The fundamental principles of earning money through mining: from halving to the economics of pricing power

When Bitcoin undergoes a halving, what changes occur in the profit-making logic of the entire mining industry? This not only involves miners’ revenue calculations but also concerns how the pricing power across the entire supply chain is redistributed. According to the latest data, BTC’s current price has reached $90.07K, which is six years after the second halving in 2020. During this period, the role and market influence of miners have undergone profound evolution. This article will reveal the core logic of mining profitability from an economic perspective.

Dual Sources of Miner Income: Rewards and Transaction Fees

Bitcoin mining income is not derived from a single source. Miners earn revenue through mechanisms like FPPS (Full Pay-Per-Share), which includes both block rewards and transaction fees, whereas PPS (Pay-Per-Share) considers only the base reward. This distinction becomes especially important before and after halving.

As block rewards decrease, the proportion of transaction fees automatically rises, supplementing miners’ income. But this also introduces a new variable into the profit model—fluctuations in transaction fees during network congestion, which in turn affect miner earnings. Overall, the mining market exhibits self-balancing characteristics: when the coin price is too low or rewards are insufficient to cover electricity costs, inefficient mining rigs are phased out, total network hash rate declines, and difficulty adjusts accordingly, reopening profit margins for remaining miners. This cyclical process forms a relatively stable market mechanism.

How Halving Changes Miners’ Profitability Thresholds

Halving events directly rewrite the mathematical model of mining profitability. According to Blockware’s research data, before the May 2020 halving, with electricity costs at $0.052 per kWh, miners using S9 hardware only needed Bitcoin prices not to fall below $6,672 to break even. After halving, this threshold sharply rose to $10,453—a 55% jump.

In contrast, advanced S19 miners are affected much less. Before halving, the price needed to be $6,672 for profitability; after halving, only $3,860. This asymmetric impact on different mining hardware means that at the time, over 60% of the market’s miners used S9 rigs, implying most older equipment faced a dilemma—either upgrade or operate at a loss.

From the perspective of total network hash rate, the hash rate-to-power consumption ratio becomes a key determinant of equipment longevity. S19 miners with 7nm chips will see their returns gradually stabilize over the coming years compared to future products with 5nm technology, making them the most sought-after models. The core principle of mining profitability updates through the continuous淘汰 of older equipment by newer, more efficient devices.

Who Truly Holds the Pricing Power in the Mining Industry

Many believe miners control Bitcoin’s pricing power, but economic logic points to another answer—the true controllers are the manufacturers of mining hardware.

In a bull market, hardware manufacturers hold pricing power, as miners scramble to purchase new machines and compete to increase hash rate. In a bear market, demand drops, and manufacturers must concede to maintain sales. Since some mining farms use a mix of old and new equipment, and to fulfill contracts with electricity providers that require fixed monthly electricity costs, miners won’t shut down easily even at short-term losses.

More importantly, miners’ decision-making logic also prevents them from becoming price setters. Many miners hold large Bitcoin reserves, acting as “HODLers,” and short-term selling does not cause liquidity crises. Additionally, with the development of Bitcoin’s collateralized lending markets, miners can obtain liquidity by staking their coins. Therefore, short-term Bitcoin price fluctuations do not have as large an impact on the entire mining industry as outsiders might think.

Market Logic of Miners Selling Bitcoin

Tracking the flow of Bitcoin from miners reveals an interesting phenomenon. According to CoinDesk data, between January 2017 and January 2020, over a quarter of Bitcoin received by exchanges came from mining pools. This indicates miners are a significant source of funds for exchanges, and their selling behavior can directly impact the market.

However, there’s an overlooked detail—miners are savvy participants. During bear markets, they build up Bitcoin reserves; during bull markets, they reduce inventories for sale. On June 3, 2020, during U.S. stock market hours, Bitcoin’s price dropped from $10,137 to $9,298 within five minutes, yet miners continued actively selling their mined Bitcoin, with 920 out of 844 new blocks’ worth of Bitcoin being sold. This reflects not panic selling but miners’ optimistic outlook, believing current prices are attractive.

The MRI indicator (Miner Revenue Index) captures this. When miners are eager to sell, MRI rises, indicating strong market demand; when bids fall, MRI declines, and miners tend to accumulate. Historically, miners’ maximum Bitcoin holdings occurred in March 2011, reaching 2.59 million coins. As the market evolved and miners’ cash-out needs increased, reserves gradually declined. This process demonstrates that miners rationally deplete inventories during strong markets and accumulate during weak markets.

Does Halving Drive Bitcoin to New Highs?

Regarding whether halving can push Bitcoin prices higher, the industry mainly relies on two theories: the Stock-to-Flow (S2F) model and miners’ selling pressure.

Limitations of the S2F Model

The S2F model compares Bitcoin’s stock (total supply) to its annual production to assess scarcity. Halving indeed increases this ratio, but the model has fundamental flaws. Bitcoin’s total issuance is fixed at 21 million, and its supply is inelastic—regardless of price, miners cannot accelerate or slow down issuance. This is entirely different from commodities like gold, where miners can ramp up extraction when prices rise.

From basic economic principles, in a market with perfectly inelastic supply, demand is the primary driver of price. The S2F model considers only supply-side factors, ignoring demand’s decisive role, making its logic flawed. Moreover, halving is an event with transparent, publicly available information, and according to the Efficient Market Hypothesis, its impact is already priced in. After the 2016 halving, Bitcoin only reached the predicted price in the model about 18 months later, indicating limited predictive power.

The Real Impact of Miners’ Selling Pressure

Post-halving, miners face a real dilemma: upgrade equipment for efficiency, sell Bitcoin to sustain operations, or exit the market. The change in the profitability model at halving forces a major industry reshuffle.

Low-efficiency miners face liquidity crises; they must sell actively during strong markets to generate cash flow. But this does not constitute systemic selling pressure because miners act rationally—they sell at optimal times permitted by market conditions. As inefficient miners exit, total hash rate declines, difficulty adjusts, and the profitability of remaining high-efficiency miners expands. When new entrants see profit opportunities, they join, and the industry enters a new cycle.

This is the essence of a self-balancing market. Therefore, miners’ selling pressure is no longer a stable variable and cannot be a long-term determinant of price fluctuations.

The Self-Balancing Mechanism of the Mining Industry

Halving is not primarily a driver of price increases but a demonstration of Bitcoin’s designed mechanism functioning normally. The heightened attention around halving can boost market enthusiasm, potentially attracting more capital inflows and temporarily pushing prices higher. But this is driven by information shocks and market sentiment, not structural supply changes.

As Bitcoin’s market capitalization continues to grow, the factors influencing its price have evolved from simple mining economics to more complex market dynamics. The activity in secondary markets, institutional participation, and macroeconomic factors exert increasing influence. Miners remain important participants but have less direct capacity to manipulate prices.

The long-term trajectory of mining profitability is ultimately determined by technological innovation. Each new generation of mining hardware reshapes industry efficiency boundaries. In this technological race, companies that control chip manufacturing and hardware design—rather than individual miners—are the ultimate winners. Understanding this industry structure is essential for anyone involved in mining or seeking to understand Bitcoin markets.