- The bitcoin halving took effect late on Friday, cutting the issuance of new bitcoin in half.
- Bitcoin miners have spent years diversifying their business models and upgrading their facilitates to brace for the cut to revenues.
- Some mining firms have diversified into supporting the underlying infrastructure necessary for artificial intelligence.
AUSTIN, TEXAS — Adam Sullivan left investment banking to mine bitcoin at an awkward time. It was May 2023, bitcoin was trading at around $21,000, U.S. regulators were in the thick of cracking down on the sector writ large, and Core Scientific, the company he had agreed to take over, was battling angry lenders in a Texas bankruptcy court over tens of millions of dollars in outstanding debt.
But Sullivan knew that, with a lifeline, he could get the business to a much better place. That’s because the halving was on the way, and with it would likely come a big rally in bitcoin.
Late Friday night, the bitcoin code automatically cut new issuance of the world’s largest cryptocurrency in half. It happens roughly every four years, and in addition to helping to stave off inflation, it historically precedes a major run-up in the price of bitcoin.
The technical event is relatively simple: Bitcoin miners get paid in bitcoin to validate transactions, and after 210,000 blocks of transactions are computed and added to the main chain, the reward given to the miners securing bitcoin is ‘halved.’
There are more than a dozen publicly traded miners on the network and thousands of smaller, private ones around the globe, constantly racing to process transactions and get paid in new bitcoin. Because the event leads to a cut to rewards paid to miners directly, they’ll be the first ones to feel the impact of the halving.
The price of bitcoin has touched new all-time highs after each “halving” event.
CNBC
Typically, when the halving cuts supply, it’s led to huge rallies for bitcoin.
In fact, the previous (and only) three halvings in the chain’s history have come before every bull run, in which the coin has touched new all-time highs and a surge of investors have entered the market for the first time.
That rapid price increase has helped many miners stave off the worst since it tends to offset the impact of having the block prize cut in half.
“As a company that was already in the process of scaling our infrastructure during the previous halving, we know the toll that halvings can take on a company if it is not adequately prepared,” Core’s Sullivan told CNBC.
The aggregate market cap of the 14 U.S.-listed bitcoin miners tracked by JPMorgan analysts, which accounts for around 21% of the global Bitcoin network, declined 28% over the first half of April to $14.2 billion, reaching year-to-date lows. Bitdeer was the best-performing stock over the period, down around 20%, versus Stronghold Digital, which was 46% lower.
Some have billed the 2024 bitcoin halving as a seminal moment for the mining sector. Depending on how much prep work miners have done, it could easily make or break them.
“Being prepared for a halving means evaluating all of your power strategies, all of your software capabilities, all of your operations,” continued Sullivan.
Others are less concerned given recent price moves in bitcoin.
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 expect geopolitical tensions and interest rate policy to be the biggest near-term drivers of crypto price action,” Needham analysts wrote, adding that at a bitcoin price above $60,000, the halving is “derisked for nearly all public miners.”
The bank did, however, single out their preference for low-cost bitcoin producers like Riot Platforms, Bitdeer, and Cipher Mining. Meanwhile, if bitcoin prices fall, Needham says the most outsized native impact will be felt by higher cost producers that are also levered to higher bitcoin prices via large treasury holdings.
Analysts from JPMorgan echoed a similar sentiment, writing in an Apr. 16 research note that they think “recent weakness offers an attractive entry point” for investors and that they are “especially bullish” on Riot, which they believe offers attractive relative valuations.
Power supply for Whinstone’s bitcoin mine in Rockdale, Texas.
Miners have had years to prepare for the halving, including seeking lower power costs and upgrading their fleets to more efficient machines.
“Bitcoin’s halving happens like clockwork every four years,” said Haris Basit, chief strategy officer of Bitdeer Technologies Group. “It’s a known variable that is a benchmark for us to remain focused on operational excellence.”
To that…