According to a report by Galaxy Digital, up to 20% of Bitcoin's current hash rate could go offline following the upcoming halving event in April. This reduction is expected because many older mining rigs will struggle to remain profitable after the block rewards are slashed in half. The report indicates that at the end of 2023, the majority of Bitcoin's hash rate was generated by only eight ASIC miner models, highlighting the concentration in mining equipment.
Galaxy Digital's analysis suggests that between 15% to 20% of the network hash rate from these ASIC models could be taken offline. This estimate is based on the sensitivity of breakevens for different ASIC models to Bitcoin's price and transaction fees. The report predicts that most older models, such as Bitmain's S9, Canaan's A1066, and MicroBT's M32, could be shut down, while newer and more efficient models like the Antminer S19 and S19J Pro may continue operating, albeit with a small percentage potentially going offline in high-cost operational areas.
The report also mentions the possibility of certain business decisions impacting these estimates. For instance, miners with older, less efficient machines might use custom firmware to improve efficiency or sell their rigs to miners with lower power costs instead of shutting them down. Additionally, miners using newer models might find them unprofitable and opt to sell or upgrade, potentially leading to a redistribution of mining power within the network.
Representative French Hill has raised doubts about the efficacy of Senator Elizabeth Warren's proposed bill, the Digital Asset Anti-Money Laundering Act, in combatting terrorist financing in the crypto sphere. During a recent hearing on "Crypto Crime in Context," Hill questioned the feasibility of applying the bill's regulations to crypto miners and validators, suggesting that such measures "wouldn’t do anything" to deter terrorist organizations from using crypto. Instead, Hill implied that the focus should be on centralized exchanges, which reportedly process the majority of illicit financing in the crypto space.
Michael Mosier, co-founder of Arktouros and former acting director for the Financial Crimes Enforcement Network, supported Hill's view, explaining that miners and validators operate more like internet service providers, simply producing and verifying blocks without direct customer interaction. Mosier argued that subjecting them to Know Your Customer regulations, as proposed by Warren's bill, would not be practical, as there is no customer relationship in their operations, which are based on mathematical processing.
The hearing, the House committee’s second in the last four months addressing the illicit uses of cryptocurrency, focused on the financing of terrorism. Representative Patrick McHenry, chair of the full committee, announced in December that he will not run for reelection in 2024, potentially shifting leadership to either Democrats or Republicans depending on the election outcome. Despite calls for action following the Oct. 7 attack by Hamas on Israel, where crypto financing was implicated, many in the U.S. government are still debating the effectiveness and scope of regulatory measures like Senator Warren’s bill.
MicroStrategy, known for being the largest corporate holder of Bitcoin, is edging closer to being eligible for inclusion in the S&P 500 index. This milestone could potentially lead to significant exposure to Bitcoin for millions of investors, as the S&P 500 is a widely followed index that tracks the performance of the top 500 publicly listed companies in the U.S. However, for MicroStrategy to qualify, it would need to meet strict eligibility criteria, including a minimum market capitalization requirement and a positive sum of profits over the previous four quarters.
Currently, MicroStrategy's market cap stands at $12.1 billion, below the required threshold of $15.8 billion for S&P 500 inclusion. To meet the criteria, its stock price would need to rise to $937 from its current price of $718. If MicroStrategy does become part of the S&P 500, it could potentially lead to a significant increase in Bitcoin exposure in various portfolios, including traditional 401k plans, pension funds, and ETF portfolios. This could occur because many of the largest exchange-traded funds track the S&P 500, and MicroStrategy's inclusion would mean that Bitcoin would be automatically included in these ETF portfolios.
