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4 reasons why halving Bitcoin does not trigger a big “capitulation of the miners”

May 12, 2020

A popular narrative that is about halving Bitcoin (BTC) is that it can trigger the miners’ surrender. However, it is premature to assume that many miners will stop mining in 2020 and the price of cryptocurrencies will fall as a result.

Some industry executives believe the price of Bitcoin may fall after halving May 11. After the Bitcoin miners’ rewards are halved, their income will also decrease significantly. This usually affects small miners with excessive leverage who are forced to shut down their machines.

Digital asset manager Charles Edwards he said::

This will be the most brutal bitcoin halving ever. Production costs double to $ 14,000. 70% above the current price. During the last halving, the price was only 10% below production costs. Now expect a big capitulation in mining without FOMO. 30% +

4 reasons why halving Bitcoin does not trigger a big “capitulation of the miners”4 reasons why halving Bitcoin does not trigger a big “capitulation of the miners”

A widespread theory is that miners, if they surrender, sell Bitcoin in the cryptocurrency exchange market and put significant selling pressure on them, causing more miners to leave and so on the mythical “spiral of mining death”.

There are many variables this year that can prevent this trend. Four main arguments against the surrender of miners are: The lower electricity costs in China reduced the mining costs due to the weakness of the currencies, the decrease in energy prices due to the global quarantine and the adjustment of the difficulties of the mining.

Miners continued to hoard Bitcoin before halving, expecting prices to rise

Miners continued to hoard Bitcoin before halving and waiting for a price increase. Source: Bytetree

Cheaper electricity in China and lower energy requirements worldwide

According to the latest data, China accounts for around 65% of Bitcoin’s total computing power.

Also China’s Sichuan Province will soon enter the rainy season. Many electricity suppliers in the province rely on hydropower to generate electricity. With plenty of water, hydropower plants can produce more energy than usual.

Thanks to the increased power supply in Sichuan, the large mining centers in the region can negotiate electricity prices. Large miners are likely to receive huge discounts on electricity tariffs in the coming monthsfalling operating costs.

The worldwide application of household stability measures and strict quarantines further reduces electricity consumption. Large factories and millions of small businesses remained closed for about two months.

Low electricity prices, global oil priceswho have reached an unprecedented level and the tendency of industry-leading mining companies to maintain a large cushion of cash significantly reduces the risk of miners surrender.

Weaker currencies lead to lower operating costs

According to Whit Gibbs, CEO of Hashr8, The depreciation of the ruble can affect mining centers located in Russia.

All revenues from mining companies are earned in the form of Bitcoin. However, operating costs are often paid in local national currencies. When Bitcoin’s price rises, but the value of fiat currencies falls, mining companies’ spending falls as the local fiat currencies depreciate against BTC.

Geopolitical risks in the global economy and their possible effects on Bitcoin mining are not taken into account. thats why The claim that miners are expected to stop mining in the second half of 2020 could be premature.

Gibbs he said::

This halving may be the most brutal in history, but it’s only a guess. Last week, there was no full report on current geopolitical and economic conditions, their impact on mining and the price of Bitcoin.

Customize Bitcoin mining difficulty

If the number of miners who mine Bitcoin decreases due to the low price and less block rewards after halving, The BTC mining difficulty level is automatically adjusted to maintain a constant block interval. Bitcoin mining difficulty

Bitcoin mining difficulty. Source: Blockchain.com

The term “mining” refers to the creation of new bitcoins as a reward for the contribution of computer resources to the network. The network automatically adjusts how difficult it is to break down BTC every 2,016 blocks in computing power, also known as the hash rate or hash rate, decreases (or increases).

Adjustment mechanism for mining difficulties prevents the surrender cascade of mine workersIt will be cheaper to mine BTC if the hash rate drops.

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