How can Bitcoin miners survive a bear market? How to face the halving in 2024?

Author: Didar Bekbauov, Cointelegraph; Compiler: Songxue, Golden Finance

There are only 7 months left until the next Bitcoin halving in April 2024. Halving, which occurs approximately every four years, is a deflationary process that reduces future Bitcoin production by 50%.

The Bitcoin halving is a high-profile event for cryptocurrency investors and has historically caused Bitcoin price increases. However, its impact on mining is a more complex issue. It reduces block rewards, which are one of the main sources of income for miners. The 2024 halving will reduce mining rewards from 6.25 BTC to 3.125 BTC. This is why miners must adjust their strategies to compensate for the reduced rewards brought about by the halving.

Let’s explore strategies and alternative revenue streams that may help Bitcoin miners during adverse market conditions.

Change your mindset

Bitcoin mining involves a competitive process where miners compete for block rewards. This competition is driven by Bitcoin’s block time, which at the protocol level averages about 10 minutes per block. Whether the network's computing power is a relatively low 1 kH/s, or it surges to 200 million TH/s, the same block rewards must be distributed among miners.

This competitive environment encourages miners to prioritize energy efficiency and use cost-effective hardware. In each halving event, the block reward is reduced by 50%, and this efficiency trend will be enhanced. As the cost of producing a single Bitcoin is set to roughly double shortly after the next halving, miners will need to explore ways to optimize profitability and focus on these three key factors.

The survival of Bitcoin miners depends on these three factors

**The first and most important element is the cost of electricity. ** JP Morgan said that even a small fluctuation of 1 cent per kilowatt hour (kWh) could lead to a large swing of $3,800 in the production cost of BTC. In order to improve profitability after the halving, miners are considering relocating to countries or regions with lower electricity prices. They are even considering using natural gas to generate electricity. I think it will be critical for miners to ensure that electricity prices remain at or below 5 cents/kWh to maintain profitability after April 2024.

Bitcoin halving history

**The second major factor that miners need to pay attention to is the efficiency of the equipment. ** For example, when upgrading from a mining rig with an efficiency level of 60 J/TH to a mining rig with an efficiency level of 22 J/TH, daily BTC mining costs can be cut by more than 63%. Miners with efficient hardware and benefiting from lower electricity costs will be the most profitable. They are the ones most likely to weather major market events like the upcoming halving.

In addition, I recommend that miners adopt a third strategy, which is to accumulate excess capital in mined BTC during the profit period. ** This reserve acts as a buffer against the impact of reduced block rewards following the halving. When BTC prices rebound after the halving, miners can help offset losses by selling their mined BTC assets at higher profit margins.

Although strategies such as lowering electricity prices, adopting more energy-efficient mining equipment, and utilizing reserve funds can reduce the adverse impact of the halving, the 2024 halving will put tremendous pressure on miners. It could lead to the shutdown of many mining operations. Therefore, miners also need to explore other sources of revenue. For miners, a project like Bitcoin Inscription is a project full of opportunities.

Other methods

Bitcoin Inscription has attracted a lot of attention recently by pushing transaction fees within the Bitcoin network to new highs. An ordinal "inscription" is the metadata attached to each satoshi, a unique asset created directly on the Bitcoin blockchain, similar to a non-fungible token (NFT).

As the number of inscriptions has grown (it exceeded 25.5 million as of August), so has the revenue generated from the transactions, which currently exceeds $53 million. This trend suggests that alternative revenue streams for miners may be valued in the long term.

We see that inscriptions change the profitability model for miners, increasing the need for users to create inscriptions, initiate processing of transactions on the Bitcoin network, and incentivize miners to include their transactions in the next block.

We can certainly expect more developments on the Bitcoin network, which will allow miners to adapt more efficiently to post-halving conditions. As the halving event approaches, miners must prioritize the above strategies to optimize their profitability and remain open to new alternatives on the horizon.