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Bitcoin Miner Stock Gains Outpace Bitcoin. Halving Could Change That.
Key points
- Bitcoin mining company stock gains are outpacing the price of Bitcoin.
- The halving scheduled for April will reduce the rewards for miners and could push up the price of Bitcoin due to the reduced supply of new coins.
- According to industry insiders, the most efficient miners will be those best equipped to handle the halving.
Bitcoin miner stocks are outpacing the price of Bitcoin, which has hit its highest level since 2021, as the cryptocurrency goes mainstream with the recent Bitcoin Exchange Traded Funds (ETF) Approval.
Such gains, however, may not last for some miners with the four-year halving—when miners get the reward for extraction is halved to ensure Bitcoin scarcity, which will occur in April. The halving involves a 50% reduction in the number of new coins created and a halving of the rewards for miners.
The decline in revenue could be offset to some extent by rising Bitcoin prices due to the lower supply of new coins. But companies with less efficient machines and operations may struggle more.
Miners with higher electricity costs or less efficient machines “will have a hard time extracting profits after the halving,” said Ethan Vera, chief operating officer of Luxor Technology. Luxor provides services and products for the mining industry. “Many companies are locked into power contracts or are taking advantage of top-line gross revenues and as such may continue to mine even if they are not profitable. Companies balance sheets will determine how long they can survive doing this.”
The halving comes at a time of renewed interest in Bitcoin following the Securities and Exchange Commission approved 11 Bitcoin ETF applications in January, paving the way for investors to access the alternative activity more easily.
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Winners and losers
Cantor Fitzgerald analyzed 13 Bitcoin miners in January and found that at Bitcoin’s then-price of $40,000, only two miners, CleanSpark (CLSK) and Bitdeer (BTDR), would be able to profit from mining. But at over $50,000 now, more miners would be profitable. The ones facing the highest costs are Hut 8 (HUT) and Argo Blockchain (ARBK). Each coin costs $60,360 and $62,276 to mine, respectively.
Hut 8 and Argo Blockchain did not respond to requests for comment.
Riot platforms (REVOLT) has claimed to be positioned as one of the “cheapest 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 larger portion of our monthly Bitcoin production in the near term,” the company said in a January statement. “This is enabled by our strong liquidity profile and will further solidify our position as one of the largest holders of Bitcoin.”
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Digital Marathon (MARA) is preparing for halving with a lot of money in hand.
“We have to be resilient,” Chief Executive Officer Fred Thiel said in a video last month. “If the price of Bitcoin, say, drops to $30,000 at the halving, not many miners will be able to operate profitably, and how many miners have enough cash on their balance sheets to survive six to 12 months, maybe 24 months before it becomes profitable to mine again when Bitcoin starts to rise again?”
Marathon’s cost per coin is $50,559, making it slightly profitable at today’s price.
Bitcoin miner CleanSpark, which Cantor Fitzgerald says is profitable at nearly $37,000 per coin, expects about 30% of its current hashing machines to go offline, according to executive chairman Matthew Schultz. That’s a growth opportunity.
“We are aggressively seeking opportunities to Mergers and Acquisitions“to purchase facilities and infrastructure, Schultz said.
Correction: February 20, 2024: This article has been updated to provide more clarity on the number of approved Bitcoin ETFs.