2024-04-25
The bitcoin halving, which occurred on Friday, April 19, was arguably the most significant event of the past week.
This process, which takes place approximately every 4 years or after 210,000 blocks, involves reducing the reward for mining a bitcoin block by half. As a result, the issuance of bitcoins slows down.
Eventually, once all 21 million bitcoins have been mined, the block reward will become zero, and miners will only receive transaction fees as a reward. The most recent halving brought the block reward down from 6.25 BTC to 3.125 BTC.
Historically, the halving has been seen as a positive signal for bitcoin, as it increases the scarcity of the asset.
This year, predictions about the halving varied, with some believing it would drive bitcoin prices higher, some thinking the event was already priced in, and others considering the overall macro sentiment as the main driver of bitcoin's future price.
However, the halving is not beneficial for bitcoin miners.
Although the value of bitcoin has significantly increased since its inception, going from a block reward of 50 BTC in 2009 to 3.125 BTC currently, the transition from 6.25 BTC to 3.125 BTC does not happen overnight.
For miners, this halving resulted in a 50% reduction in their earnings.
During the previous halving in 2020, the average total miner revenue dropped from $18.3 million on May 10 to just $8.44 million on May 18.
This time, miners seem to have been spared a similar decline, as unaveraged data shows that April 20 recorded the highest day of miner revenue ever.
Although the revenue from the block subsidy decreased from $60 million on April 19 to $26 million the following day, transaction fees surged to $80 million on Saturday due to increased block demand.
While transaction fees have slightly decreased since then, reaching around $22 million on April 21, they still remain high.
In the long run, the halving will impact miner profitability, unless energy prices decrease or the Hash Power securing the network declines.
However, the rise in bitcoin's value over the past six months has allowed miners to prepare for this change by using their earlier profits to offset potential losses in the short term.
Nevertheless, many expect consolidation in the industry as smaller and less-efficient miners struggle to compete with larger players in this highly competitive market.
