Bitcoin is up 44% so far this year. Its halving could accelerate this trend and spread the gains to other stocks and tokens. Some crypto miners may face a difficult road ahead.
Nina Bambysheva, Forbes Staff
Bitcoin’s much anticipated halving will occur tomorrow at approximately 9:30 pm EST. What’s a halving? It’s a technical change initially written into the source code of bitcoin by Satoshi Nakamoto, the token’s pseudonymous creator, which mandates a gradual reduction in the growth of its supply. After tomorrow only 3.125 bitcoin will be awarded to miners who solve the complicated mathematical problems (called proof of work) necessary to add a new block to the Bitcoin blockchain. This occurs every 10 minutes. Before the halving miners made double that amount. The halving is part of bitcoin’s answer to the risk of runaway inflation that some currencies face when central banks debase their money. Bitcoin’s maximum total supply is limited to 21 million coins. There are roughly 19.7 million outstanding today. Because of halvings, the last bitcoin is projected to be mined in the year 2140.
For investors, halvings, which occur every four years, have proven to be bullish. When the first halving occurred in 2012, bitcoin’s price was a mere $12 or so. Within less than a year it had risen to more than $100. During its second halving in 2016, bitcoin was selling at $650. In 2017, it surged to nearly $20,000 as the crypto initial coin offering bubble inflated. The asset was trading under $8,000 before the last halving in 2020, today it is worth $62,000.
The easiest way to play the halving today is to simply buy the cryptocurrency through an intermediary like Robinhood or Coinbase, or buy shares in one of the 11 new SEC-approved spot bitcoin exchange-traded funds being offered from the likes of BlackRock, Fidelity, Invesco and Ark Invest. But there are other ways to play a post-halving rise in the price of crypto’s seminal currency.
STOCKS
What’s good for bitcoin is often great for bitcoin miners. Bitcoin miners don't move any dirt, they instead run banks of energy-slurping servers in an attempt to solve the pointless mathematical equations necessary to create new bitcoin blocks. Since the last halving in May 2020, bitcoin is up 641%. The three largest publicly traded miners, Marathon Digital Holdings (MARA), CleanSpark (CLSK) and Riot Platforms (RIOT), are up 1,821%, 613%, and 407%, respectively.
Over the long term, the miners have performed exceptionally, however year-to-date mining stocks have turned in abysmal performance (see chart below). The exception is CleanSpark, a miner based in Henderson, Nevada with nine mining facilities mostly in the Southeast. Its stock is up around 33%, though it still trails bitcoin, which is up 44% so far this year.
Why are bitcoin mining stocks ailing? Because post-halving, miners stand to make half as much as they were making before, at least until the price of bitcoin doubles. They also face new competition from spot bitcoin ETFs which have amassed $59 billion in assets since January. In the past, investors have used shares of bitcoin miners as SEC-regulated proxies for bitcoin. Now they don't have to.
Now may be a good time to selectively invest in the beleaguered mining stocks: the most efficient will come through the halving stronger and will ultimately benefit as bitcoin’s price climbs.
“Miners are not going to be making as much money, but they, at least the bigger ones, have done enough over the last year to prepare for the revenue shock,” says Colin Harper, head of content and research at bitcoin mining services firm Luxor Technologies.
“The game is no longer about being on the low end of the cost curve. A miner must be on the low end of the cost curve and have access to capital at a low cost,” says Amanda Fabiano, founder of mining-focused Fabiano Consulting. “As block subsidies become scarcer, the importance of strategy and economies of scale intensifies, leading to an increased activity in mergers and acquisitions. The landscape of miners, both public and private, might look very different in one year’s time.”
LARGE BITCOIN MINERS
Miners like Marathon, CleanSpark, Riot, and Bitdeer have raised over $1 billion in equity last year in an effort to fund new technology that will increase the efficiency and speed of their “fleets” of computers. Additionally, “large miners invested not just in new machines but new facilities to expand their megawatt capacity,” adds Harper. “Miners are going to have to be more vertically integrated to survive post-halving,” he warns. This means controlling not only the machines that process bitcoin transactions but also owning power sources to lower the cost of electricity.
Marathon, the largest miner by computing power, has recently acquired three mining sites in Texas and Nebraska where electricity is cheap. Previously, it had largely relied on computers of competitors like Hut 8, bearing higher operating costs than those of its peers. In February, rival CleanSpark also announced the acquisition of three new facilities in Mississippi to diversify its geographical presence beyond Georgia and New York.
Bitdeer is taking vertical integration to a whole new level. Last month, the Singapore-based miner with $369 million in revenues, announced the testing of its first cryptocurrency mining chip, SEAL01, which it plans to integrate into the company’s new SEALMINER A1 mining machines. The new chips are designed to improve performance while minimizing power consumption. The production of mining rigs may not only open up a fresh source of income for Bitdeer but also allow the company to bypass the need to buy rigs from external suppliers for its own operations (most miners are dependent on the industry’s duopoly of Chinese manufacturers, Bitmain and MicroBT). This could substantially reduce their capital expenditures, notes Mark Palmer, senior equity research analyst at The Benchmark Company. Bitdeer was spun off from Bitmain in January 2021. Its new CEO Jihan Wu cofounded Bitmain and had served as its chief executive before the transition. The company intends to install the new miners at its data centers in Rockdale, Texas and Norway by the year’s end.
Speculative investors may want to consider an investment in Core Scientific, which returned to the public market in January after emerging from bankruptcy. Core’s stock is down 20.9% since its return on Nasdaq on January 24 but Kevin Dede, an analyst at H.C. Wainright, rates the stock a buy, saying, “We expect the company to prove its mettle over time. With only $71 million in debt to service in 2024, we think Core is positioned to streamline its operations further while generating cash in the buoyant mining environment.”
Among miners, Miami’s Hut 8 is even more speculative than Core Scientific, and probably should be avoided. The company has been under attack by short-seller J Capital Research, which released a report in January critical of Hut 8’s merger with US Bitcoin Corp. (USBTC). Shortly after the negative report surfaced Hut 8 appointed new CEO Asher Genoot, cofounder of USBTC, which builds and operates data centers securing the bitcoin network. Genoot was featured in Forbes’ 30 Under 30 2024 list.
Hut 8’s stock lost 23% after J Capital’s report called the miner’s merger with US Bitcoin Corp. an “over-levered pump-and-dump” scheme and alleged questionable undisclosed stock ownership and low operational efficiency. In response, Hut 8 issued a statement calling J Capital “a deliberate attempt to spread misinformation about Hut 8, its operations, finances, management practices, and key executives.”
The ultimate question is, “Who is going to run the best race in terms of getting to scale in the most efficient manner possible by adding electric capacity, increasing the efficiency of their fleets, adding next-generation mining machines, and ultimately positioning themselves to withstand downturns in the future,” asks Palmer.
Aside from crypto mining stocks, Virginia-based software company MicroStrategy (MSTR) is well-positioned to benefit from the halving if the price appreciation that followed the previous halvings reoccurs. MicroStrategy’s shares are up 83% this year, roughly double bitcoin's 44% gain. “The key to MSTR’s outperformance versus bitcoin has been its use of leverage to acquire bitcoin as a result of its opportunistic tapping of the capital markets,” says Palmer. Just last month, the software maker conducted two convertible bond offerings collectively worth $1.4 billion. Much of the proceeds will go toward buying more bitcoin.
“In as much as MicroStrategy is a levered play on bitcoin, we view it as well positioned to continue to outperform especially if history repeats and a powerful rally follows the fourth bitcoin halving as the first three halvings had been,” notes Palmer.
MicroStrategy may be a turbocharged play on bitcoin, but it is also a risky one. Its market capitalization currently sits at $26 billion but the company holds 214,246 BTC worth about $14.6 billion at current prices—a premium of more than 70%. Dede from H.C. Wainwright thinks the stock is overvalued: “It would be a different story if there wasn’t such a huge premium,” he says.
Another way to play bitcoin’s rise is to buy shares in Coinbase, the publicly traded San Francisco-based pure-play cryptocurrency exchange. Oppenheimer and Keefe, Bruyette & Woods raised their price targets on Coinbase ahead of the halving to $276 and $230 respectively. The stock currently trades for $214.
TOKENS
If halvings tend to be good for bitcoin prices, it stands to reason that other cryptocurrencies will benefit as well—especially those related to bitcoin.
“There exists a large, untapped pool of capital within the bitcoin ecosystem that remains dormant, and surprisingly few listed assets that traders can use to gain exposure to the narrative. Should capital begin to rotate into the bitcoin ecosystem, tokens like rune, stx, and ordi could benefit significantly and outperform,” wrote Jake Ostrovskis, OTC Trader at algorithmic trading firm Wintermute, in comments shared with Forbes.
Rune is the native token of THORChain, a decentralized exchange enabling token swaps across different blockchains. It could be a beneficiary of bitcoin’s rise, though last Thursday it was hacked for $4.9 million. There are other platforms that act as bridges between blockchains similarly to THORChain, such as Wormhole and LayerZero, but they do not have tokens that investors can use to speculate.
Stx is the native token of the Stacks protocol, which enables the creation of decentralized applications on top of Bitcoin similar to Ethereum. The token gained 51% this year thanks to the excitement about the upcoming upgrade to Stacks, which is expected to boost transaction speed on the network. However, the blockchain has been modestly used, according to Forbes’ recent analysis.
Ordi, a meme token based on the Ordinals protocol, famous for enabling the creation of NFTs on the Bitcoin blockchain, surged from its March 2023 inception to a market cap of $1.6 billion by the end of 2023, but is down 45% since the beginning of the year. Ordinals creator Casey Rodarmor said he will soon launch a new token standard for Bitcoin called Runes (separate from THORChain’s rune) that seeks to give users a more efficient way of creating fungible tokens, which will live on top of the Bitcoin blockchain. Think, a better way to create new cryptocurrencies, utility and reward tokens.
But Rodamor himself is skeptical. “Fungible tokens are 99.9% scams and memes,” he wrote in his blog last year. “However, they don't appear to be going away any time soon, similar to the way in which casinos don't appear to be going away any time soon. Creating a good fungible token protocol for Bitcoin might bring significant transaction fee revenue, developer mindshare, and users.”
Runes’ launch is expected to co-occur with the halving. Watch out for a rush of new tokens that will likely utilize the new standard. Traders are also likely to pile into meme coins on the Bitcoin network, wrote Bartosz Lipiński, CEO of Cube.Exchange.
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There are more reasons to keep an eye on Runes. “It is expanding the narrative of bitcoin from the digital gold/store of value to this value asset platform and ecosystem with many apps and other native assets being built on top of it,” says Fabiano. “None of that existed at the time of the last halving.” If Runes is successful, Fabiano believes it could “kick off a market frenzy in terms of transaction fees”—as new tokens get created and traded, miners stand to collect fees from those transactions. Says Fabiano, “Anyone not paying attention to this is missing the bigger picture.”
Editor’s Note: The previous version of the story named Hut 8’s former headquarters in Toronto. The company is now based in Miami.
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