Halving and Mining Theory: Evolution of Miner Pricing Power in a Five-Year Retrospective

From the perspective of mining theory, examining the Bitcoin market, we need to understand a simple yet long-overlooked fact: the influence of miners on Bitcoin’s price does not stem from their mining capabilities per se, but from the fundamental operating rules of market economics. By revisiting key data before and after the 2020 halving and considering the current situation five years later (January 2026) with BTC at $90,200, we delve into the true evolving role of miners in Bitcoin’s pricing power.

Economic Foundations of Mining Theory: From Cost Structure to Market Equilibrium

The upstream of the Bitcoin mining industry chain consists of individual miners, mining farms, mining pools, and equipment manufacturers. The first step in understanding mining theory is to recognize the true composition of miners’ income.

Miners’ earnings include two parts: block rewards and transaction fees. Under the FPPS (Full Pay-Per-Share) model, miners receive both; but in the PPS (Pay-Per-Share) model, they only earn the block reward. Transaction fees vary dynamically with network congestion, meaning that when block rewards are halved, miners’ reliance on transaction fees increases significantly.

From a macro perspective, the mining market is a self-balancing system. When mining profitability cannot cover electricity costs, miners are forced to shut down or sell equipment; when profits rise, new miners enter the market. This dynamic balance mechanism ensures that long-term systemic mining difficulty does not occur. However, it also means that the fate of the entire industry is controlled by an invisible hand—the equipment manufacturers.

The Harsh Reality of Break-Even Points: Comparing Mining Equipment Survival Before and After Halving

The May 11, 2020 halving provides a perfect experimental case to verify the application of mining theory in practice.

According to Blockware’s research, at that time, the mining industry consisted of 38.65% S17 and 61.38% S9 machines. Assuming electricity costs of $0.052 per kWh, we observe vastly different outcomes:

• S19 miners (most advanced model): Break-even price before halving was $3,860, dropping to $3,860—minimal impact
• S9 miners (older model): Break-even price before halving was $6,672, soaring to $10,453 afterward—directly unprofitable

Weighted by industry composition, the network-wide break-even price surged from $3,863 to $7,272. This is not just a numerical change but a death sentence for inefficient miners.

At the moment of halving, Bitcoin’s price was around $8,800. Under the new reward mechanism, miners’ block rewards equate to earnings at the level of $4,400 pre-halving. This price point takes us back to the March 12-16, 2020 price range ($3,900–$5,300), when total network hash rate plummeted from 120EH/s to 95EH/s.

During this process, mining difficulty decreased from 16.55T to 13.913T. On-chain data from Glassnode clearly records this market self-adjustment process.

The Price Puzzle Under Inelastic Supply: Why Halving Is Not the Main Driver of Price Rise

Regarding whether halving can push Bitcoin prices higher, there are two long-standing viewpoints. The most popular is the Stock-to-Flow (S2F) model, which assesses scarcity by calculating the ratio of stock to annual production. Theoretically, after halving, the S2F ratio increases, which should lead to higher prices.

However, if we analyze with mining theory and basic economics, we find a critical flaw in the S2F model:

Inelastic supply determines that demand is the primary driver of price. Bitcoin’s total issuance is fixed at 21 million coins; miners cannot accelerate extraction like gold miners when prices rise. In this inelastic supply market, according to fundamental economic principles, demand—not supply—is the main influence on price.

Another issue with the S2F model is the time lag. The last halving occurred in July 2016, but Bitcoin only reached the model-predicted valuation in late 2017, with a gap of about 1.5 years. This long deviation indicates that supply changes are not the direct cause of price fluctuations.

More importantly, halving is a transparent, predictable event. According to the Efficient Market Hypothesis, such events should be priced in advance. But actual market data shows that reactions to halving often occur at the “event confirmation” stage rather than during the “event anticipation” phase.

The Invisible Dominance of Equipment Manufacturers: The Real Game Behind Sales Pressure

To understand the real application of mining theory in market practice, one must recognize a long-overlooked fact: the true pricing power does not belong to miners but to equipment manufacturers.

Miner strategies can be viewed along four dimensions:

Dimension 1: Binary Price Sensitivity
Short-term price fluctuations are insufficient to alter operational decisions. Only when Bitcoin’s price remains high over the long term can miners maintain stable profits. Short-term ups and downs do not significantly impact the entire mining industry.

Dimension 2: Liquidity Buffer Mechanisms
Many miners are also Bitcoin accumulators, holding large reserves. Additionally, Bitcoin lending markets provide liquidity solutions, enabling miners to weather tough periods.

Dimension 3: Pooling and Custody Outcomes
Whether miners join pools or sell to hosting providers, the ultimate result is the same: upstream equipment manufacturers control the entire industry. In bull markets, manufacturers hold pricing power; in bear markets, demand drops but they remain winners.

Dimension 4: Fixed Electricity Contract Constraints
Some mining farms operate under long-term electricity contracts, requiring fixed monthly payments, which means they cannot easily shut down.

Combining these four dimensions, we conclude that the halving’s impact on miners follows this logic:

1. Miners increase liquidity via pledging or selling, mitigating halving shocks
2. Capable miners upgrade equipment, while smaller miners rely on continuous sales to sustain operations
3. Efficient miners upgrade, causing less efficient ones to exit due to rising costs
4. Remaining efficient miners redistribute total network hash rate, entering a new cycle

This is not an instant process but a prolonged selection. Inefficient miners are forced out under ongoing liquidity pressures, even if they still hope to profit after hash rate declines—only when they exit does hash rate truly decrease.

Market Power Battles: Mechanism Design vs. Actual Price

Halving more proves that Bitcoin’s mechanism can operate as designed.

From the fundamentals of the secondary market, Bitcoin’s price is determined by supply and demand, with net inflows or outflows directly impacting it. The halving event significantly boosts search interest, increasing market attention.

We believe the main effects of halving on Bitcoin’s price are:

1. Proof of mechanism credibility: It verifies that Bitcoin, as a carefully designed monetary system, can operate according to plan, strengthening market confidence in its long-term value
2. Market enthusiasm: Increased attention leads to higher net inflows, temporarily pushing prices up
3. Participant confidence shift: Halving often marks a turning point in market sentiment, attracting new capital

Notably, by January 2026, BTC is at $90,200. Reflecting on the analysis from five years ago, we see a market that continually validates itself: inefficient miners are gradually phased out, efficient miners’ hash rate concentrates, and the industry’s cost structure keeps improving. This process is not directly driven by halving but by the core self-balancing mechanism of mining theory.

Miners’ Smart Play: How Inventory Strategies Reflect Market Demand

Miners typically sell Bitcoin via exchanges. According to CoinDesk, from January 2017 to January 2020, over a quarter of all BTC received by exchanges came from mining pools—meaning miners must carefully manage their selling pace, as their actions can trigger market chain reactions.

An important practical aspect of mining theory is miners’ inventory management:

• Bear market accumulation: Miners tend to hoard Bitcoin during downturns
• Bull market liquidation: Miners gradually sell off reserves for fiat

This is not passive but a strategic, proactive adaptation by savvy participants balancing the market.

On-chain data from ByteTree provides a vivid example. On June 3, 2020, during US trading hours, Bitcoin’s price plunged from $10,137 to $9,298 within 5 minutes, an 8% drop. Yet, miners continued selling—on June 3, miners mined 844 BTC but sold 920, causing the MRI indicator to exceed 100%.

What does this indicate? Miners believe the market remains supported and optimistic. The sale of unspent (newly mined) Bitcoin acts as a market signal—high MRI reflects strong demand.

Looking at miners’ unspent inventory from January 2009 to January 2020, the peak was on March 11, 2011, with 2,593,051 unspent BTC held. Early accumulation in 2009-2010 was due to ease of mining; later, inventory gradually declined. This ultra-long-term data shows that as a collective, miners’ behavior under mining theory is highly predictable.

Final Thoughts from an Industry Perspective

Comprehensive analysis of mining theory reveals that miners initially held significant pricing influence in Bitcoin’s early days. But as Bitcoin’s market cap grew, external factors increasingly impacted prices—such as rising secondary market activity, institutional capital influx, and policy changes—gradually replacing miners’ selling pressure as the core driver.

Comparing the 2020 halving with the current 2026 situation, it becomes clearer how mining theory’s elegant design ensures long-term self-balance: difficulty adjustments, reward mechanisms, and market responses work together. Miners are not passive price takers but active participants in market forces. Their decisions—upgrading equipment, managing inventories, timing shutdowns—collectively push the market toward more efficient allocation.

This is the power of mining theory in practice: not through price prediction, but through understanding the economic rationality of all market participants, and thus grasping the inevitable logic of industry evolution.