In a recent one research report from JPMorgan, the financial firm has predicted a hard drop for one Bitcoin metric, predicting a potential decline in Bitcoin Bitcoin network hash rate by 20% ahead of Bitcoin’s halving in April 2024.
JPMorgan expects Bitcoin’s hash rate to drop
In the report, JPMorgan states that the Bitcoin mining industry is in a crucible phase leading all the way to Bitcoin’s halving in April 2024 and beyond. This is because the approval of a Spot BTC exchange-traded fund (ETF) could spark a rally against the backdrop of record hash rates and the upcoming block reward halving, which threatens the sector’s revenues and profitability.
The report highlighted that the total opportunity for block rewards over a four-year period is estimated at $20 billion due to the current situation price of Bitcoin (BTC)which is 72% lower than the all-time high in 2021. This figure represents a significant decline from the peak of $73 billion in April 2021 and has been hovering around $14 billion and $25 billion since last year.
As such, the financial firm expects the Bitcoin mining sector to see the predicted 20% hash rate drop at Bitcoin’s next halving in April 2024.
“We estimate that as much as 80 EH/s (or 20% of the network hash rate) could be removed at the next halving (April ’24) if less efficient hardware is retired,” the report said.
Bitcoin halving is an event that aims to control inflation and involves halving Bitcoin miners’ rewards, and it takes place approximately every four years after miners solve 210,000 blocks.
BTC price still holding $26,800 | Source: BTCUSD on Tradingview.com
Analysts Reginald Smith and Charles Pearce noted in the report that the bank favors mining companies that can offer the best relative value in light of existing hash rate, operational efficiency, energy contracts and more.
JPMorgan chose Bitcoin mining company CleanSpark (CLSK) as a top pick among several companies listed by the company, highlighting that the mining company offers the best balance between scale, growth potential, energy costs and relative value.
In addition, the company emphasized the importance of other mining companies it had listed. These include Marathon Digital (MARA), Riot platforms (RIOT)and Cipher mining (CIFR).
According to the company, Marathon Digital is the largest mining operator, with the highest energy costs and the lowest margins. Meanwhile, Riot has lower energy costs and liquidity, but Cipher has the lowest energy costs with limited growth.
The company also included an outweight rating table and price targets of the mining operators in the report.
The high costs of mining and the removal of inefficient hardware are seen as some of the factors affecting the Bitcoin mining industry.
Mining requires large amounts of electricity, and initially this makes it too expensive for miners to continue their operations. Nevertheless, many also tend to come back when the next bullish cycle drives Bitcoin’s price to unprecedented levels.
Featured image from Shutterstock, chart from Tradingview.com