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By the end of Friday, the size of the reward for mining bitcoin will have been cut in half. The event—known as the halving—takes place roughly once every four years, and it can be fatal for the mining companies that compete for the newly minted cryptocurrency.
“You don’t see that in any other industry,” says Charles Chong, director of strategy at Foundry, a company that mines bitcoin and provides services to other miners. “You’re on a treadmill. If you don’t keep running, you are going to get left behind.” The only mercy, he says, is that “you get a lot of time to prepare.”
In every halving, mining companies no longer able to cover their expenses have shut off their machines. Smaller, backyard operations have closed down entirely. As unprofitable mining equipment drops from the network, the Bitcoin system recalibrates, reducing the amount of computing power (and therefore the cost) it takes to win new coins. In time, an equilibrium is restored, whereby mining becomes profitable again for those able to absorb the initial blow.
But this time it’s different.
In March, the price of bitcoin rose to a record high of more than $70,000 per coin, so the danger for mining companies is reduced. In this case, although mining revenue will be cut in half, the associated earnings will still outweigh the cost to run the hardware, multiple mining companies claim.
“If [the price of] bitcoin had not run recently, we would have had a very different post-halving environment,” says Asher Genoot, CEO of mining company Hut 8. “Right now, price is bailing a lot of folks out.”
After every previous halving, the price of bitcoin has increased, leading to speculation about the prospect of another upswing. But the economic design of the system does not itself guarantee this pattern will be repeated. The problems for miners will arise if the bitcoin price moves in the opposite direction. Because bitcoin defies conventional valuation methods, its price is prone to sudden and violent swings. Mining companies must ensure they are not caught off-guard.
In 2021, when the price of bitcoin last rose to a record high, many mining companies got it horribly wrong. They took on large amounts of debt to fund expansion and posted their mining equipment as collateral. The following year, when the price of bitcoin slumped and energy costs rose, they struggled to meet debt repayments and were forced to auction off their facilities at cut-price rates and turn over hardware to their lenders. Some went bankrupt.
Mining companies are following different strategies to protect against this eventuality. Genoot says Hut 8 has built a large treasury of bitcoin, and instead of exchanging the coins for dollars after they are mined, it is betting on a further increase in price. The money is not a “crutch” to help offset a fall into unprofitability, says Genoot, but a reserve fund to be used perhaps to scoop up discounted hardware or facilities from ailing competitors.
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Previously a pure-play bitcoin mining business, Hut 8 merged last year with US Bitcoin Corp, which rented space in its facilities to other mining firms. It also invested in cloud computing and AI training hardware.
The effect, says Genoot, has been to diversify lines of revenue in a way that guards against a dip in the profitability of bitcoin mining. “We’ve gone for a little bit of a contrarian approach,” he says. “We see ourselves as an infrastructure platform that converts energy into new and emerging use cases.”
Meanwhile Bitfarms, another large mining company, has invested heavily in both upgrading to newer mining equipment and tripling the total computing power of its fleet to 21 exahash per second, which equates at present to roughly 3 percent of the network that powers bitcoin transactions. The effect, claims Ben Gagnon, chief mining officer at Bitfarms, will be to improve energy efficiency by approximately 40 percent—to 21 watts per terrahash—while increasing the proportion of the available coins it wins. “The number one thing you can do is try to improve your energy price. But it’s the hardest thing to do,” says Gagnon. “The second thing you can do is work on your energy efficiency.”
There are ways that miners can use the large quantities of energy flowing through their facilities as a shield against the volatility of the bitcoin market too. Like some of its peers, Bitfarms is supplementing its mining revenue by making use of government grid stabilization programs, which pay large-scale consumers of energy to switch off in periods of high demand. Miners’ participation in these programs has drawn complaints from activist groups, who claim they are profiting from the strain they place on the grid, but it has become an invaluable hedge against a drop in the price of bitcoin. In August 2023, when a heat wave in Texas led to a surge in energy demand, mining company Riot said it earned $31.7 million through its participation in grid stabilization and only around $10 million from mining.
In the four years since the previous halving, developments in software have also given miners new ways to squeeze additional micro-efficiencies from their machines. They can now ratchet up the amount of compute power produced by their equipment to earn more coins when the price of bitcoin is high or down when it is low, or switch individual machines on and off when the price of bitcoin shifts. “Before the last halving, there were no tools. You had a miner and either unplugged it or plugged it in,” says Adam Swick, chief growth officer at Marathon Digital Holdings, a public mining company. “People that invested in technology now have a whole toolbench.”
Whatever the effects of the halving, says Christopher Bendiksen, a researcher at asset management company CoinShares, a number of weeks will pass before they fully crystallize. Although mining companies say they expect to remain profitable, irrespective of the hit to their revenue, Bendiksen is skeptical.
“It’s going to be hard for a lot of companies,” he says. “The proof will be in the pudding.”
