The State of Bitcoin Mining Post-April 2024 Halving: Challenges and Prospects

The Bitcoin mining landscape has faced significant shifts following the April 2024 halving event, with miner revenues experiencing a stark compression. Traditionally, Bitcoin miners have relied on a mix of block rewards and transaction fees to generate income. However, recent data shows that transaction fees now contribute only about 1.48% of total block rewards—the lowest percentage observed since 2023. This decline underscores a growing concern: miners are becoming increasingly dependent on subsidy income, which has decreased to 3.125 BTC per block post-halving. As miners adapt to this unprecedented environment, the implications for the industry become crucial for long-term sustainability.

Stagnation and Its Consequences

The hashprice, which represents miner revenue per unit of hashing power, has also stagnated, remaining at approximately $48.9 per PH/s/day in late April. Despite Bitcoin’s spot price hovering around $95,000, miner revenues have not kept pace. Many power-hungry mining rigs currently operate at a loss, particularly those consuming between 25-38 J/TH. These units generate revenue of only about $0.06 per kWh, falling short of grid costs, which are estimated at $0.08 per kWh. This financial strain poses an existential threat to many mining operations, as they grapple with rising operational expenses without corresponding increases in revenue.

Temporary Solutions and Long-term Concerns

While there were temporary boosts in transaction fees driven by projects like Ordinals and Runes, these spikes proved fleeting. For instance, the average transaction fee surged to $127 during the Runes’ launch in April 2024 but has since dropped below $2. This decline in transaction fee revenue raises alarm bells about the sustainability of miners’ income driven by transaction volume. Notably, while 650 million users now have indirect access to Lightning Network channels, these advancements in off-chain technology have not materially contributed to increasing block rewards, posing further challenges for miner profitability.

Potential for Change: OP_CAT and CTV Proposals

Amidst these challenges, developers are closely monitoring the OP_CAT and CTV soft-fork proposals, which could serve as catalysts for change in the mining ecosystem. Galaxy Research anticipates that consensus on these proposals could be reached by 2025, although specific activation timelines remain uncertain. If properly executed, these enhancements could potentially increase transaction volume and fees, providing much-needed relief for miners. However, the effectiveness of these proposals in reversing the current trends remains to be seen, as attention turns toward determining how they might uplift the fee market.

Stress Scenarios and the Future of Mining

Stress scenarios paint a grim picture for miners, especially with Bitcoin priced at $96,000. In such circumstances, if fee income remains fixed at a mere 1%, nearly 35% of the network could experience negative cash flow, particularly at standard electricity rates. According to modeling by CryptoSlate using Luxor hashprice and Coin Metrics ASIC-mix data, a Bitcoin price of $85,000—with fees stagnant at 1%—would render about 30% of installed hashpower operating below cash-flow breakeven, given electricity costs of $0.08 per kWh. Even with a Bitcoin price rally to $96,000, one in five hash operations could still remain unprofitable under these conditions, showcasing how sensitive miner margins are to fee income post-halving.

Systemic Implications and Need for Upgrades

The increasing dependence on fee income has important implications for the Bitcoin network’s decentralization. Older ASICs are likely to come under pressure first due to their lower efficiency and higher operational costs, which may prompt fleet upgrades across the industry. While this could initially enhance the overall efficiency of the network, there are concerns about how reduced participation from lesser-performing miners might impact Bitcoin’s decentralization. In a tightening post-halving environment, without stronger fee markets or new cycles of demand, margins across the mining sector are tightening, calling into question the viability of numerous operations.

In conclusion, as Bitcoin miners navigate these uncertain times, their ability to adapt to a rapidly changing landscape will be crucial for long-term sustainability. The current dynamics highlight the critical need for robust transaction fee markets, the potential impact of proposed soft-fork updates, and the ongoing challenge of rising operational costs. The industry’s resilience will ultimately depend on how well miners can manage these pressures and seize new opportunities in the evolving Bitcoin ecosystem.