Bitcoin Halving Cuts Rewards, Miners Pivot to AI and Efficiency

Key Takeaway

• Bitcoin halving event cuts miner rewards, historically leading to price rallies; miners brace with efficiency and diversification strategies.
• U.S.-listed bitcoin miners' market cap fell 28% in April; analysts favor low-cost producers like Riot Platforms amid halving adjustments.
• Shift towards AI and high-value compute seen as future for some mining operations, diversifying beyond bitcoin amidst changing revenue models.

Halving Hits the Crypto Mining Sector

The Bitcoin network recently underwent its fourth "halving," a significant event that reduces the rewards miners receive for validating transactions. This change, which occurred late Friday night, cuts the mining reward in half, from 6.25 bitcoins to 3.125. The halving is a mechanism designed to prevent inflation by limiting the supply of new bitcoins entering the market. Historically, halvings have been followed by substantial rallies in Bitcoin's price, benefiting miners despite the reduced rewards. Adam Sullivan, who took over Core Scientific amidst financial turmoil, is among those who see the halving as an opportunity for a significant market rally.

Miners Brace for Impact

The halving poses a direct challenge to miners, who will see their revenue from mining rewards halved overnight. Publicly traded mining companies, which account for about 21% of the global Bitcoin network, saw a 28% decline in their aggregate market cap to $14.2 billion in the first half of April, with JPMorgan analysts highlighting the event as a potential make-or-break moment for the sector. However, some, like Sullivan, have prepared by scaling infrastructure and seeking lower power costs. Others, like Riot Platforms CEO Jason Les, emphasize the importance of low power costs and strong balance sheets in weathering the halving's impact.

Diversification and Innovation

In response to the challenges posed by the halving and the competitive landscape, mining companies are diversifying their operations and innovating. Bitdeer Technologies Group, for example, is focusing on R&D and new revenue pathways, such as AI Cloud offerings. Marathon Digital has launched an energy harvesting division, turning stranded methane into energy, which subsidizes their mining costs. These strategies not only prepare companies for the halving but also position them for growth in a post-halving environment.

Street Views

• JPMorgan Analysts (Neutral on U.S.-listed bitcoin miners):

  "The aggregate market cap of the 14 U.S.-listed bitcoin miners tracked by JPMorgan analysts declined 28% over the first half of April to $14.2 billion, reaching year-to-date lows."

• Needham Analysts (Cautiously Optimistic on bitcoin miners post-halving):

  "We expect geopolitical tensions and interest rate policy to be the biggest near-term drivers of crypto price action... at a bitcoin price above $60,000, the halving is 'derisked for nearly all public miners.'"

• Cantor Fitzgerald Analysts (Bullish on Bitdeer):

  "Analysts at Cantor Fitzgerald recently named Bitdeer as having one of the industry’s lowest 'all-in' cost-per-coin."

Management Quotes

• Adam Sullivan, CEO of Core Scientific:

  "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."

• Haris Basit, Chief Strategy Officer of Bitdeer Technologies Group:

  "Bitcoin’s halving happens like clockwork every four years... It’s a known variable that is a benchmark for us to remain focused on operational excellence."

• Greg Beard, CEO and Chairman of Stronghold Digital Mining:

  "Miners who own their low-cost power are better positioned... Operational costs will be lower, allowing them to be more flexible with their capital."

• Jason Les, CEO of Riot Platforms:

  “Our new Corsicana Facility was energized just this week... As a result, we are positioned to mine more bitcoin per day at the end of the year than we do today despite the halving.”

• Fred Thiel, CEO of Marathon Digital:

  “In December [prior], we owned less than 5% ... Today we now own 53% ... Owning sites lowers Marathon's cost to mine by up to 20%."