Bitcoin miners’ life and death line: What will happen in the future when trading fees plummet and costs soar?

Author: Alvis, Mars Finance

If Bitcoin does not have new ecological hotspots now, it will be "complete". The survival pressure of miners is approaching their limits, with transaction fees plummeting and costs soaring, and many small miners are already considering shutting down. Once miners start to exit, their computing power will decline and block generation will slow down, and the security of the network will also be threatened. In addition, in the case of unstable prices, if there is no new ecological development to drive demand growth, Bitcoin will fall into a dead cycle.

Revenue shrinks: Miners' profits face multiple squeezes

The profitability of Bitcoin mining has deteriorated significantly, with multiple key indicators indicating that profitability is declining. First, the Bitcoin memory pool for unconfirmed transactions fell to its lowest for many years, indicating that network demand has weakened, directly affecting miners' transaction fee income. Historically, reduced trading activity has often led to bear markets, which, while not necessarily implying a price drop, may suggest structural changes in the network.

In addition, the gradual decline of SegWit transaction type reduces network efficiency, further increases block space demand, and further compresses miners' income space. Despite the rising price of Bitcoin, the trend of decline in returns highlights the impact of rising network difficulty and intensifying competition.

Industry integration accelerates: Small miners face risk of exit

Miners’ key metrics, income/hash rate, are at historically lows, and diminishing returns indicate that rising network difficulty and intensifying competition are eroding profitability.

As the block reward is halved, it puts survival pressure on small miners in particular. Declining profitability and reduced transaction fee revenue have put small businesses at risk of exiting the market, and the pace of industry integration has accelerated. In the future, only large miners with strong capital and advanced technology can maintain their competitiveness, resulting in an increase in market concentration.

Increased network difficulty: rising costs force miners to seek survival

The difficulty of the Bitcoin network hits a new high, and miners are facing greater cost pressure. Survival pressures are intensifying as energy and hardware costs rise, especially small miners with outdated equipment. Some miners are turning to low-cost, sustainable sources of energy, such as hydropower or geothermal power, while some are seeking breakthroughs through diversified revenue sources or mergers and acquisitions.

This trend may accelerate the centralization of the industry, with the most capital and most efficient miners taking the dominant position, thus having an impact on the decentralized nature of Bitcoin. In the future, the geographical distribution of miners and mining security patterns may change, leading to concerns about network security.

Market rebalancing: industry thresholds raise

As operating costs continue to rise, inefficient miners will be eliminated and the industry will experience a natural "rebalancing". This change may intensify the concentration of the industry, and only large miners can survive the fierce competition, which further consolidates the characteristics of Bitcoin mining as a high-threshold industry.

However, market concentration also brings doubts about the spirit of Bitcoin decentralization. The decline in dominant miners may lead to the concentration of cybersecurity in the hands of a few miners, which in turn affects the long-term stability and censorship resistance of the network.

Impact on Bitcoin

In the short term, Bitcoin miners face dual pressures of falling transaction fees and rising costs, which may lead to small miners exiting the market, resulting in a decline in network computing power and tight Bitcoin supply. The compression of miner income may affect the market's confidence in Bitcoin, leading to increased price volatility in the short term, and the decentralized characteristics of the network may be threatened, increasing security risks.

In the long run, with technological innovation and energy cost optimization, miners may restore certain profitability and reduce operating costs, which will help alleviate profit pressure and stabilize the market. Although there may be a risk of price downside in the short term, as demand continues to grow and supply tightens, Bitcoin prices may experience an upward trend in the long term, especially as the market demand for Bitcoin has steadily risen.

Bitcoin urgently needs a new ecosystem. Obviously, it is not just a speculative transaction of "buy, buy, buy," but also needs more application scenarios, smart contracts, decentralized applications, and even a brand new financial system to support it.

If Bitcoin does not have a strong enough ecological chain, once miners cannot maintain profitability, the operation of the entire network will become difficult, and the market's trust in Bitcoin will also be shaken. The exit of miners may become a "crisis" in the prospects of Bitcoin, and the prosperity of ecological construction is the key to Bitcoin's future survival.