Bitcoin runs on a decentralized ledger system that tracks transactions and records them accordingly with the help of thousands of computers scattered in clusters all over the world.
In simple terms, when these computers successfully process and verify transactions, new bitcoins are created (minted or mined).
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The people who operate these computers are called miners, while the activity itself is called mining.
What Is Mining, And Why Does It Matter?
Mining is one of the main methods by which people can make BTC without conventional means like trading or buying them on exchanges with fiat (or other cryptocurrencies).
These miners process the transactions on the bitcoin network and get rewarded with coins by the system for their efforts/work (this is where the term “Proof Of Work” comes from).
However, problems may arise if the coins the miners are being rewarded with start to lose their value. Like what is currently happening on BTC in terms of price action, the coins the miners get paid with will continuously reduce in value.
This reduction in value, therefore, removes their incentive to keep burning fuel and mine new coins.
Frank Holmes, CEO of US Global Investors, has drawn attention to this problem in an interview with a finance media outlet from Benzinga in a live stream on October 19th.
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In this interview, Holmes states that the minimum price at which miners will be forced to halt their mining operations is $12,000. Holmes explains that this is the threshold bitcoin price where mining becomes unprofitable due to a break-even situation.
Do The Mining Rigs Halt At A $12,000 Bitcoin Price?
It is important to recall that Holmes, earlier this year, challenged the extrinsic status of gold as a store of value. Holmes even went as far as stating that bitcoin may outperform the precious metal in 2022.
Contrary to Homes’ projections, however, BTC currently trades at around $19,100 and has performed rather poorly this year.
As with the interview with Benzinga, Holmes commented on the issue of mining. In his words, “everyone ‘starts shutting down and the average person starts powering off their mining rigs (machines) at $12,000”.
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Despite bitcoin’s break below the $20,000 zone and its inability to move above that resistance, its miners seem unperturbed. The mining hashrate of bitcoin even hit a two-year high in October this year.
However, if Holmes’ projections come to fruition and the mining rigs indeed shut down, it may prove to be detrimental to the miners in the long run.
This may happen especially during the spike in environmental concerns around CO2 emissions from bitcoin mining, and the new law from the European Union that seeks to regulate the amount of CO2 emissions from bitcoin mining and a host of other energy-consuming activities.
Disclaimer: The author’s comments and recommendations are solely for educational and informative purposes. They do not represent any financial or investment advice. Always DYOR (do your own research)
