Bitcoin mining has faced challenges in recent years due to market conditions, energy costs, and higher difficulty levels, making it challenging for miners to stay profitable. Nevertheless, a new argument by Mitchell, a researcher at Blockware Solutions in a recent Twitter thread, suggests that Bitcoin mining outlook could be positive.
Is the Future of Bitcoin Mining Positive?
Mitchell argues that to be optimistic about mining, one must also be confident in Bitcoin. BTC’s fixed supply and expanding use cases make it a robust resource. According to him, Bitcoin’s potential replaces fiat banking, and it serves as a hedge against debt-ceiling increases, making it an attractive investment.
Mitchell also highlights the importance of Application-Specific Integrated Circuits (ASIC) commodification, wherein decreased efficiency gains of new ASICs do not make mid-generation machines obsolete. This means the hashrate network will not maintain its historical growth rate, and incumbent miners can remain highly profitable for extended periods.
The Power of Transaction Fees
Transaction fees play a significant part in miner profitability, as demand for transactions increases during bullish markets, it will drive up transaction fees even higher, making miners more profitable. This is particularly important during times of low block subsidies, such as after each halving event when the block subsidy is reduced by half. Higher transaction fees may help maintain miners’ profitability during these periods.
Mitchell also highlights the trend towards zero future supply of Bitcoin, which means that incumbent miners will be dollar-cost averaging at a significant discount when Bitcoin is trading at higher prices. Therefore, the dollar-denominated value of the remaining future supply is trending up. Additionally, declining exchange balances and increased BTC adoption create less future supply on exchanges, increasing the scarcity of Bitcoin and driving up its price, leading to even greater profitability for miners.
In conclusion, Bitcoin mining outlook is looking positive, despite the challenges of 2022. The commoditization of ASICs, coupled with the potential for higher transaction fees, increased dollar-denominated value of remaining future supply, and declining exchange balances are all positive indicators for the future of Bitcoin mining.
Featured image from iStock, chart from TradingView.com
