Mining Hosting Service Provider Crypto Caverns On How to Navigate the Upcoming Bitcoin Halving

Managing Bitcoin’s Fixed-Supply Status By Building a Diversified Portfolio

For the past few weeks, the whole cryptosphere has been talking about the halving of the Bitcoin mining reward rate, which occurs roughly every four years, with the next one expected to happen in April 2024. This is an inherent part of how the cryptocurrency is programmed, and the four-year interval is based on how long it takes to mine 210,000 blocks on the blockchain. 

Originally, the reward for successfully mining a block was 50 BTC then in November 2012, it was halved to 25. In July 2016, the reward became 12.5, and in May 2020, it became 6.25. In April, this will become 3.125. This halving is a way to induce scarcity in the cryptocurrency and counteract inflation.

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As a fixed-supply currency, Bitcoin is designed to have only a maximum of 21 million BTC in existence. With approximately 19.6 million BTC already mined, around 1.4 million is left. With the halving mechanism, the full 21 million is expected to be completely mined in 2140.

According to Crypto Caverns, a leading cryptocurrency mining hosting services provider, the halving of Bitcoin has a huge impact on miners, as it effectively makes Bitcoin half as rewarding to mine, while equipment and energy costs remain roughly the same pre-and post-halving. Today, the cost to mine a single Bitcoin is between $20,000 (on the newest equipment at $0.07/kWh) and $80,000 (using second-generation equipment at $0.10/kWh, the average power cost in the USA). After the next halving, that cost will be doubled and, in some estimates, will likely even surpass $100,000.

The halving is usually accompanied by an increase in the price of Bitcoin in the subsequent 12 months. The amount has varied each time, including a huge spike following the 2020 halving, from approximately $10,000 to over $50,000 a year later. Recently, the price of Bitcoin has hit an all-time high of over $73,000 – an increase of over 150% over the past year.

Crypto Caverns CEO Rufus J. Wright says that, due to the halving of the reward rate, miners are reliant on the appreciation of Bitcoin prices, for mining to remain a worthwhile and profitable pursuit. If the price doesn’t rise enough, then many miners will go bankrupt or quit mining because it’s no longer profitable. 

“If Bitcoin prices don’t go up, meaning if they even just remain the same, it’s going to wreak havoc on the mining industry,” he says. “The idea of price appreciation is baked into the mining industry and the price needs to increase by more than double in the four years between halvings for the mining industry to thrive. Most people today are mining at close to break-even or for very low profit, and many will stop mining when it becomes a loss-making activity.”

The reliability of a blockchain is dependent on the number of nodes operating on it, as each node contributes to the verification of the data. If most miners cease operating, then the security of Bitcoin’s blockchain will degrade, making it susceptible to hacking, such as double-spend attacks. The flood of unused machines on the secondhand market also increases the chances that an attack may happen. This has happened to other less-secure cryptocurrencies, and if this happens to Bitcoin it will greatly diminish its status as the largest and most secure cryptocurrency. 

According to Wright, it’s likely to take two to three months after the halving to see the full effect it will have on the Bitcoin market. He believes that many mining investors are likely to build up their cash holdings in the meantime as they wait and see. If the price of Bitcoin goes up, then they’ll purchase more mining equipment.

If profitability sinks, Crypto Caverns says that it also offers mining in other cryptocurrencies, also known as altcoins, which are essential in keeping a diversified portfolio.

“We don’t just do Bitcoin mining,” Wright says. “Recently, we’ve seen many customers coming in for Litecoin and Dogecoin mining, and we welcome that because, like many smart investors, they’re hedging their positions. If Bitcoin goes up, it tends to lift all boats, so it’s still not a loss for them.”

On the other hand, if the profitability of mining does indeed increase, Crypto Cavern’s industry-leading hashrate guarantee gives peace of mind to customers that their investment in equipment will continuously deliver. The guarantee provides a 100% uninterrupted hashrate even if the customer’s equipment goes down for maintenance or repair. 

“When profitability goes up, some mining companies suddenly report that there are problems with their customers’ machines, because, in reality, they’re diverting power to their own equipment,” Wright says. “But with Crypto Caverns, customers are guaranteed their hashrate. They know that their equipment will continuously be mining, no matter what happens in the market.”

This post was authored by an external contributor and does not represent Benzinga’s opinions and has not been edited for content. The information contained above is provided for informational and educational purposes only, and nothing contained herein should be construed as investment advice. Benzinga does not make any recommendation to buy or sell any security or any representation about the financial condition of any company.