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According to one expert, bitcoin currently needs to trade above $55,000 for miners to break even and $94,000 for them to return to profitability levels seen before the halving. To compensate for the revenue loss caused by the halving of Bitcoin’s block reward, miners are resorting to mergers or hostile takeover of rivals. Others have discovered they can generate extra revenue by staking bitcoins or plugging into decentralized physical infrastructure networks.
Bitcoin Miners Incur Huge Losses
As many commentators predicted, the Bitcoin halving, which slashed the block reward from 6.25 BTC to 3.125 BTC, has negatively impacted the financial performance of top bitcoin mining companies. For example, Riot (Nasdaq: RIOT), a leading bitcoin miner that recently reported a $84 million quarterly loss, partly blamed its disappointing results on the reduced block reward.
MARA (Nasdaq: MARA), another top bitcoin (BTC) miner, saw its net loss widen to $199.7 million, or -$0.72 per diluted share. In its financial statement, MARA, which missed its revenue target by 8%, also cited reduced block reward as a factor that contributed to its poor performance.
Despite enduring a lean period since the halving, bitcoin miners have of late seen their fortunes improve. To illustrate, a July 22 Bitfinex blog post, citing the Miner Sustainability metric, said miners are now fairly paid, marking their first profitable month in a while. The top cryptocurrency’s recent surge and the completion of equipment upgrades are thought to have contributed to this improved profitability, the report said.
However, this profitability hinges on BTC prices remaining in the upper $60,000s, which is uncertain because BTC remains a volatile asset. Therefore, to address this, some miners have merged or acquired smaller rivals. Riot Platforms’ hostile takeover bid for Bitfarms, while controversial, exemplifies how industry players are responding to challenges caused by the halving.
As the possibility of miner closures and related consequences looms, miners are seeking alternative ways to mitigate declining profitability. One of these alternatives is Exsat, a master extension layer for the Bitcoin network that allows miners and mining pools to stake BTC to earn tokens.
Miners Can Only Sustain Operations When Bitcoin Trades Above $55,000
Envisioned as a docking layer that exists between the Bitcoin blockchain and its various Layer-2 networks, the scaling solution has already teamed up with several established mining pools to pioneer what is known as “Layer 1.5.” Exsat reportedly seeks to use miners and mining pools to ensure data integrity across the network. It achieves this by acting as synchronizer nodes that submit block headers and block data to the docking layer in exchange for rewards.
Explaining why he sees Exsat as the possible long-term solution for miners, Tristan Dickinson, CMO of Exsat Network, said:
Miners’ revenue is significantly impacted following each halving event. To maintain their current profitability levels, the price of bitcoin needs to reach approximately $94,000. To sustain operations, a price of around $55,000 is necessary. Compounding these financial pressures is the fact that mining hash power is at an all-time high, making it more challenging to stay profitable. As a result, miners are actively seeking alternative revenue sources to offset the effects of halving.
To support his assertions, Dickinson told Bitcoin.com News that miners who attended the recent Bitcoin conference in Nashville had endorsed this novel method of generating extra income.
As explained in the Exsat white paper, the synchronizer “receive 10% of the block’s token incentive for submitting verified BTC block data first,” with the reward increasing to 50% “if the synchronizer is also the miner of the bitcoin block.” This model is designed to align the interests of bitcoin miners with the Exsat, encouraging contributions to both ecosystems simultaneously.
Another method miners use to generate revenue in a time of declining profits is to plug into a decentralized physical infrastructure network (Depins) Typically, Depins works by tapping into the computing power of a vast web of users and then serving it up to companies developing GPU-intensive AI solutions.
Although miners are not currently repurposing their rigs en masse to chase Depin profits, some have started to make their capacity available through Depin marketplaces. Livepeer CEO Doug Petkanics says Depins are a potential lifeline for struggling bitcoin miners. This is especially true given the rising demand for GPU processing power, which is needed to power applications like Chatgpt.
While it’s impossible to predict what the bitcoin mining landscape will look like in a year or after the next halving, key players like Dickinson see the emergence of alternative means of generating revenue as evidence that reduced block rewards do not spell doom for bitcoin mining.