BTC Halving to Start “Raging Firesale of Crypto Assets”

Arthur Hayes believes that although the halving could boost BTC prices in the medium term, the immediate period before and after the event might see negative price movements.

Arthur Hayes of BitMEX forecasts some potential price volatility around the halving, while tighter dollar liquidity could exacerbate market fluctuations. The cost of mining is expected to double, which means that the price of Bitcoin will have to be above $80,000 for miners to be profitable, according to Ki Young Ju of CryptoQuant. As the post-halving predictions run rampant, Bhutan is boosting its Bitcoin mining capacity in partnership with Bitdeer Technologies. The collaboration between the royal government of Bhutan's investment arm and Bitdeer is set to enhance Bhutan’s mining capacity by an impressive 500 megawatts by the first half of 2025. Despite concerns about increased mining costs and the efficiency of mining rigs post-halving, historical patterns suggest the market may adjust.

Crypto Post-Halving

Arthur Hayes, co-founder of BitMEX, recently shared his thoughts on the upcoming Bitcoin halving and its potential impact on the crypto market. In an Apr. 8 blog post, Hayes stated that he believes that while the halving could boost Bitcoin prices in the medium term, the immediate period before and after the event might see negative price movements. He attributed this to the widespread expectation of a price increase due to the halving, suggesting that when most market participants anticipate a specific outcome, the opposite tends to actually happen.

Hayes also pointed out that the timing of the halving coincides with tighter dollar liquidity. He elaborated on his theory that policies from the United States Federal Reserve and Treasury are major influencers of market dynamics. According to Hayes, these conditions, combined with the halving, could lead to a downturn in crypto prices, describing the potential scenario as adding "propellant to a raging firesale of crypto assets."

Despite his bearish outlook for the period around the halving, Hayes admitted the possibility of the market moving against his expectations, stating he would welcome being proven wrong given his long-term bullish stance on cryptocurrencies in general.

The second half of April is seen by Hayes as a critical time for risky assets due to factors like U.S. tax payments reducing liquidity, the start of Quantitative Tightening by the Fed, and the yet-to-be-utilized Treasury’s General Account. He expects a shift after May 1, after a Fed meeting, expecting a slowdown in the tightening of money supply and the release of significant liquidity into the system by the Treasury, which he believes could stimulate the markets.

Hayes's strategy in light of these predictions is to stop trading until May, as he would rather opt for caution over the potential for immediate gains. His analysis comes at a time when Bitcoin has seen a significant increase in value year-to-date, with a more than 61% rise in price and market sentiment reaching levels of "Extreme Greed" according to the Crypto Fear & Greed Index.

Bitcoin Must Cling to $80K for Profitability

The Bitcoin halving is a major event that is designed to control the supply of Bitcoin, and it has far-reaching implications not just for miners but also for the cryptocurrency's price dynamics. According to Ki Young Ju, CEO of CryptoQuant, the upcoming Bitcoin halving in mid-April is poised to double the cost of mining for those using Antminer S19 XPs, from $40,000 to $80,000. This increase puts a lot of pressure on miners, requiring the price of Bitcoin (BTC) to trade above these elevated costs to ensure profitability.

At present, the cost of mining Bitcoin stands at $49,902, with the BTC price hovering above $70,000. After the halving, these costs are expected to surge above $80,000, and for miners to continue operating profitably, the BTC price must trade higher than that price. Luckily, Bitcoin's price has seen big increases post-halving. After the 2012 halving, its price soared by around 9,000%, and after the 2016 and 2020 halvings, it rose by approximately 4,200% and 683%, respectively.

Despite the challenges posed by the halving, including increased mining costs and less efficient mining rigs becoming obsolete, the historical precedent shows that miners have managed to remain profitable. After each halving, there's typically a period of adjustment where the price of Bitcoin may fall below the breakeven point for miners, leading to increased sales of mining equipment and, in some cases, the exit of smaller miners from the market. However, the reduced supply of Bitcoin due to the halving eventually leads to increased demand, driving the price above the average mining costs and restoring profitability for miners.

Bhutan Boosts Bitcoin Mining Capacity Ahead of Halving

Some in the Bitcoin mining space are already making plans to stay profitable after the halving. The Kingdom of Bhutan’s sovereign investment arm, Druk Holding and Investments (DHI), in partnership with Nasdaq-listed Bitdeer Technologies, announced plans to increase their BTC mining capacity sixfold. This strategic decision is aimed at mitigating the potential impact of the anticipated reduction in mining rewards after the Bitcoin halving event. The collaboration between the royal government of Bhutan's investment arm and Bitdeer is set to enhance Bhutan’s mining capacity by an impressive 500 megawatts by the first half of 2025, thereby raising the Himalayan kingdom’s total mining capacity to 600 megawatts.

The necessary funding for this very ambitious upgrade will be sourced from a $500 million fund jointly announced by DHI and Bitdeer in May of 2023. This closed-end fund is dedicated to harnessing Bhutan’s zero-emission energy resources to support blockchain technologies, aiming to foster the development of international stakeholder networks to benefit Bhutan’s technology sector. Bitdeer’s chairman, Jihan Wu, said that the initiative’s goal is to leverage Bhutan’s sustainable energy for blockchain advancement. Wu also pointed out the potential of the partnership to contribute to the kingdom’s technological and economic growth.

DHI, managing assets worth over $2.9 billion, has been quietly building up a crypto portfolio, evidenced by its investments revealed during the bankruptcy proceedings of crypto firms Celsius and BlockFi. Despite the quiet buildup of its crypto portfolio, DHI’s engagement with cryptocurrencies has been big, with investments reaching millions. Bhutan has been using its hydropower resources for BTC mining since 2019, capitalizing on the cryptocurrency's value growth from around $5,000.

The upcoming Bitcoin halving has spurred various speculations regarding its impact on mining profitability. However, industry experts like Laurent Benayoun, CEO of liquidity firm Acheron Trading, and Jimmy Zhao, BNB Chain senior solution architect, suggest alternative compensatory mechanisms like increased network fees and the potential of Bitcoin-based nonfungible tokens (NFTs) to sustain miner profitability. Supporting this perspective, crypto asset manager Grayscale reported that Bitcoin Ordinals had generated over $200 million in transaction fees for miners by February 2024.

What is Bitcoin Mining?

Bitcoin mining is a critical process in the cryptocurrency ecosystem, involving the solving of complex mathematical puzzles to validate transactions and secure the Bitcoin network. This process results in the creation of new blocks on the blockchain, with miners being rewarded in newly minted Bitcoin (BTC) approximately every 10 minutes.

The methodology and technology behind Bitcoin mining have evolved a lot since its inception. Early miners used basic CPUs and GPUs, but as the demand and competition increased, the development of ASICs (application-specific integrated circuits) was a significant leap in mining efficiency. These specialized pieces of hardware are designed explicitly for mining, offering far greater efficiency than their predecessors.

Another notable trend in the Bitcoin mining industry is the growing emphasis on sustainability. With the process being energy-intensive, there's been a shift towards using renewable energy sources to power mining operations. This move not only aims to reduce the environmental footprint of mining but also addresses concerns about the sustainability of cryptocurrencies in the long run.

Mining can be conducted solo, where miners operate independently and claim the entire reward for solving a block, or through mining pools. Pools allow miners to combine their computational resources to increase their chances of solving blocks and earning rewards. This collaborative effort offers a more steady income stream compared to the unpredictable nature of solo mining, making it a popular choice for miners.

Awaiting Approval

In other Bitcoin news, The U.S. Securities and Exchange Commission (SEC) postponed its decision on allowing options trading for spot Bitcoin (BTC) ETFs on the New York Stock Exchange (NYSE). This delay affects the trading possibilities on several Bitcoin-related products, including the Bitwise Bitcoin ETF (BITB) and the Grayscale Bitcoin Trust (GBTC). The SEC pointed towards the need for more time to review the proposed rule changes as the reason for this postponement, setting a new decision deadline for May 29.

This move by the SEC is not unprecedented, as it is very similar to a decision made last month regarding the Nasdaq's request to offer options trading on the iShares Bitcoin Trust (IBIT) by BlackRock. Options are financial derivatives that allow traders to speculate on the price direction of assets like Bitcoin, providing leverage and the possibility of large returns or losses based on the asset's price movements.

Grayscale's CEO, Michael Sonnenshein, who has actively lobbied the SEC, pointing out that the commission has already approved Bitcoin futures ETFs and spot Bitcoin ETFs, suggesting that options trading on spot Bitcoin ETFs is a very logical progression. He argued that such a step would enhance market robustness and health. The NYSE, Nasdaq, and Cboe have all submitted proposals for Bitcoin ETF options trading earlier this year, after the SEC's approval of spot Bitcoin ETFs on various exchanges.