20% of bitcoin network hash rate could go offline after halving: Galaxy
Certain ASIC models could change hands to miners with cheaper power costs rather than fully exiting the network, analysts said
Shutterstock AI modified by Blockworks
Galaxy Digital analysts expect that up to 20% of network hash rate from eight mining machine models could go offline at the time of the next bitcoin halving.
The upcoming halving — when per-block rewards for mining bitcoin are cut from 6.25 bitcoin (BTC) to 3.125 BTC — is slated for April. Miners have looked to boost efficiency and reduce costs ahead of the event, as the decline in rewards is expected to put financial stress on the sector.
Hash rate — a metric measuring the computational power of bitcoin’s proof-of-work network — stood at roughly 515 exahashes per second (EH/s) at the end of 2023.
But between 15% and 20% of the hash rate coming from eight types of application-specific integrated circuit (ASIC) models could go offline when the halving occurs, Galaxy analysts said in a Wednesday report. The ASIC models analyzed include M20S, M32, S17, A1066, A1246, and S9, as well as the more efficient S19s or S19j Pros.
Estimated breakeven revenue in dollars per megawatt hour considered the soon-to-be 3.125 block subsidy, transaction fees making up 15% of rewards and a bitcoin price of $45,000. The BTC price was hovering around $52,000 on Thursday morning.
Read more: Bitcoin price tracking ahead of the past 2 halvings — now 3 months to go
Galaxy then took into account projected future power prices and implied power costs from public miners.
The estimate of between 15% and 20% of hash rate going offline comes “given how sensitive the breakevens are for the various ASIC models to bitcoin price and transaction fees as a percent of rewards,” Galaxy analysts said in the report.
“It is likely that miners operating these older and more inefficient machines are running custom firmware to improve the efficiency of the ASICs and thus improve their breakeven threshold,” the analysts wrote. “Furthermore, it is probable that instead of certain ASIC models fully exiting the network they will just change hands to miners with cheaper power costs.”
Chase White, a senior analyst at Compass Point Research & Trading, told Blockworks he expects a slightly lower decline.
Compass Point estimates hash rate to average 565 EH/s in April given a projected $55,000 average bitcoin price that month. With that average bitcoin price expected to rise to $57,500 in May after the halving, the firm then expects hash rate to fall to an average of 500 EH/s in May — a roughly 12% decline.
The market rebound in the second half of 2023 and the upcoming halving seemed to spur a surge of mining firm spending. Such companies made $1.2 billion in commitments for mining machines in the first 11 months of last year, BlocksBridge Consulting data.
Riot Platforms, for example, committed to buy 66,560 MicroBT machines for $290.5 million in December. It also secured an option to purchase up to 265,000 more MicroBT miners.
Fellow bitcoin miner Bitfarms around that time revealed it would add 36,000 Bitmain T21 miners as part of a fleet upgrade plan expected to increase efficiencies, lower unit production costs and grow hash rate.
Read more: Crypto miners keep busy ahead of halving with accelerated machine buysWhite said private miners without easy access to capital via the public markets are more likely to have to shutdown operations around the time of the halving.
Home retail miners, smaller private operations and miners in areas with higher power costs are particularly at risk, he told Blockworks.
“We think miners who have low or no debt, bottom quartile power costs and efficient mining fleets will be fine,” White added. “Though we certainly expect there to be pain for everyone, especially early on, as miners on the margin of profitability try to wait each other out before shutting down.”
Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.
Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. Subscribe to the Forward Guidance newsletter.
Get alpha directly in your inbox with the 0xResearch newsletter — market highlights, charts, degen trade ideas, governance updates, and more.
The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.
