Miners double down on bitcoin halving

Hi there and greetings to the most recent release of the FT Cryptofinance newsletter. Our focus for this week is to explore the prospects of the bitcoin mining sector.

The upcoming bitcoin halving happens every four years and reduces the production of new bitcoins that enter into the market. This is believed to bring about positive changes for the largest cryptocurrency in the world in the long-run.

The upcoming halving event is of great significance to bitcoin miners, with TheMinerMag even naming it as the most crucial bitcoin occurrence of the year, overshadowing the introduction of spot bitcoin exchange traded funds on Wall Street.

Companies that engage in bitcoin mining are preparing for a significant decrease in their financial gains, which they receive for ensuring the security and validity of transactions on the bitcoin network. This reduction is estimated to be around 50 percent and will occur within the next 24 hours. Their rewards, which were previously 6.25 bitcoins, will now be reduced to 3.125 bitcoins or approximately $204,000 based on current prices.

Businesses like Marathon Digital, CleanSpark, and Bitfarms have been accumulating a significant amount of cryptocurrency in anticipation that potential rises in the value of the token will offset the negative impact the halving may have on their earnings.

Although the tactic may succeed momentarily, miners are currently confronting a much more basic and crucial issue. Halvings occur every four years and will ultimately erase all incentives for miners to authenticate bitcoin transactions by the year 2140.

This implies that if mining companies don't find a new way to earn money to ensure their business stays afloat in the coming years, the industry may become financially unsustainable. According to Rajeev Bamra from Moody's, the halving event triggers a "comprehensive re-evaluation of mining finances."

Apart from the incentives they receive for verifying transactions, miners also make money from the fees charged on the network. However, except for brief periods of intense trading activity, this revenue stream has been less important than block rewards.

If you have already perused my earlier blog post this week, then you are most likely aware that miners have commenced taking a gamble on the upcoming value of bitcoin as an asset. Nonetheless, their prime wager really lies in the future acceptance of bitcoin as a network.

As more activities occur on the network in the upcoming times, mining firms will have a stronger capability to resist halving instances.

Andrew O'Neill, the head of S&P Global's Digital Assets Research Lab, made a statement saying that block rewards was mainly created to support mining activities at first. However, in the long term, the real source of profits for mining will come from the widespread adoption of bitcoin as a payment method.

The primary cause of increased usage in the past year has been the arrival of bitcoin Ordinals. These are comparable to non-fungible tokens (NFTs) traded on other blockchains like ethereum and solana.

In January of last year, a new feature called Ordinals was introduced to the Bitcoin network. Its purpose is to let users add special codes to each satoshi (the tiniest unit of Bitcoin), making each one distinct or non-interchangeable. This means that every divisible part of the cryptocurrency can now be individualized, allowing for the creation and exchange of unique NFTs right on the Bitcoin blockchain, without having to switch to a different network.

Based on information released by CCData, a company that offers data on various industries, the number of transactions made on the bitcoin network has significantly increased following the introduction of Ordinals.

Around January of the previous year, there were about 250,000 transactions occurring on the network daily. But now, the network is processing way more than 500,000 transactions on a frequent basis. Meanwhile, the ethereum blockchain manages approximately 1 million transactions every day.

According to Jacob Joseph, a researcher at CCData, ordinals play a similar role in the bitcoin blockchain as bitcoin ETFs do in the cryptocurrency world.

Bitcoin supporters are worried about the potential rise of other innovative areas within the crypto world such as decentralised finance or NFTs. This could potentially cause the outdated bitcoin network to become irrelevant. DeFi projects are created using more adaptable systems like ethereum and solana. In response to this issue, the release of Ordinals could be one option for the bitcoin network.

At the moment, it appears that there isn't an issue. Bitcoin's grip on the cryptocurrency industry has strengthened considerably, going from 38% to 52% market dominance since January 2023. As a result, its competitors, such as ether and solana, are currently unable to keep up and are observing from a distance.

The numbers we've received today are quite encouraging, but as someone who expresses news for a living, I have to admit that it's not yet the time to say for sure whether projects such as Ordinals or any other bitcoin-based initiative will provide enough support for the mining industry to thrive in the foreseeable future.

If we consider the general performance of the NFT market, the future prospects seem bleak all of a sudden.

In just a few years, NFTs went from becoming popular in mainstream culture on The Tonight Show Starring Jimmy Fallon to being featured in negative news stories, such as causing blindness in Hong Kong.

What are your thoughts on the bitcoin halving and the future of the mining industry? Feel free to reach out to me at [email protected].

Come and attend the big Crypto and Digital Assets Summit with me and other coworkers on May 8-9 over in London. You'll get to listen to some of the top players in the industry like Julia Hoggett (the chief executive of the London Stock Exchange), Bim Afolami (the economic secretary to the Treasury and City minister for the UK Government), and Michael Sonnenshein (CEO of Grayscale Investments), among others. Get your spot reserved now by going to crypto.live.ft.com.

If you didn't catch it before, I examined whether UK investors should be able to buy bitcoin more easily. The US allows for the purchase of bitcoin ETFs, but in the UK, which claims to be a leading center for digital assets, regular citizens aren't able to do so. However, exchange traded notes for professional investors may become available in the future.

I challenged the legal system but ended up losing. Avi Eisenberg, a trader who dealt with cryptocurrencies, was found guilty of fraud by a jury in New York. This news came after Eisenberg was accused of trying to steal over $100mn from the Mango Markets crypto exchange, which operates in a decentralised manner, at the end of 2022. This case made headlines back then.

CFTC In Focus As Soundbite Of The Week

Sam Bankman-Fried, who used to be the head of FTX, was given a 25-year jail sentence recently. However, there are still individuals who are refusing to forget about the situation.

Senators Elizabeth Warren and Chuck Grassley sent a letter to the Commodity Futures Trading Commission's chair, Rostin Behnam, regarding his association with Bankman-Fried. In the message, they asked for details about all gatherings and communication between the two individuals. The senators' aim is to gain insight into their relationship.

To protect the savings and retirement funds of the American people, it is necessary for Congress and regulatory bodies such as the CFTC to investigate and discover how this massive financial crime occurred.

Crypto VC Dominating Data Mining In 2021

In 2021, cryptocurrency investing has seen a surge in popularity with the introduction of exchange traded funds for bitcoin and the subsequent increase in value of the currency. Venture capitalists have also jumped on board with this trend.

The most recent information from PitchBook, a provider of data on capital markets, shows that there were 485 deals during the first quarter of this year, totaling $2.5 billion. This marks a significant increase from the 341 deals in the previous quarter, which amounted to less than $2 billion.

Philip Stafford is the editor of FT Cryptofinance. You can share your opinions and comments at [email protected].