Bitcoin miners will face challenges as the hashrate reaches new record highs ahead of next spring’s halving, while volatile electricity costs and competition between miners will drive up the cost of mining.

Hashrate refers to the processing power used to mine a cryptocurrency. A halving event, which occurs about every four years, will result in a halving of miners’ rewards.

This will reduce the reward per issue from 6.25 BTC to 3.125 BTC, which means a reduction in revenue for miners while effectively increasing the cost of Bitcoin mining. As a result, while halving the cost of Bitcoin has a positive impact on the Bitcoin price, as the cost of mining has historically acted as the “bottom”, it creates problems for Bitcoin miners.

According to the analysis, and based on a global average electricity cost of $0.05 per kWh, it costs about $20,000 to mine a single bitcoin, which is currently worth about $30,000. However, according to JP Morgan, hashrate volatility indicates the use of different energy sources, meaning that miners with access to electricity at lower prices have an advantage.

According to the company, a one-cent increase in the cost per kilowatt hour means a $4,300 increase in the cost of mining bitcoin.

Once the cost is halved, that sensitivity doubles to $8,600, increasing the vulnerability of higher-cost producers

However, there is some good news for miners.

Vanguard now owns $560 million worth of bitcoin miners’ shares.

Institutional interest in bitcoin mining has supported struggling miners by investing in mining rigs from companies like Galaxy Digital and Grayscale Investments. Galaxy Digital recently acquired Argo Blockchain, while Grayscale spun off a company specializing in bitcoin mining equipment.

Tether, the world’s largest issuer of stablecoins, also plans to invest in a bitcoin mining site in El Salvador.

However, to compensate for the decline in blockchain rewards, the price of bitcoin and transaction fees will have to rise significantly.

JP Morgan also noted that “reduced hype around cryptocurrencies creates additional challenges for miners’ revenues,” including “reduced hype around Ordinals.”

The number of daily inscriptions on Ordinals recently reached an all-time high, but along with that, previous highs in bitcoin fees have not been reached either.

Going forward, it seems unlikely that the bitcoin hashrate will continue to grow at the same rate after the April-May 2024 “halving” event without a sustained increase in the bitcoin price above the cost of mining or a significant increase in transaction fees that could offset the decline in issuance fees.