Bitcoin on the brink: How safe are miners from the halving?
With price holding as much focus as it does, the core of the Bitcoin market is often forgotten. The cryptocurrency is seen more as an investment tool, one to be traded, rather than a means of decentralized finance, at the center of which are its miners. These generators of the cryptocurrency, in the hue and cry of pumps and dumps are often forgotten, and once every four years, like the athletics at the Olympics, they are the center of attention.
But with the halving, attention is not what it’s cracked up to be. While miners are the first in the line of supply of Bitcoin, they also bear a significant amount of risk on three fronts – hashrate shift, electricity cost and price fluctuations. As the larger market concentrates on the last of the three, for miners, each bears importance to not just their income, but their livelihood.
As evidenced by the recent $1,000 price collapse, taking the cryptocurrency back down to $8,500, a major price move is on the horizon, either during the halving, or certainly when the mining reward falls. Thomas Heller, the Global Business Director at F2Pool, one of the largest mining pools in the world, speaking to AMBCrypto back in March stated that the halving will reveal a lot of cracks in the mining industry,
“There will be companies that will really struggle with their business and maybe potentially [go] bankrupt because they haven’t planned out things in the right way [and] and taken up too much risk.”
How could miners manage the price move, knowing full well, that a massive change was inevitable? According to Heller, each of the three pillars of uncertainty for miners have a form of hedge. For price fluctuations there is the possibility of using derivatives products like Futures and Options, for electricity costs, miners employ stablecoin swaps for cryptocurrencies to lock-in a period of usage and for mining difficultly, hashrate contracts are used.
On the topic of using derivatives to secure long-term positions, balancing the price effect, Heller added that it is slowly catching on,
“I would definitely say, some sophisticated miners are buying Futures or options to hedge their risks against the Bitcoin price.”
With the amount of leverage in the market, both for the mining industry and on the investment front, and the halving in sight, traditional hedges cannot be relied upon. Combining the concept of derivatives and hashrate contracts, Alejandro De La Torre, VP at Poolin told AMBCrypto that “hashrate derivatives” are in the works. La Torre added that these hashrate derivatives contracts are less than “two months old.”
It seems the events leading up to the halving have caused miners to reassess the volatility of the coins they mine, and some have even secured themselves.