On November 17, 2023, Bitcoin achieved a significant milestone in its monetary evolution, surpassing 19.95 million mined coins, thus propelling the network to exceed 95% of its predetermined supply cap of 21 million BTC. As a consequence, fewer than 1.05 million BTC remain to be mined over the forthcoming 115-year timeframe.
At first glance, this achievement appears to constitute a celebratory moment for the digital asset, symbolizing a validation of its scarcity narrative—a critical driver of adoption among institutional investors and sovereign wealth funds alike.
However, for the industrial operators tasked with securing the blockchain, the jubilation is muted.
The crossing of the 95% threshold signifies the onset of Bitcoin’s most capital-intensive and operationally challenging phase—dubbed the “5% Era.”
Bitcoin’s Long Tail Mathematics
The issuance schedule of Bitcoin does not follow a linear trajectory; rather, it is characterized by geometric decay influenced by a hard-coded event known as the “halving.” This event occurs every 210,000 blocks—approximately every four years—resulting in a reduction of block rewards by 50%.
Upon its inception in 2009, miners received a reward of 50 BTC approximately every ten minutes. Following the most recent halving in April 2024, this reward has diminished to a mere 3.125 BTC. The geometric decay function implies that while the network approaches its supply ceiling in terms of quantity, it remains at a midpoint concerning time.
The final 5% of Bitcoin’s supply will be distributed over an extended timeline of approximately one century, with the last fractional bitcoin anticipated to be mined by the year 2140.
This trajectory forms the cornerstone of macro-investment theses surrounding Bitcoin. The asset is evolving from a nascent high-inflation investment into a mature commodity with an inflation rate projected to decrease below that of gold and ultimately approach zero.
This programmatic scarcity has catalyzed the approval of spot exchange-traded funds (ETFs) and attracted institutional capital into the market.
Conversely, for miners whose business models were predicated on an era characterized by abundant subsidies, this evolution heralds an impending revenue cliff. The epoch of “easy money” mining is unequivocally at an end.
The Miner’s Paradox
The economic ramifications associated with this transition are not merely theoretical; they are evidenced by current on-chain data. The advent of the “5% Era” unfolds amid arguably the most arduous market conditions in the network’s history.
Hashprice—the standard metric utilized for tracking miner revenue per unit of hashrate—plummeted to $38.82 per petahash per second (PH/s) per day last week. This figure represents a twelve-month low and denotes a substantial contraction from previous bull market cycles where hashprice ranged between $80 and $100.
This dramatic decline in revenue can be attributed to what is termed the “Miner’s Paradox,” characterized by two principal factors:
- Price Weakness: Bitcoin’s value currently trades below $90,000; consequently, the fiat equivalent of the block reward (3.125 BTC) is inadequate to cover operational expenditures associated with older mining fleets.
- Record Difficulty: Despite declining revenues, the network’s hashrate remains elevated at approximately 1.1 zettahash per second (ZH/s).
Typically, in scenarios where revenue diminishes, inefficient miners withdraw from operations leading to a downward adjustment in difficulty and subsequently improving margins for those who remain active. However, this mechanism appears dysfunctional in the short term. Miners—bolstered by capital accumulated during preceding quarters or bound by long-term hosting contracts—are maintaining operations at breakeven or even at a loss.
On-chain data reveals alarming trends: industry revenues recently averaged slightly over $37 million per day—a stark decline from previous averages exceeding $40 million daily.
The sector currently finds itself ensnared in a constricting vice where revenues are diminishing concurrently with increasing extraction difficulty—an environment poised to precipitate consolidation within the industry.
The Pivot Towards Artificial Intelligence
In light of this structural margin compression, the mining sector is bifurcating into two distinct factions: “Pure Plays,” which are intensifying their focus on Bitcoin mining efficiency and profitability; and “Hybrid Operators,” who are transitioning away from cryptocurrency mining towards more lucrative opportunities within Artificial Intelligence (AI).
This strategic pivot is driven by enhanced unit economics; power capacity and cooling infrastructure originally deployed for Bitcoin mining can be repurposed—through hardware adjustments—to power High-Performance Computing (HPC) and AI model training applications.
Currently, this arbitrage opportunity is monumental as AI computation can deliver exponentially greater revenue per megawatt-hour compared to traditional Bitcoin mining operations. Analysts from VanEck have assessed that Bitcoin miners could potentially unlock an additional $38 billion in annual revenue by reallocating merely 20% of their power capacity towards AI and HPC workloads in 2024.
This capital flight is already observable; Bitfarms—a company once emblematic of aggressive Bitcoin hashrate growth—has recently announced its intention to curtail specific crypto operations in favor of AI computing ventures. Concurrently, various operators across Texas and Nordic regions—including Coreweave and Hive Digital—are retrofitting their facilities to harness the burgeoning AI sector.
This paradigm shift signals a broader transformation within the sector wherein future Bitcoin miners may ultimately evolve into hybrid energy-compute conglomerates where Bitcoin mining constitutes merely an ancillary revenue stream utilized to monetize excess energy capacity during periods of diminished AI demand.
This diversification may serve as a lifeline for these enterprises; however, it raises profound concerns regarding the long-term distribution of hashrate dedicated exclusively to securing the integrity of the Bitcoin ledger.
The Fee Market Dynamics
If the block subsidy is destined to diminish and miners are pivoting towards AI-driven ventures, one must ponder what mechanisms will secure the Bitcoin network in forthcoming decades—specifically in years such as 2030 or even as far out as 2100?
Satoshi Nakamoto’s original design postulates that as block subsidies wane, they will be supplanted by transaction fees—the so-called “service charge.” According to this model, robust demand for blockspace driven by high-value transactions would generate sufficient compensatory fees for miners tasked with maintaining network security.
Nevertheless, navigating through the challenges posed by the “5% Era” will serve as an empirical test for this foundational thesis.
The current fee market exhibits volatility and unreliability. Although innovations such as “Inscriptions” and “Runes”—protocols enabling data inscription on satoshis—have temporarily spurred fee revenue spikes, baseline demand for blockspace frequently falls short of what is necessary to sustain existing hashrate levels absent subsidies.
Thus arises an essential question: if Bitcoin’s price fails to double every four years post-halving events to counterbalance diminishing subsidies, must transaction fees escalate correspondingly?
If transaction fees do not increase adequately to fill this vacuum left by diminishing subsidies, Ethereum researcher Justin Drake posits that such dynamics could precipitate a reduction in the network’s security budget—the total financial allocation designated for safeguarding against potential attacks on the chain. Drake argues that this scenario could potentially yield systemic repercussions affecting both Bitcoin and wider crypto ecosystems.
Navigating “Bitcoin’s Most Difficult Phase”
In light of these multifaceted concerns and challenges delineated above, reaching the milestone constituting over 95% mined supply serves not merely as a celebratory finish line but rather as an inaugural signal heralding Bitcoin’s most arduous phase yet encountered.
The period characterized by “free rides,” enabled through high inflation rates benefiting miners via protocol subsidies has reached its conclusion. Over its initial sixteen years of existence, miners enjoyed substantial support for infrastructure development funded through protocol-driven incentives.
This subsidy era is now receding into history. The market framework appears poised for transformation—from an unregulated gold rush environment conducive to profitability for any participant equipped with rudimentary tools—to a rigorous commodity marketplace governed by economies of scale along with energy efficiency considerations that demand judicious balance sheet management.
Nonetheless, it is imperative to acknowledge that Bitcoin’s overarching vision remains steadfast. Its architectural design ensures that scarcity continues compounding while monetary inflation trends toward zero over time horizons extending well into the future.
However, enforcing this scarcity now increasingly burdens miners who will grapple with dwindling rewards for validating transactions over an extended timeline approaching zero within just over one century’s duration.
Consequently, it can be anticipated that unprecedented levels of consolidation and washout may characterize this industry throughout its transition into what some have termed “the Age of Scarcity.” Those operators capable of persevering through this challenging “5% Era,” will likely redefine themselves not only as miners but also as energy traders and computing power giants. Their ongoing struggle to extract those final million coins will profoundly influence not only asset value trajectories but also shape geopolitical dynamics within this decentralized ecosystem itself.
