CEO at the helm Bitcoin BTC
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Mining companies remain “bullish” ahead of this week’s halving, even though they have failed to outperform bitcoin year-to-date, according to research and brokerage firm Bernstein.
The underperformance is due to strong flows of spot Bitcoin exchange-traded funds in the United States “sucking up” retail liquidity from miner stocks and concerns about the impact of the halving on miner revenues, wrote Gautam Chhugani and Mahika Sapra in a note to clients on Monday.
According to Bernstein’s recent interviews, Marathon CEO Fred Thiel said that the market has so far viewed mining stocks as simple Bitcoin proxies and that after the ETFs launched, a popular trade has been to buy spot Bitcoin ETFs and short-selling miners, explaining the underperformance.
CleanSpark CEO Zack Bradford told Bernstein that Bitcoin mining stocks would trade better after the halving because it would disproportionately benefit consolidation winners over smaller, less efficient miners.
Bradford expects the mining industry to consolidate into four prominent public mining companies: CleanSpark, Marathon, Riot Platforms and Cipher Mining. Thiel echoed that sentiment, naming CleanSpark as his “primary competitor” in the race for acquisition targets.
Meanwhile, Chhugani and Sapra said Riot was focusing more on organic expansion, believing the market had penalized it for the lower efficiency and availability of its existing fleet, but that sentiment was expected to reverse once once it brings a new 1 GW site online to more than double its capacity for the remainder of 2024. Marathon recently acquired new Bitcoin mining sites and CleanSpark also plans to double its capacity by the end of this year.
Bitcoin vs Bitcoin miners since the start of the year. Picture: Bernstein.
Impact of Bitcoin Halving on Miners
Bitcoin’s next halving event is just five days away, or about 800 blocks away, according to The Block’s Bitcoin Halving Countdown page – setting a potential date of April 20 around 5:40 a.m. UTC ( 1:40 a.m. ET), as things stand.
Bitcoin halvings are scheduled to occur automatically every 210,000 blocks, or approximately every four years. Once a halving event occurs, miners receive 50% fewer bitcoins as a subsidy for each block of transactions they mine and add to the blockchain. The next Bitcoin halving event will see the subsidy given to miners on the network increase from 6.25 BTC to 3.125 BTC per block. However, they continue to earn additional transaction fee rewards for each block mined as usual.
Bitcoin’s halving is often cited as a hurdle for miners every cycle, analysts noted. However, given the substantial rise in the price of Bitcoin this year – up 60% year-to-date – Bitcoin mining CEOs have highlighted that dollar revenues are near their all-time highs. , providing a strong balance sheet before halving as well as relatively low debt.
Additionally, miners told Bernstein that strong economic activity on the blockchain has added a new source of transaction fee revenue, leaving Bitcoin miners in a relatively comfortable financial position to withstand the impact of the reduction in half.
Chhugani and Sapra noted that Bitcoin has seen a surge of interest from app developers, Layer 2 scaling infrastructure teams, and NFTs this cycle, which has driven fees from transaction to sometimes reach 40% of revenue. They currently represent 10% of revenue, providing an additional cushion after the halving.
Another impact and double-edged sword for the mining industry is the growing demand for AI, analysts say. “In the short term, AI helps miners reduce Bitcoin ASIC chip costs, but creates more competition for acquiring sites in low energy cost states like Texas,” they said.
Asher Genoot, CEO of HUT8, told Bernstein that Bitcoin miners have the advantage of looking for opportunities in AI data centers to diversify their revenue streams, given the volatility of the Bitcoin price. However, most miners remain focused on Bitcoin.
Bitcoin Falls Amid Geopolitical Tensions
Bitcoin fell 8.7% over the past week to $66,016, according to The Block’s price page – amid geopolitical tensions over the weekend.
BTC/USD price chart. Image: Le bloc/TradingView.
However, “subject to further geopolitical surprises, these levels could be attractive to investors on the sidelines,” the analysts added.
Ultimately, with the “temporary” halving of headwinds, likely increased market share, strong revenues and production capacity, and additional opportunities, Bernstein analysts said they expect expected 12 months of outperformance for major public miners versus bitcoin from here.
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