Bitcoin miners are flailing. Fidelity sees a fix

For years, Bitcoin miners have had jitters about their eroding business model.

Creator Satoshi Nakamoto’s design to cap the cryptocurrency at 21 million Bitcoins has attracted users seeking a haven against inflationary government policies. But that limit also means payments for mining Bitcoin are dwindling.

Now, analysts at Fidelity Digital Assets say they see a solution: Companies and countries must soon start to mine Bitcoin themselves if they want the cryptocurrency to stay alive — even if it means doing so at a loss.

“There are many nations, institutions, and corporations who profit from Bitcoin — and not by mining,” Fidelity wrote. “Therefore, mining to secure the network could be viewed as an operating cost.”

Bitcoin miners compete to find new blocks, and are rewarded with a portion of Bitcoin for their efforts. However, every four years, Bitcoin goes through a “halving” — which cuts those block rewards in half.

For Fidelity, rather than relying solely on mining companies, the network could be maintained by firms that earn management fees from Bitcoin ETFs.

That includes Fidelity itself, which says it already mines Bitcoin.

Companies at the forefront of corporate adoption, like MicroStrategy, might also help secure the network.

Miners don’t buy it

Bitcoin miners are pushing back, saying they aren’t convinced companies will want to fork out millions to keep the network up and running.

“I don’t buy it,” Nick Hansen, CEO of Bitcoin mining firm Luxor.

He argued that companies wouldn’t be up for fronting the estimated $1 million an hour it costs to keep the Bitcoin network running.

“Is Fidelity willing to front that money? Probably not,” he told DL News.

Fidelity, the second largest ETF provider with $20 billion in assets under management, did not reply to a request for comment about whether it would mine at a loss.

The controversy speaks to the tension in the Bitcoin mining industry as it faces an existential threat. By 2032, the network will pay less than one Bitcoin per block.

One thing is clear:

”As Bitcoin mining becomes more challenging and less profitable, even with low energy costs, its role is likely to shift in the coming years,” Nishant Sharma, founder of BlocksBridge consulting, told DL News.

Bigger picture

Governments and private companies are discussing whether it’s worth it to mine at a loss, Andy Fajar, CEO of Bitcoin mining pool, Loka Mining, told DL News.

It depends, however, if it benefits the network — or a country’s strategic positioning, he said.

Others are less convinced.

Jameson Lopp, chief technology officer at crypto custodian Casa, told DL News that the theory is “meh.”

It assumes there will be no demand for using the actual network, which is a possible but not probable scenario, he said.

“Do ETPs remove demand for block space? Sure,” Lopp said. “But innovative devs can always come up with more uses for block space and potentially create more demand.”

Pedro Solimano is a markets correspondent based in Buenos Aires. Got a tip? Email him at psolimano@dlnews.com.