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The Bitcoin (BTC) halving is poised to reshape the mining landscape, potentially leading to greater centralization of power. Jag Kooner, Head of Derivatives at Bitfinex, estimates the anticipated squeeze on miners’ profit margins could force smaller operations to exit, leaving the field to larger, more capitalized entities.
“However, this shift also presents an opportunity for innovation and efficiency improvements within the sector. Miners might explore new regions with cheaper energy sources or invest in more efficient mining technology to maintain profitability,” Kooner adds.
Moreover, mining facilities could invest in the development of more cost-efficient machinery, and use their supply to make these upgrades in mining gear.
There’s still the downside of a potential increase in transaction fees driven by reduced block rewards. Miners will increasingly rely on transaction fees as an income source and higher fees could decrease the attractiveness of Bitcoin for small transactions.
A negative impact on security could also be projected if miners leave the market, according to Kooner. “A significant and prolonged decrease in the hash rate could also undermine trust in the Bitcoin network’s security, potentially impacting its price and adoption rate,” he says.
Yet, for the short-term, the historical rallies in the price of Bitcoin fueled by the reduced pace of new BTC generation could offset the reduced block reward, resulting in miners still interested in preserving network security.
“This outcome depends on a variety of factors including market demand, investor sentiment, and macroeconomic conditions affecting liquidity and investment flows into cryptocurrencies. Another critical element in the mix, is that the regulatory landscape remains a wildcard, with potential changes looming on the horizon that could significantly impact the operational dynamics and profitability of Bitcoin mining companies both large and small.”
Post-halving prices
Jag Kooner also commented on how prices might react after this halving. The “sell-the-news” event usually occurs when there is market consensus for it, and this might be the case as the tension in the Middle East scales. From April 12 to 14, the heated landscape in the Middle East led to one of the largest market-wide two days of liquidations investors have ever seen, Bitfinex’s Head of Derivatives says.
Nevertheless, after the recent pullback movement, the trend of long-term holders and whale investors distributing their holdings might come to a pause until the Bitcoin price returns its upward movement.
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