Crypto miners’ revenues are expected to decline after this Bitcoin (BTC USD) The halving will be completed in April this year. Crypto miners are rewarded with newly minted Bitcoins for providing computing power to validate transactions on the blockchain network. However, every four years, the Bitcoin protocol cuts the reward miners receive for mining new blocks by half, an event called “halving.”
The next halving will reduce the subsidy miners receive per block from 6.25 BTC to 3.125 BTC. The 50% drop in newly issued Bitcoin supply could significantly impact miners’ profitability if the Bitcoin price stagnates. Miners with high overhead costs and inefficient mining facilities could be forced to shut down operations if revenue from freshly minted coins does not cover their expenses.
While all crypto miners are expected to take a hit, some could fare worse than others. Given this shift in Bitcoin’s supply dynamics, here are three crypto miners that investors should consider selling.
Canaan (CAN)
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Canaan (NASDAQ:MAY) is a leading manufacturer of cryptocurrency mining equipment and is known for its powerful ASIC (application-specific integrated circuits) miners.
In the long term, I think it could be risky for investors to invest in companies like CAN that focus on ASIC mining equipment. The long-term energy consumption of Proof-of-Work (PoW) cryptocurrencies like Bitcoin is high and potentially at unsustainable levels. More and more coins are also coming onto the market that are deliberately ASIC-resistant, with the switch to Proof-of-Stake (PoS) becoming the standard for many coins.
In addition, CAN reported for the 2023 fiscal year that it faced challenges with revenue of $211.48 million, a sharp decline from the previous year. Despite a Increase of 29.6% With the computing power sold, Canaan’s net income suffered significantly, resulting in a net loss of $414.15 million, illustrating the harsh economic conditions in which the company operated.
While I expect CAN to outperform in the short term, a longer view suggests that the risk for investors could be high.
Cipher Mining (CIFR)
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Cipher mining (NASDAQ:CIFR) specializes in Bitcoin mining with an ecosystem of industrial-scale data centers.
With a market cap of $1.5 billion at the time of writing, it is one of the smaller companies on this list and I believe that the smaller miners could be the most at risk from the halving. Smaller operations typically have higher overhead costs and lower profit margins compared to larger, more established mining companies. If block rewards are halved, these lower margins will be further eroded, making it difficult for inefficient miners to make profits without causing the Bitcoin price to rise significantly.
However, CIFR has some plans to mitigate its risks, including purchase of 16,700 new Avalon miners expected to be delivered and installed at its Texas facilities by the second quarter. Following this expansion, the company’s total self-mining capacity is expected to reach 8.4 EH/s.
Hat 8 Mining (HUT)
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Hut 8 Mining (NASDAQ:HUT) is known for its powerful mining operations. It is also one of the smaller Bitcoin mining operations that I believe will struggle.
The problem with Bitcoin mining companies in general is that their future prospects become more speculative over time. When Bitcoin prices stagnate or decline, the profitability of these companies comes under significant pressure. As mining difficulty increases over time due to the way Bitcoin is designed, mining operations must continually invest in more powerful and energy-intensive hardware to maintain the same level of production.
This is what prompted companies like HUT to do this expand their physical infrastructure. Construction is underway on a new digital asset mining site in Culberson County, Texas. The site is expected to be operational in the second quarter of 2024 and is expected to have a self-mining capacity of approximately 3.6 EH/s.
Just like CIFR, investing in crypto miners can be risky enough without also taking on all the additional company-specific risks of smaller companies, and the benefits may not be enough to fully compensate for them.
At the time of publication, Matthew Farley did not hold, directly or indirectly, any positions in the securities mentioned in this article. The opinions expressed are those of the author and are subject to InvestorPlace.com’s publication guidelines.