Next Bitcoin Halving Could Squeeze out Retail Miners, But Jury's Split on Price

Is the next halving going to send bitcoin to the moon?

Well, maybe not that fast. As the programmed reduction of the miners’ reward is approaching (expected to happen in May next year), people are disagreeing about its probable effects.

Bitcoin has gone through the halving two times before, in November 2012 and July 2016, and both times the events marked the beginning of the next bull market. But, it’s an open question if the halving brings an uptrend and if so, how strong that uptrend will be.

Miners took the stage to debate the issue last week at the recent World Digital Mining Summit in Frankfurt organized by Bitmain, the Chinese equipment manufacturer and pool owner.

Price effects

Jihan Wu, co-founder and ex-CEO of Bitmain, is “pessimistic” about the prospect of a price surge after the halving. He suggested that the first two uptrends might have been “catching up with the bubble-and-bust cycle” phases at the time.

Further, he pointed to halving of litecoin in August, which sent the price not surging but plunging. The token's value shot from $31 to $135 in the first half of the year, but then started falling in July, right before the halving. It's now trading around $57.

Wu said:

"Maybe people speculate too much before the halving, and then you can’t sell the good news anymore. Maybe, this time a bullish cycle is not coming yet."

Offstage, Wu told CoinDesk that the bump projected from the halving might be baked in because people have "started to bet on the price growth in advance":

“During the first and second halving, people didn’t know what to expect, and during the second halving, the scaling debate complicated the situation. Now people are expecting it.”

But Matthew Roszak, chairman of the blockchain software company Bloq, saw things differently. He said that the maturity of the financial ecosystem around bitcoin spoke to it maintaining a higher price over time:

"There is a better footing for the Fidelitys, Bakkts and other household names entering the space,” Roszak said, adding that the buzz around Facebook's Libra is also attracting new interest and new participants into the industry:

“All the demand from institutional investors is still crescendoing forward. Custody platforms, insurance, compliance, regulatory is all getting written and this is positive for bitcoin.”

Roszak expects the price to reach “somewhere between $15,000 and $100,000” and for the halving to kick off “a decade-plus of rising.”

The purge and the consolidation

Whoever is right about the halving's impact, the event is important for miners worldwide. With the reward being reduced, profitability will also be cut, at least in the short term, so old versions of specialized mining machines, known as ASICs, will stop bringing their owners any profit.

The Antminer S9, the most popular ASIC model manufactured by Bitmain, has exhausted its productivity limit and “a lot of miners are running on a margin of profit,” Marco Streng, CEO of Genesis Mining, said on stage. The S9 and Canaan Creative’s Avalon A851 series, with a similar level of hashing power, are some of the most widely used mining equipment right now. Based on the mining pool f2pool’s index, these older models have a profit margin of 50 percent at bitcoin’s current price.

Replacing them with the new machines will help, the panel agreed, but Wu cautioned against miners buying as many machines as possible:

“If I were a mining rig investor, I would be more conservative, but I would keep investing.”

Bitmain released the new Antminer S17 in September and, starting on Friday, will also be selling the more dynamic S17+ version.

Keeping it profitable

Streng, of Genesis Mining, says less hardware in circulation will serve the industry well in the long run. "We are going towards a really heavy industry with much longer life-cycles of the machines.”

“It’s a very brutal event. Most inefficient miners will be wiped out. But it’s driving the innovation,” Streng told CoinDesk, adding:

“It’s a psychological event, and there is a tendency for the price to increase. From my experience, a lot of miners are expecting the price to go up, so they reduce selling and weaken the selling pressure of the market.”

According to Streng, the main effect of the halving will be wiping out of individual small miners, which now account for less than 20 percent of the market.

Alexander Gavrik, a co-founder of the mining software company Uminers, said the market is getting less volatile as the main players are becoming larger and larger:

“The market is moving towards the industrial mining, and there won’t be hype like it used to be anymore. There are significantly less crypto enthusiasts on the market now.”

ASIC miners image via Shutterstock