Bitcoin crossed a watershed in financial history on November 17th, when the number of mined coins exceeded 19.95 million, pushing the network over 95% of its permanent supply limit of 21 million. This means that less than 1.05 million BTC can be mined on the network over the next 115 years.
On the surface, this milestone appears to be a victory lap for digital assets, as it represents validation of the scarcity narrative that has driven the adoption of digital assets by both Wall Street giants and sovereign balance sheets.
But for industry operators, who are responsible for ensuring blockchain security, the celebration is muted.
In reality, crossing the 95% threshold marks the beginning of Bitcoin’s most capital-intensive and operationally unforgiving phase: the 5% era.
Bitcoin long tail mathematics
Bitcoin’s issuance schedule is not a linear progression, but a geometric decay dominated by “halving” events. This is a hard-coded event that reduces block rewards by 50% every 210,000 blocks, or approximately every 4 years.
When the network launched in 2009, miners could extract 50 BTC every 10 minutes. Now, after the April 2024 halving, the reward is only 3.125 BTC. This decay function means that the network is approaching the supply ceiling in terms of quantity, but only at the midpoint in terms of time.
The final 5% of the supply spans a 100-year timeline, with the last fraction of Bitcoin not scheduled to be mined until 2140.
For macro investors, this trajectory is the core theory of investing. Bitcoin is transitioning from a youthful high-inflation asset to a mature commodity whose inflation rate is destined to fall below that of gold and eventually near zero.
This programmatic scarcity is what drove the approval of spot ETFs and the entry of institutional capital.
But for miners whose business models were built in an era of plentiful subsidies, this transition means an impending revenue cliff. The era of “easy money” mining is mathematically over.
miner’s paradox
The financial burden of this transition is not theoretically a future problem. It can be seen in today’s on-chain data. The “5% era” begins under perhaps the most difficult market conditions in network history.
Hashprice, the industry standard metric for tracking miner revenue per unit of hashrate, plummeted to $38.82 per petahash per second (PH/s) per day last week.
This is a 12-month low and represents a significant contraction from the $80 to $100 levels seen during previous bull market cycles.
The collapse in profits is caused by the “miner’s paradox.”
- Price weaknesses: With Bitcoin trading price below $90,000, the legal value of the 3.125 BTC block reward is insufficient to cover the operating expenses (OpEx) of the old fleet.
- Record difficulty: Despite the decline in revenue, the network’s hashrate has not declined. It remains elevated at around 1.1 Zettahash per second (ZH/s).
Typically, when revenue declines, inefficient miners exit, difficulty is adjusted downward, and margins are restored for survivors.
That mechanism appears to be broken in the short term. Miners keep their machines running at a loss or break-even because they are rich in funds raised in the previous quarter or tied into long-term hosting contracts.
On-chain data reveals the damage. The industry’s recent average weekly revenue has been just over $37 million a day, a significant drop from the average of just over $40 million a day just a few months ago.
As a result, the industry is currently experiencing an adverse condition of decreasing revenues and increasing extraction difficulty, a trend that always leads to consolidation.
Pivoting to AI
In the face of this structural margin compression, the mining industry has split into two distinct camps. One is “pure players” who double down on Bitcoin’s efficiency, and the other is “hybrid operators” who flee the sector altogether in search of the more lucrative artificial intelligence market.
The logic is strictly refined unit economics. The same power capacity and cooling infrastructure used for Bitcoin mining can be used for high performance computing (HPC) and AI model training by adjusting the hardware.
Currently, the arbitrage is huge, as AI computing can potentially be exponentially more profitable per megawatt hour than Bitcoin mining.
Analysts at VanEck quantified this opportunity in 2024, predicting that Bitcoin miners could achieve up to $38 billion in annual revenue growth by directing just 20% of their power capacity to AI and HPC workloads.
The market is already witnessing this capital flight. BitFarms, once synonymous with aggressive Bitcoin hashrate expansion, signaled a clear shift with its recent announcement to scale back certain crypto operations in favor of AI computing.
Meanwhile, other carriers in Texas and across Scandinavia, including Coreweave and Hive Digital, are capitalizing on the AI boom and retrofitting their equipment.
This change signals a broader transformation. Bitcoin miners of the future may not be “miners” but rather large-scale hybrid energy computing conglomerates. There, Bitcoin mining is just a secondary revenue stream used to monetize surplus power when AI demand drops.
While this diversification may save the company, it raises questions about the long-term distribution of hashrate solely for the purpose of securing the Bitcoin ledger.
fee market
If block subsidies are destined to disappear and miners pivot to AI, what will protect the Bitcoin network in 2030, 2040, or even 2100?
Satoshi Nakamoto’s design envisions that once the subsidy disappears, it will be replaced by a transaction fee (a “service fee”). According to this theory, high-value payments and financial applications will increase demand for block space and provide enough compensation for miners to maintain the network.
However, the “5% era” will put this proposition to the test.
Currently, the fee market is volatile and unreliable. While the introduction of “Inscriptions” and “Runes” (protocols that allow data to be written to Satoshi) temporarily spiked fee income, baseline demand for block space is often too low to maintain current hashrates without subsidies.
So if the price of Bitcoin doesn’t double every four years to make up for the halving, transaction fees will have to rise to fill the void.
But failing to do so, Ethereum researcher Justin Drake argued, would reduce the network’s security budget allocated to protecting the chain from attacks.
In that scenario, this could have a “systemic impact” on the emerging industry, and “the fallout could engulf the entire cryptocurrency ecosystem,” Drake said.
Miners face “Bitcoin’s most difficult phase”
Considering the above, the 95% supply milestone is less of a finish line and more of a starting gun for Bitcoin’s most difficult phase.
The “free ride” of high inflation is over. For the first 16 years, miners were subsidized by the protocol to build the infrastructure.
Now, that subsidy is disappearing. The market structure is shifting from a gold rush where anyone with a pickaxe can profit, to a brutal commodity market defined by economies of scale, energy arbitrage, and balance sheet efficiency.
Still, Bitcoin’s long-term vision remains intact. Its design ensures that scarcity increases while monetary inflation tends towards zero.
But the burden of enforcing that scarcity now falls heavily on miners.
Therefore, the mining industry could experience a drain of unprecedented scale as the reward for securing the network declines towards zero over the next 115 years.
Essentially, the businesses that will survive the “5% era” will not only be miners, but also energy merchants and computing giants. Their struggle to extract the last million coins will shape not only the price of the asset, but also the geopolitical reality of the network itself.
(Tag Translation) Bitcoin
