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Bitcoin (BTC) halving is poised to reshape the mining landscape and could potentially lead to greater centralization of power. Jag Kooner, head of derivatives at Bitfinex, estimates that the expected pressure on miners’ profit margins could lead to the closure of smaller operations, leaving the sector to larger, more capitalized companies.
“But these changes also provide opportunities for innovation and improved efficiency within the sector. Miners can explore new regions with cheaper energy sources or invest in more efficient mining technologies to remain profitable,” adds Kooner.
Moreover, mining facilities can invest in developing more cost-effective machinery and use their supply to upgrade their mining equipment.
The downside is that transaction fees may increase due to reduced block rewards. Miners will increasingly rely on transaction fees as a source of income, and higher fees could make Bitcoin less attractive for small transactions.
According to Kooner, there could also be negative security implications if miners leave the market. “A significant and prolonged decline in hash rate could erode trust in the security of the Bitcoin network, potentially impacting its price and adoption rate,” he says.
However, in the short term, the historical rebound in the price of Bitcoin due to the reduced rate of new BTC creation may offset the reduced block rewards, and as a result, miners still have an interest in maintaining network security.
“These results will depend on a variety of factors, including market demand, investor sentiment, liquidity and macroeconomic conditions affecting investment flows into cryptocurrencies. Another important element of the mix is that the regulatory environment remains a wild card, with potential changes looming on the horizon that could significantly impact the operating dynamics and profitability of Bitcoin mining companies large and small.”
Price after halving
Jag Kooner also commented on how prices will react after this halving. A ‘news-selling’ event usually occurs when there is market consensus about it, which could be the case with rising tensions in the Middle East. Bitfinex’s head of derivatives said the overheated environment in the Middle East from April 12 to 14 led to the largest two-day market-wide liquidation investors have ever seen.
Nonetheless, after the recent downward move, the trend of long-term holders and whale investors distributing their holdings may pause for a while until the Bitcoin price regains its upward momentum.
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