Daily Management Review

Miners Struggle In The Post-Halving World Of The Cryptocurrency


Miners Struggle In The Post-Halving World Of The Cryptocurrency
It's been a terrible year for bitcoin miners with mining incentives cut in half, mining difficulty increased, and the shiny new bitcoin exchange-traded funds (ETFs) syphoning off investor wealth.
Two of the largest U.S.-listed miners, Marathon Digital and Riot Platforms, have decreased by around 10% and 33%, respectively, so far this year. In contrast, bitcoin has increased by 60% year-to-date to $67,859 after reaching a record high in March.
Mining equities are highly correlated with bitcoin since higher prices increase their profit margins.
Market watchers, however, claim that the introduction of the 11 bitcoin ETFs at the beginning of this year caused some investors to switch from mining stocks—which were previously among the few equities providing exposure to bitcoin—to ETFs that follow the spot price.
"There's been a lot of institutional money flow into the ETFs as opposed to using the miners as a proxy for exposure to bitcoin," said Pascal St-Jean, president at the global digital asset investment manager 3iQ.
An intense competition between power-hungry miners to solve intricate mathematical riddles builds the bitcoin network and yields rewards in new currency.
Their incentives were cut in half in April to 3.26 bitcoin per block as part of a technological change that happens around every four years and is intended to slow down the creation of new bitcoins.
According to data from Blockchain.com, as a result, miners' income per transaction has decreased from over $192 in March to about $60 at this time—the lowest since last September.
Ether has increased by almost 8% on the day to approximately $3,780, following a nearly 14% increase on Monday.
According to statistics from Blockchain.com, the difficulty of mining a single bitcoin block, or the network difficulty of bitcoin, has increased pretty regularly since the beginning of the year and reached an all-time high in early May.
According to David Morrison, an analyst at brokerage Trade Nation, "miners have to work hard to increase their efficiency, which typically involves spending on better hardware."
According to J.P. Morgan in May, the 14 miners with U.S. listings, who collectively possess 23% of the world's bitcoin mining capacity, are in a stronger position to benefit from the current circumstances.
More finance, especially equity financing, which "helps them to scale their operations and invest into more efficient equipment," is mostly to blame for this, according to J.P. Morgan analysts.
According to J.P. Morgan, the listed bitcoin miners raised the greatest equity capital in the last two years in the first quarter of 2024, raising over $3 billion.
Some players are turning to relocating their operations to nations with more reasonable energy rates and governments that are more receptive to digital assets in an attempt to control energy expenditures.
Youwei Yang, chief economist of Bit Mining, stated, "We are less optimistic about the U.S. because of the... potential risks like tax discussions." Yang also mentioned new installations in Ethiopia.
Market analysts predict additional mergers among bitcoin miners as their revenue declines, with the more capital-rich miners pursuing the less productive ones in an effort to remain competitive.
At the start of the year, CleanSpark bought smaller mining facilities and more mining rigs.
Gregory Lewis is an analyst at brokerage BTIG that covers the U.S.-listed bitcoin miners. "The market remains bifurcated with companies that have access to capital in a position to grow, while those less fortunate most likely selling owing to reduced revenues post-halving," Lewis said.
Some cryptocurrency mining businesses are jumping on the artificial intelligence bandwagon in an attempt to increase their revenue streams. They are doing this by utilising their current reserves of energy-hungry computer power to power AI systems.
Miners that have branched out into high-performance computing and AI services include Bit Digital, Hut8 Iris Energy, and Core Scientific.
"There are just too many bitcoin mining operators operating subscale, while demand for generative AI and computation dense data centers continues to grow and create competition for land and power," said Bernstein analyst Gautam Chhugani said.