The bitcoin halving event is now here with us. Miners around the world are preparing for this major event in the crypto world. However, miners in Europe still face a severe challenge; can they survive it, and will the crypto mining industry thrive after the halving?
Miners around the world are forced to make various adjustments to adapt to the impact that the halving event will bring to the crypto space. This event will see BTC’s production cost double overnight. But, it seems like the flagship crypto has been reacting positively to this important event.
While the majority in the crypto space is bullish about the bitcoin halving event, and with viable reasons, the path ahead is still unknown. Nobody knows what will happen especially with the coronavirus pandemic still wreaking havoc to the global economy and massive unemployment that has come with it.
While it might be a stressful event for the Bitcoin HODLERs, it is even more for the miners. A production cost increase could be manageable for the BTC miners in areas with subsidized electricity like Venezuela. Also, the miners in countries that charge low electricity prices like China can survive the increased production costs. Currently, China has most of the hashing power on the Bitcoin network.
Even those miners faced with medium-range prices but have the latest mining equipment are well prepared. However, those residing in the higher electricity brackets, like Europe, operations may rely entirely on Bitcoin’s post-halving price action.
European Miners Getting Ready For Bitcoin Halving
European miners are gearing up big-time where the electricity costs are among the highest in the world. While some of the mining operators may be forced to shut down eventually if the prices do not rise after the halving, miners have known about this halving for a long time and have already prepared for this event.
A Berlin-based think tank, dGen, recently surveyed many key European players in the bitcoin mining industry. Jake Scott, a founding member of dGen, said that miners have had an opportunity to upgrade:
“The great thing about the Bitcoin Halving is that it is a known revenue shock. Miners will have been preparing for this day since the last halving for years ago. Upgrading to the latest machines, newest infrastructure, sourcing cheaper power sources, and pooling together with the right group are all key. Miners are well prepared for all scenarios regarding the Bitcoin price.”
While having the latest infrastructure and equipment is essential, it only does so much. The co-founder and CEO of a French company providing mining services, Sesterce, Youssef El Manssouri, told reporters:
“It is very complicated to anticipate what will happen after the halving, the most logical thing seems to be to prepare the worst-case scenario by trying to negotiate the electrical contracts and renewing the fleet of machines. This is what we have been doing at Sesterce for several months in anticipation.”
Various equipment upgrades and affordable electricity sourcing through partnerships are the first steps for the miners residing in Europe. Nonetheless, other solutions can enable the miners to prepare adequately for the volatility that may come after the halving. They can use hedging strategies and credit accruement.
The co-founder of crypto credit issuer Nexo, Antoni Trenchev, says that volatility is happening in the region. He explained:
“There is a growing array of financial instruments available for digital asset management and with that — a set of services specifically catering to miners’ needs. Notable examples of these centers on miners locking in an average selling price into the future or insuring against hash rate changes via upcoming hash rate derivatives. Miners form a sizable portion of Nexo’s client base and many of them opt for our standard crypto-backed credit line to maintain and grow their operations or cash in on newly minted BTCs.”
What does the future hold?
Even though the miners in Europe are striving relentlessly aiming to cope with the halving, this event is expected to bring long-term viability of mining under doubt. Can the mining industry be sustained in Europe? Will co-location become the norm?
Or will governments and companies in the European region start to compete among themselves where crypto mining is becoming a full-blown industry? El Manssouri thinks that Europe can be competitive:
“We are seeing more and more European countries understanding mining and the underlying sovereignty issues. We have large power plants in Europe that are producing a lot of losses and a lot of lost revenue, and it’s up to us to make sure that we make up for those losses in the mining and power industry so that in the long term Europe can do well.”
The European mining industry may only survive through leveraging excess power and renewable energy which is already taking place according to Whit Gibbs, the host of the mining-centric podcast Hashr8. However, other solutions may also exist in different mining activities apart from Bitcoin. Gibbs added:
“Despite not getting as much attention nowadays, parts of Europe are still great for mining. Iceland and Sweden seem to be the most popular facility locations. I’ve heard there are German power producers who have begun mining with their excess energy, much like producers in the States are doing. Interestingly enough, some of them are not exclusively mining Bitcoin but are outfitting GPU and FPGA facilities to capitalize on more speculative mining plays.”
Several other benefits exist beyond electricity cost and quality. When it comes to a growing industry like crypto mining, regulation is a majorly decisive factor. A ban on cryptocurrency mining may put miners out of business almost instantly. Thus, the government’s outlook on mining and cryptos, in general, is very essential.
“Europe is far more receptive to bitcoin and crypto, than other places where energy is cheaper and this may be a decisive factor.”
Political stability and regulation are the main strengths cited by miners and other industry operators in the region.some are convinced that this factor is quite essential that it may even make Europe one of the most attractive regions for industrial miners. Scott added:
“I would say Europe is one of the most viable markets long term for the mining industry. Political stability is key to this industry and as larger and larger sums of money are invested in the space many will look at Europe for their mines.”
Political stability and a generally positive outlook on cryptocurrencies are considerably great. Nonetheless, they are to some extent worthless if they do not translate into tangible benefits for the Bitcoin miners. All is not lost for the Bitcoin miners in Europe. Initiatives like tax breaks that were introduced in Portugal for the crypto issuers are starting to pop up. Scott commented:
“This kind of initiative can only encourage people in this direction, Portugal seems to have a more innovation-oriented policy recently and we can only congratulate them on this, but to be a truly competitive choice in the eyes of large mining infrastructures, it will be essential to be able to offer multi-MegaWatt contracts at prices as competitive as in Texas or China.”
Putting it all together
Ranging from government incentives to alternative electricity sourcing, Europe is filled with many positive factors that could sometimes be easy to overlook. Hence, miners should have the ability to survive a bearish post-halving Bitcoin. However, the issue of electricity cost is still a major barrier. Gibbs said that the high prices do not affect only electricity:
“Europe is still cost-prohibitive for mining in most places, according to my sources. While there may be pockets of opportunity, it is difficult to find cheap, sustainable power. There’s not the widespread excess production we see in the U.S., CIS countries, and China. Equipment pricing also skews high, especially for GPUs.”
Although the best and most obvious solutions for crypto miners are found in countries like Russia and China where electricity is considerably cheap, other alternatives are becoming increasingly attractive. The CEO of the United States-based mining company Blockware Solutions, Matt D’Souza, told reporters that this is the case with the United States.
The US has found an ideal balance between political and regulatory stability and low-to-medium electricity prices. Matt said:
“The U.S. has excellent stability and redundancy. Switzerland had a drought in 2017/2018 and the hydro-power rates increased unsustainably for one of my large clients. Areas with cheaper power are more governmentally unstable and uncertain. The U.S. has certainty with the government, regulation, and electricity rates, exceptional redundancy with internet and power. The U.S. is the most energy abundant country in the world.”
When combining all of the factors, the European mining industry has a bumpy road coming up. But with the right choices and decisions, it can turn out to be quite competitive. Nonetheless, it still needs to catch up to other countries like China and the United States that now appear to be the most attractive options for large-scale miners.