Could Rising Energy Costs Undermine a Bitcoin Halving Bull Run? | Cryptocurrency

The fourth Bitcoin halving is finally upon us. But unlike previous halving events, which have heralded seismic bull runs and all-time-high Bitcoin prices, the original cryptocurrency’s ascension after the 2024 “halvening” may be hampered by high energy consumption, among other factors.

With some analysts suggesting that Bitcoin (BTC) could rally as high as $200,000 in the months that follow the halving event, crypto investors may be placing a greater emphasis on the halving than even the U.S. Securities and Exchange Commission’s acceptance of spot Bitcoin ETFs on Jan. 10.

This sentiment is echoed by Bitcoin’s stock-to-flow (S2F) model, which has in the past been an accurate metric for mapping out the cryptocurrency’s post-halving price rallies along with the long periods of stagnant or negative growth, known as “crypto winters,” that typically followed.

According to the S2F model, Bitcoin is expected to reach a value of more than $445,000 by May 13, 2025. But could these ambitious projections fail to take into account the major energy implications of Bitcoin’s proof-of-work algorithm?

Bitcoin’s fourth halving event, expected to occur on April 19 in the late evening, is significant because it’s a key part of the cryptocurrency’s deflationary framework. However, the entire mechanism is dependent on energy-consuming Bitcoin mining.

When it comes to verifying transactions, Bitcoin operates on a proof-of-work (PoW) framework. This means that Bitcoin miners solve complex mathematical equations using massive amounts of computational power to operate the network and get rewarded with BTC.

In the case of Bitcoin, competing miners essentially have a race to see who can package transactions and solve a math problem the fastest. The energy used by all the competing machines that “lose” the race is then wasted, in a sense.

So, where does Bitcoin’s halving event come in?

Bitcoin halvings reduce the BTC awarded to miners by 50%, and they occur on about a four-year basis, or after 210,000 blocks have been mined on Bitcoin’s blockchain.

When Bitcoin first launched in 2009, miners would receive 50 BTC as block rewards; however, halving events helped to create a deflationary imprint on the digital asset to intentionally make it more scarce. This means that the miners who were being rewarded with 50 BTC before 2012 will now be competing for 3.125 BTC after this halving.

Fortunately for miners, 3.125 BTC today is still worth about $200,000, but the cryptocurrency’s growing popularity means that its most recent halving is a power-guzzling race that may be far more vulnerable to energy costs.

The price performance of Bitcoin leans heavily on its mining efficiency, which is wholly dependent on the massive energy consumed by miners competing globally with high-performance CPUs.

Forecasting the cost of energy can be difficult and is influenced by many different factors, such as the type of fuels used, different levels of demand, weather and geopolitical conflicts.

In recent years, electricity prices in Europe have soared in the wake of Russia’s attack on Ukraine and the implications for gas pipelines and fossil fuels’ role in generating electricity. Just in the last few days, the price of West Texas Intermediate crude oil saw some volatility as tensions in the Middle East escalated between Iran and Israel, and the future of conflicts in the region remains uncertain.

Depending on the location of miners, electricity generation can lean on natural gas, coal, oil, nuclear, hydroelectric, onshore and offshore wind, tidal power, and solar and geothermal heat. Electricity can also be traded between nations, depending on requirements.

ING reported in April that the combination of tighter fundamentals and geopolitical pressures has pushed commodity prices higher as a whole. Meanwhile, average electricity prices in the U.S. are a dollar more per 30 kilowatt-hours (kWh) than they were at the time of Bitcoin’s last halving event in May 2020.

Another factor in the Bitcoin post-halving PoW environment is the impact of lingering high inflation rates on a global scale, which continue to exceed expectations and could push energy prices higher, and at a sharper rate, than miners experienced the last time around.

Prior to this Bitcoin halving, the energy cost for a solo miner to mine a single Bitcoin weighed in at an average of 266,000 kWh and took about seven years to complete at a monthly energy consumption of 143 kWh. For reference, this monthly consumption rate is about double that of what a typical U.S. household would consume, according to crypto data website CoinGecko.

Crucially, after the halving, the average mining cost for Bitcoin miners is pegged at $37,856 per BTC, per Itez data. This would make the vast majority of cryptocurrency mining companies unprofitable without a sustained BTC rally and would spell disaster if Bitcoin falls back toward its early February 2024 prices, rendering the asset unjustifiably expensive to mine.

The Bitcoin halving event will cost miners $10 billion a year in lost revenue, according to Bloomberg. With revenues initially falling overnight, how miners respond to the shortfall could determine if they remain in business.

Of course, the cost of electricity can vary significantly from nation to nation, and countries such as Kazakhstan, Kyrgyzstan and Azerbaijan are known for being places to mine extensively without incurring the same costs as more expensive regions, such as Western Europe. However, factors such as inflation and the flare-up of geopolitical tensions can threaten historically low-cost places to mine Bitcoin, and miners appear to be making major moves to safeguard their long-term viability.

While some cryptocurrencies, such as Ether (ETH) on the Ethereum blockchain platform, have transitioned toward a far more efficient proof-of-stake (PoS) mechanism that removes the necessity of mining ETH to validate transactions, mining has become a core component of Bitcoin and its value today.

This has pushed more miners to actively sell their Bitcoin inventory toward three-year lows in order to fund more powerful equipment in anticipation of the 2024 halving event. The volume of Bitcoin held by miners declined to 1.794 million BTC in early April, according to Coin Metrics, representing its lowest level since the beginning of 2021.

Coinciding with these falling BTC inventories has been an increase in hashrates in the efficiency of new blocks being added to Bitcoin’s blockchain. With hashrates growing by 45% to more than 600 exahashes per second over the past five months, this increase in productivity far exceeds the 15% boost around the time of the 2020 halving.

Investors have long identified post-halving Bitcoin rallies as key periods in the relatively short lifespan of the cryptocurrency. Based on previous halvings, it usually takes up to 1.5 years for Bitcoin to reach its peak price and then start to cool off. But with BTC becoming further immersed in the mainstream, could mining competition and energy ramifications render its potential post-halving bull market less effective?

If the average cost for mining Bitcoin now stands at $37,865, it becomes increasingly important for miners to ensure that they outperform their rivals and earn the rewards that they’ve budgeted for. Should BTC follow the recent trend of weakening post-halving rallies with weaker bull runs, there could be a real danger that Bitcoin’s PoW algorithm becomes unsustainable.

Rising global energy costs could ultimately have the final say in Bitcoin’s performance over the year ahead, and if geopolitical tensions aggravate energy costs for miners, investors may face an unprecedented level of uncertainty over the viability of cryptocurrency mining as a whole.

Bitcoin’s 2024 halving event promises to be like no other. Whether the cryptocurrency can match its lofty expectations may depend heavily on the output of its miners and their energy bills.