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.
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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.
“Post-halving, we could experience an extreme supply shock returning bitcoin's price to current or higher levels, while also increasing miners stock prices.”
When bitcoin is halved, the reward for mining new blocks on the blockchain is reduced by 50%. The halving event is significant because it decreases the rate at which new bitcoins are created, contributing to its scarcity.
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.
The average bitcoin production cost post-halving is about $53,000. Some miners are actively managing financial liabilities and are using excess cash to pay down debt, the report said.
A Bitcoin halving event occurs when the reward for mining Bitcoin transactions is cut in half. Halvings reduce the rate at which new coins are created and thus lower the available amount of new supply. Bitcoin last halved on April 19, 2024, resulting in a block reward of 3.125 BTC.
For context, since bitcoin's inception, these halving events occur every four years. The first miners of bitcoin earned 50 coins for their work. When the first halving took place, they would only earn 25 bitcoin. After three halvings, miners now earn just 6.25 bitcoin per block.
JPMorgan said it expects bitcoin to fall after the reward halving. The bank's analysis shows that the cryptocurrency remains overbought. Miners will be most affected by the event, the report said.
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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.
However, once the maximum supply of 21 million bitcoins is reached, these block rewards will cease. Miners will then solely rely on transaction fees as their compensation for validating transactions and securing the network.
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.
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. In the year after a halving, Bitcoin returned a whopping 415% on average.
After the halving, the rate of issuance of new bitcoin as well as the rewards for successful bitcoin miners are cut in half. There can only be 21 million bitcoin, and fewer new tokens entering circulation could impact bitcoin prices. That's why the halving is watched closely by miners and investors alike.
Consider this: if it were universally anticipated that bitcoin's value would surge immediately following the 2024 halving, investors would likely move to acquire bitcoin before the event, driving up its price in the present rather than in the future.
Historically, halvings have proven to be important catalysts for bull markets, and while the rate of impact is decreasing, the upcoming halving is likely to prove important for bitcoin's price formation. This op-ed is part of CoinDesk's "Future of Bitcoin" package published to coincide with the Halving in April 2024.
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