disclaimer: This material should not be taken as the basis for making investment decisions, nor be construed as a recommendation to engage in investment transactions. Trading digital assets involve significant risk and can result in the loss of your invested capital. You should ensure that you fully understand the risk involved and take into consideration your level of experience, investment objectives and seek independent financial advice if necessary.

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