Miners have already begun planning and conducting research as the date of Bitcoin’s halving approaches. The miners are analyzing the effects of previous Bitcoin halvings on the network, and how the cryptocurrency market responded during that time. This helps them to understand potential challenges and opportunity.

The fourth Bitcoin halves is scheduled to take place on April 16, 2024. Block rewards will be reduced from 6,25 bitcoin per block to 3,125 bitcoin per block.

This article is part of CoinDesk’s 2023 Mining Week sponsored by Foundry. Anthony Power is an analyst for Compass Mining.

Miners are faced with double the cost of energy to mine one bitcoin. However, they can reduce this shortfall by installing more energy-efficient machines, managing energy consumption optimally, setting aside cash reserves, and hedging risk on financial markets.

Consider how the miners prepare on these various fronts.

Mining fleets that are efficient

Bitcoin miners have been upgrading their hardware and software to prepare for the upcoming halving. A number of North American Bitcoin miner made significant purchases to get the most efficient mining equipment available.

Riot Platforms announced that in June 2023, it had purchased from MicroBT 33,280 of the next-generation Bitcoin miner, providing an extra 7.6 EH/s to increase self mining capacity to 20.1EH/s when fully deployed in 2024.

It is important to control the sites where you have installed Bitcoin mining machines, so that you can control when they are turned on/off.

Cheap sustainable renewable energy

The cost of energy is the biggest cost in bitcoin mining. As it doubles every time the price is halved, it’s important that miners can use the cheapest renewable and sustainable energy available. They must be able to adjust their energy consumption as prices rise and it becomes unprofitable for them to mine Bitcoin if they cannot access fixed-price energy contracts.

CleanSpark (CLSK), along with their Georgia (GA) power strategy, are developing automation to maximize uptime. They also have firmware that allows them to underclock or overclock depending on the situation.

In recent months we have seen that a number Texas-based miners are using energy strategies in order to increase their revenue. Riot Platforms, which is active in the Electric Reliability Council of Texas market (ERCOT), has used this to its advantage by supplying power as needed and turning off their systems when necessary. This helps balance the grid. The company has a power purchase agreement that allows it to keep bitcoin mining costs low. During the month of 2023, the company generated $1.6 million and $8.4 millions in revenue from demand response through participation in these programs.

Cash reserves

Previous halving cycles show that the price of Bitcoin does not increase immediately after halving, even though there is more scarcity. It took almost five months to get the price of Bitcoin moving upwards after the last halving cycle in 2020. Miners must therefore build up cash reserves to be able to cover any immediate revenue loss.

Diversification

Bitcoin miners are diversifying their business and adding new revenue streams. Hut 8 announced on January 20, 2022, that it acquired TeraGo Inc’s cloud and colocation business. The acquisition will position Hut 8 as the leading high-performance computing company, giving it a unique position within the digital assets ecosystem.

The company announced in June 2023 a five-year partnership to Interior Health Authority (British Columbia) for the purpose of supporting their operations through the delivery of safe, secure and reliable colocation service from its flagship data center located in Kelowna.

Hive Digital Technologies and Iris Energy are diversifying their services into cloud computing, high-performance computing and artificial intelligence.

Hedging Techniques

Now, there are companies who offer to help mining companies mitigate their risks in terms of electricity costs and hash rates. It may be an option that miners should consider as they approach the halving.

These points are not exhaustive but should help you to understand the challenges that these bitcoin miners face as they prepare for the next half-off.

If the price of bitcoin increases before the halving is implemented, the reader can ignore the first 3 points. (Because a rising price benefits miners).

In my recent article published by Compass Mining How Miners are Preparing for the Halving, I also provide a look at the financial aspect and compare the Bitcoin mining margins that were achieved in Q1 2023.

Ben Schiller is the editor.