Bruce Dias 
The cryptocurrency environment has become increasingly more visible among members of the general public over the past few years. That has led to an understanding of the processes as relatively straightforward. While it’s important to remember that digital finance investing doesn’t deserve the role of the trading world boogeyman it was assigned by those who are against it, it’s also essential not to neglect the complexity of the system.
Bitcoin, the largest coin in the world by market capitalization, has often been the object of scrutiny within the market from investors, traders, crypto and tech enthusiasts, as well as critics and regulators. It’s no surprise considering that BTC has been shown to have a significant impact on the manner in which the ecosystem develops. When Bitcoin does well, so do the altcoins. And when Bitcoin performs poorly, you can expect the rest of the environment to suffer as well.
Halving
The halving process is a specific feature of Bitcoin mining, during which the rewards are cut in half. This change occurs every four years, with the next halving expected in 2024. The reason for this procedure is to maintain scarcity, one of the fundamental aspects of Bitcoin and perhaps the biggest reason for its success. However, many have also discussed the negative impact halving can have on the broader market, particularly the miners themselves. Naturally, there are economic repercussions that come with the process, and miners have to adjust their operations to maintain profitability.
While mining stocks remained buoyant in 2023, the price of Bitcoin ended on a negative note, as it could not find support above the $30k border for the sixth continuous week since June. Regardless, the value has remained at nearly 80% since the beginning of the year. This decline also reduced revenue for miners, making the environment more challenging to navigate. According to historical trends, the network’s hash rate will continue to rise until the next halving, projected to occur on April 26th, 2024.
That is due to the tendency of miners to increase hashing power by installing newer, better and more efficient apparatus. To lock in prices, miners are also selling Bitcoin futures so that profitability won’t escape pressure in the future either.
Mining Difficulty
It’s not just the Bitcoin price that has increased significantly since January 2023; the mining difficulty has also increased by 51%. Around the middle of July, mining difficulty hit an all-time high as the selling peaked after miners continued to send record amounts of coins to exchanges. The figures stood at 53.91 trillion units following the latest difficulty adjustment, a measure that shows how challenging it is to mine blocks on the Bitcoin network.
The blockchain typically adjusts the difficulty once every two weeks as a means to maintain the processing time down to ten minutes. When the processing power increases, it also immediately reduces the profitability for miners, especially those working individually. As a result, some suspected that the marked restriction and hurdles in an upwards trend for the Bitcoin price have also resulted from a lack of miner accumulation. Medium and small-scale miners saw revenue drops into the negative territory that forced them to stop their ASIC hardware until a more positive trend changed the situation.
The Hash Rate
The Bitcoin hash rate is the measure through which computational power on the blockchain is determined. All the guesses made per second define the figures of the hash rate. The numbers also provide a clear indicator of the mining difficulty and security of the blockchain network. The current hash rate is predicted to continue growing until the halving. According to recent data, the hash price index, a metric used to quantify the average earnings a miner records daily, dropped from $78.30 on the 1st of July to $72 by the end of the month.
The trend has continued since the second half of July, which contributed to a decline of 2% in the difficulty adjustments on the 26th of July. And while the adjustments are expected to ease the considerable pressure miners face, the effect will only be slight. Moreover, if historical data is anything to go by, miners are more likely to continue adding, causing profitability to cramp. During the previous pre-halving period, the hash rate continued to record gains for a year, peaking a month before the halving in May 2020. The current figures indicate a similar situation.
Preparation
The cryptocurrency market is often associated with chaos and haphazard movements due to the fact that the prices can be relatively volatile. However, all the users engaged on the blockchain are very careful to employ careful preparation in how they carry out everything within the system. Mining is no exception, and it’s essential to understand the process and what you can expect before venturing into the environment.
The miners are currently in the midst of developing and adopting strategies that will prepare them for the halving event. These include boosting the current cash flows through the management of both newly mined and existing BTC before the halving occurs. During the previous cycle, the miners began accumulating tokens approximately a year before the event and started the unloading only in the aftermath of the reward slashing.
The next halving is only nine months away, and this trend hasn’t been replicated yet. What miners have been doing instead is sending sizable amounts of Bitcoin, amounting to millions, directly to exchanges. This supply, representing the BTC coins collected as [art of mining pools, saw a significant decrease in July. According to researchers, the miner inflow is part of a de-risking strategy that will hedge Bitcoin on derivatives. Just selling one-year BTC futures enables miners to lock in selling prices of $30,000 for the following year. It could also improve the cash balances before halving occurs.
The Bitcoin ecosystem is complex, and investors are typically advised to be cautious when performing transactions. Going in without a plan is a decidedly negative thing. But it’s also consequential to consider the goals of the miners to get an accurate perspective on how Bitcoin is changing and developing.
