The Bitcoin market supply will be sharply cut from late April, based on the price of Bitcoin before halving (about $64,000 / unit), the entire mining industry will lose or exceed $10 billion in the next year.
Falling earnings? Miners are busy piling up coins
What is Bitcoin Halving? Bitcoin halving is an event that happens roughly every four years, halving the reward for “mining” Bitcoin transactions. By reducing the rate at which new bitcoins are produced, the economic model of halving Bitcoin introduces deflationary properties. The halving event is a key feature of Bitcoin’s design to ensure its scarcity, value preservation, and long-term sustainability as a digital currency. According to the design of the Bitcoin protocol, halving events occur roughly every 210,000 blocks have been mined, a time interval of about four years, so the timing of the next Bitcoin halving will depend on the accumulation of block heights, rather than a fixed point in time.
It is understood that the daily production of bitcoins varied before halving, but all revolved around a block reward system, producing an average of 6.25 bitcoins every 10 minutes. Based on previous block rewards, this equates to about 900 bitcoins per day. However, after the halving event, this number will become about 450 per day.
If Bitcoin does not continue the growth momentum of the past year, but keeps the pre-halving price ($60,000 to $65,000 a coin) volatility, the entire mining industry will lose more than about $10 billion in revenue in the next year.
For the loss that may be caused by halving, miners did not rush to sell their Bitcoin before halving, they hope that the value of bitcoin can rise after halving, so as to sell more bitcoin at the high price to offset the loss caused by the decline in production.
According to cryptocurrency research firm The Miner Mag, just days before the mining reward was halved, Several of the world’s leading bitcoin miners, including publicly traded miners Marathon Digital Holdings, CleanSpark and Bitfarms, have stockpiled about $2.8 billion worth of bitcoin. Clean Spark held more than 5,000 bitcoins at the end of March, up 2,400% from the same time last year. Marathon Digital Holdings increased its holdings by 50% to 17,300 bitcoins, while Bitfarms also increased its holdings by 50%.
“We hope that Bitcoin will appreciate, which will solve the problem of halving the reward,” said Matthew Schultz, executive chairman of Clean Spark.
As for the surge miners are hoping for, Joel Krueger, market strategist at LMAX Group, said in a statement: “Everything we know is already priced in.” “That being said, anyone who wanted to buy Bitcoin as a result of the halving event has already done so, suggesting that in the short term after the halving, we may see a reaction of selling.”
Officially halving, miners accelerate internal volume
According to the tracking of the Bitcoin production data statistics website Coinwarz, at 8:09 Beijing time on April 20, 2024, Bitcoin successfully completed the fourth halving at the block height of 840000, and the mining reward of the Bitcoin network was halved from 6.25BTC to 3.125BTC, and the last halving occurred on May 11, 2020.
It is understood that because the output of Bitcoin in a certain period of time has a ceiling, in other words, the more computing power miners have, the greater the proportion of rewards. Marathon Digital Holdings, Clean Spark and other miners, who compete for fixed Bitcoin rewards by using superfast computers to solve mathematical puzzles, have invested in new equipment and sought acquisitions of smaller rivals this year to try to cushion the impact of falling revenues.
Marathon Digital Holdings announced the acquisition of two Bitcoin mines on January 16, 2024, with a total operating capacity of 390 megawatts. Despite taking ownership of both sites, another Canadian miner, Hut8 Mining, continues to operate. On January 30, 2024, a subsidiary of Marathon Digital Holdings entered into an agreement with Hut8Mining to terminate Hut8Mining as the operator of the sites and transfer operational responsibilities to Marathon Digital Holdings. Fred Thiel, chairman and chief executive of Marathon Digital Holdings, said: “By personally operating the Granbury and Kearney plants, we will be able to fully appreciate the operational and economic benefits of owning these assets.” “The solid performance of our ABU Dhabi site clearly demonstrates that we have some of the best operators in the industry. We look forward to gaining even greater reach with our new facilities in Texas and Nebraska and leveraging our operational expertise to realize the full benefits of our recent acquisitions.”
On April 2, 2024, Marathon Digital Holdings announced on its official website the acquisition of a 200-megawatt bitcoin mining data center adjacent to the Wind Farm, Fred Till said: “With the completion of this acquisition, we will have an even greater operational impact, with the opportunity to reduce the cost of production at the site and add an additional 100 MW of capacity.” However, market investors are not optimistic about whether the price of bitcoin can continue to rise to make up for the loss of miners’ output, and jpmorgan Chase gave Marathon Digital Holdings an “underweight” rating in a report on April 10. On the data, Marathon Digital Holdings’ share price has fallen more than 28% since the beginning of the year.
Clean Spark announced the acquisition of three bitcoin mining data centers in Mississippi on February 27, 2024. “We are excited to begin operations in Mississippi with this latest expansion. We are working hard to add more computing power as soon as possible.” “Said Chief executive Zach Bradford. “Expanding into new states is an important milestone for our company, and we look forward to working with the communities we join.” By maximizing the grid services capabilities of Bitcoin miners, we aim to create jobs and promote economic growth that benefits both of us.” The reporter inquired, the reality is that the share price of clean spark has fallen by more than 15% in nearly a month.
The impact of Bitcoin halving on miners’ expected earnings has also affected the share price performance of several miners recently. Two miners, RiotPlatforms and HIVE Digital Technologies, have lost 26.37 per cent and 15.58 per cent respectively in the past month. Hut8 Mining’s share price has fallen 36.11% since the beginning of the year.
“This is a last-ditch effort by miners to squeeze as much revenue as possible before production takes a major hit,” said Matthew Kimmel, digital asset analyst at Coin Shares. “With revenues falling across the board overnight, the strategic response of each miner and how they adapt is likely to determine who gets ahead and who falls behind.”
As electricity costs soar, tech giants take the lead
Looking back, Bitcoin’s value has reached new highs after each previous halving, helping to mitigate cyclical declines in mining rewards and increases in operating costs. However, the space for success in the industry is becoming smaller and miners need to constantly spend more money in a never-ending technology race for smaller returns, while miners now face power competition from the emerging and deep-pocked AI industry.
According to The Miner Mag, while U.S.-listed miners are representative of the industry, they only account for about 20 percent of the industry’s computing power, and the rest of the private miners may be more vulnerable after the halving because, in contrast to public companies that can raise funds through share sales, private miners are usually only able to tap debt financing or venture capital to meet their needs. As for the potential move by listed miners to sell shares to turn around cash flow in the coming months, market traders are generally betting that mining stocks will fall. According to an estimate by S3 Partners LLC, a financial analytics and technology firm, short interest in 15 crypto mining stocks totaled nearly $2 billion as of April 11.
It is understood that the current cryptocurrency market has been very different from a few years ago, most of the mining activities in the past were scattered around the world, however, in recent years, most of the mining activities have moved to the United States, which has intensified the domestic power competition.
“Energy is extremely limited in the United States,” said Adam Sullivan, chief executive of Core Scientific, a publicly traded bitcoin company based in Austin, Texas. “Right now, miners are competing with some of the biggest tech companies in the world that are struggling to find space for data centers that also have high energy consumption properties.”
The emerging AI industry is attracting a lot of capital, which makes it harder for miners to get favorable electricity rates from utilities. Amazon has announced it will spend nearly $150 billion on data centers, while Blackstone is building a $25 billion data center empire. Google Inc. and Microsoft Corp. are also investing heavily.
David Foley, co-managing partner of the Bitcoin Opportunity Fund, previously said that “the AI industry is willing to pay three to four times what Bitcoin miners paid for electricity last year, and this is happening around the world.” It is understood that the fund has invested in both public and private miners.
Tech giants also have an advantage when it comes to getting power from utilities, given the steady revenue streams of big tech companies, while cryptocurrency mining revenues fluctuate with the rise and fall of bitcoin prices. Taras Kulyk, CEO of cryptocurrency mining service provider Sunny Digital, said: “Given the strong earnings of tech companies, utilities see tech companies as more reliable buyers.
