Bitcoin miner stock gains are outpacing the price of Bitcoin.
The halving happening in April will cut rewards for miners, and could drive the price of Bitcoin higher because of the lower supply of new coins.
The most efficient miners will be the ones best equipped to handle the halving, industry players say.
Bitcoin miner stocks are outpacing the price of Bitcoin, which hit its highest level since 2021 as the cryptocurrency goes mainstream with the recent approval of Bitcoin Exchange-Traded Funds (ETFs).
Those gains, however, may not stick for some miners with the four-year halving—when the reward miners get for mining gets cut in half to ensure Bitcoin's scarcity—happening in April. The halving results in the number of new coins created getting cut by 50%, and the rewards for miners being cut in half.
The fall in revenue could to some extent be compensated by rising Bitcoin prices resulting from the lower supply of new coins. But companies with less efficient machines and operations may have a harder time.
Miners with higher electricity costs or lower-efficiency machines "will have a difficult time mining profitably post-halving," Luxor Technology Chief Operating Officer Ethan Vera said. Luxor provides services and products for the mining industry. "Many companies are stuck in power contracts, or benefit from top line gross revenue and as such might continue to mine despite not being profitable. Companies' balance sheets will determine how long they can survive doing that."
The halving comes amid renewed interest in Bitcoin after the Securities and Exchange Commission approved 11 Bitcoin ETF applications in January, paving the way for investors to access the alternative asset more easily.
Winners and Losers
Cantor Fitzgerald analyzed 13 Bitcoin miners in January and found that at the then price of Bitcoin at $40,000, only two miners, CleanSpark (CLSK) and Bitdeer (BTDR), would be able to profit from mining. But at above $50,000 now, more miners would be profitable. The ones facing the highest costs were Hut 8 (HUT) and Argo Blockchain (ARBK). It costs them $60,360 and $62,276, respectively, to mine each coin.
Hut 8 and Argo Blockchain did not respond to requests for comment.
Riot Platforms (RIOT) said it has positioned itself as one of the "lowest cost miners" ahead of the halving. It has the third-lowest cost at nearly $44,000 per coin, according to Cantor Fitzgerald.
"Riot also intends to leverage our ability to obtain Bitcoin at a significant discount to its current market price by retaining a greater proportion of our monthly Bitcoin production in the near term," the company said in a January statement. "This is made possible by our strong liquidity profile, and will further cement our position as one of the largest holders of Bitcoin.”
Marathon Digital (MARA) is preparing for the halving with plenty of cash on hand.
"We need to be resilient," Chief Executive Officer Fred Thiel said in a video last month. "If the price of Bitcoin let's just say it drops to $30,000 at the time of the halving, not many miners are going to be able to operate profitably and how many miners have enough cash on the balance sheet to be able to survive six to 12 months, maybe 24 months before it becomes profitable to mine again when Bitcoin has moved back up?"
Marathon's cost per coin is $50,559, making it profitable by a hair at today's price.
Bitcoin miner CleanSpark, which according to Cantor Fitzgerald is profitable with a cost of nearly $37,000 per coin, expects some 30% of machines currently hashing to be forced to unplug, according to Executive Chair Matthew Schultz. That's an opportunity for growth.
"We’re aggressively seeking opportunities for M&A" to buy facilities and infrastructure, Schultz said.
Correction— Feb 20., 2024: This article was updated to provide greater clarity on the number of Bitcoin ETFs approved.
Bitcoin miner stock gains are outpacing the price of Bitcoin. The halving happening in April will cut rewards for miners, and could drive the price of Bitcoin higher because of the lower supply of new coins.
The miners will be faced with substantial cost increases as a result of the halving, with electricity and overall production costs almost doubling, the report said. Mining companies can try to mitigate these higher costs by optimizing energy costs, increasing mining efficiency and buying better-priced hardware.
After the first three halvings in 2012, 2016 and 2020, Bitcoin went on a strong run. According to CoinDesk, the last halving in May 2020 lifted Bitcoin from $9,500 to $65,000 during the subsequent year.
Demand. Halving reduces the rate at which new bitcoin are released into circulation, which can limit supply and increase demand for existing bitcoin. Investing. The increased demand, driven by constrained supply, could potentially increase the value of bitcoin, making it an even more lucrative investment.
Bitcoin halving is when the reward for bitcoin mining is cut in half. Halving takes place every four years. The next halving is expected to occur sometime in 2028. The halving policy was written into bitcoin's mining algorithm to counteract inflation by maintaining scarcity.
“Miners need their revenues to be more than their costs, like any business,” Malekan says. “What is likely to happen after the halving is that some miners will no longer be profitable, and they will stop mining.”
In a research note from Needham on Apr. 16, analysts said they expect the halving to only have a modest impact to miners' estimated EBITDA margins, despite the 50% reduction in revenue, since the price of bitcoin has been trading in the range of $60,000 to $70,000.
"We do not expect bitcoin price increases post-halving as it has already been priced in," analysts led by Nikolaos Panigirtzoglou wrote in a report on Wednesday, reiterating their previous similar views. "In fact, we see a downside for the bitcoin price post-halving for several reasons."
When its supply is reduced through halving, and if the demand stays constant or increases, we often see a ripple effect on the prices of other cryptocurrencies.
Miners who successfully add blocks to a blockchain automatically receive transaction processing fees and new digital tokens. Creates economic opportunities. The accessibility of crypto mining is creating new business opportunities for tech-savvy people around the world.
Is bitcoin halving bullish? Bitcoin halving is considered bullish because each event reduces the rate at which future bitcoins are created. This then boosts the scarcity and value of existing bitcoins. But a positive effect isn't guaranteed.
Bitcoin mining is an energy-intensive process involving mining devices and software that compete to solve a cryptographic problem. The Bitcoin mining process also confirms transactions on the cryptocurrency's network. As an incentive to participate in the process, bitcoin is rewarded to those that win the competition.
The maximum supply of 21 million bitcoins will be reached around the year 2140, after which no new bitcoins can be mined. The 21 million Bitcoin limit also has important implications for the process of Bitcoin mining.
This reduction in mining rewards can impact miners' revenue and profitability, as miners could face increased competition and higher operational costs, potentially leading to consolidation within the mining sector.
The immediate impact of the halving is felt primarily by bitcoin miners, who see their block rewards cut in half, affecting their profitability and potentially leading to changes in the cryptocurrency mining industry.
Over time, miners build up a reserve of the bitcoins they receive, and oftentimes those are sold ahead of halving events to cover costs of operations and equipment as mining gets more competitive. This time around, miners have sold fewer bitcoins ahead of the halving—all thanks to the recent bitcoin rally.
When a halving occurs, the block reward for miners, which is the amount of bitcoins they receive for successfully adding a new block to the blockchain, is reduced by 50%. This reduction in the rate at which new coins are generated is intended to create a deflationary effect on the cryptocurrency over time.
Evidence of this can be found when analyzing Bitcoin's performance in the year halvings occur. On average, Bitcoin has increased roughly 125% in halving years. However, the year after a halving tends to produce the best gains.
Looking back, the aftermath of each halving has been marked by significant price surges, painting a picture of Bitcoin's robust value proposition. Following the halvings in 2012, 2016, and 2020, we witnessed remarkable increases in Bitcoin's price, underscoring the event's influence on market dynamics.
Introduction: My name is Lakeisha Bayer VM, I am a brainy, kind, enchanting, healthy, lovely, clean, witty person who loves writing and wants to share my knowledge and understanding with you.
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