What Happens to Bitcoin if Miners Turn to Buying?
With the looming May halvening approaching amidst low prices caused by COVID-19, miners are more likely to buy Bitcoin rather than bring more coins into circulation.
The recent historic drop of Bitcoin caused mining of the currency to become more expensive than buying it, which could have serious repercussions to the underlying security of its network and places uncertainty on the future of the asset.
The entire cryptocurrency market continues to feel the impact of the recent pandemic. As more countries go on lockdown around the globe, the ensuing panic effected a mass sell-off, crashing the price of Bitcoin by historic levels and causing mining production to become more costly than purchasing the token.
The underlying security of the bitcoin blockchain is governed by a Proof-of-Work consensus protocol. This is a system where miners solve advanced mathematical problems in order to secure the network, who are in turn, rewarded with BTC.
Mining Bitcoin is not just a simple matter of turning on your computer and watching the tokens roll in. It is a fiercely competitive arena, where the cost of energy consumption and equipment is high. The recent troubles that all markets are now experiencing means that miners will struggle to make any profit from their endeavours, and these participants face even more hardship when the halvening occurs this summer.
Bitcoin is built upon a deflationary model, with its maximum supply already declared. Deflation is achieved by halving the reward of tokens given to miners every 210,000 blocks, and the next milestone is just around the corner. When this occurs, the token-reward of the original crypto will drop from 12.5 to 6.25 coins; mining cost will double overnight.
However, there is a silver lining to be found here:
As mining rigs begin to shut down through low profitability, the mining difficulty will decrease and the cost along with it. Not only that, but as miners become buyers, high demand will be placed upon Bitcoin which would cause its value to appreciate. Combine these factors with the likelihood that eager bulls are now getting ready to charge, and we could see the price of Bitcoin shoot up just as dramatically as it dropped.
For this to happen though, the global markets must first stabilise, and that depends entirely on the suppression and mitigation of the coronavirus spread.