Main financial assets discussed: Bitcoin (BTC-USD), Bitcoin mining companies (RIOT, MARA, CLSK, IREN, BITF, HUT)
Top 3 key points:
1. The upcoming Bitcoin halving event in 2024 is expected to be bullish for Bitcoin investors, but potentially bearish for Bitcoin mining companies. The halving event will reduce mining rewards, which could lead to decreased profitability for mining companies.
2. Investing in Bitcoin mining companies is a risky bet, as their profitability depends on the Bitcoin price doubling or more after the halving event. Most mining companies are already operating at a loss when Bitcoin is below $40,000.
3. If Bitcoin mining rewards were to halve now, many mining companies may become insolvent. Only the fittest and most efficient mining companies with larger balance sheets are likely to survive and potentially acquire competitors at low prices.
Recommended actions:
- **Buy**: Bitcoin (BTC-USD) is recommended as a safer option due to multiple drivers for price appreciation and potential approval for a Bitcoin ETF. Consider hedging with ProShares Bitcoin Strategy ETF (BITO) put options and staking for additional passive income.
- **Sell**: Bitcoin mining companies (RIOT, MARA, CLSK, IREN, BITF, HUT) are not recommended due to the potential decrease in profitability after the halving event. Most mining companies are already operating at a loss and may become insolvent.
- **Hold**: N/A
Bitcoin's recent legal victories and temporary price surges should not be mistaken for long-term catalysts, as the approval of a spot ETF, liquid staking capabilities, and the upcoming halving event hold the key to sustainable price appreciation.
The upcoming Bitcoin mining reward halving in April 2024 is anticipated to boost the cryptocurrency market, although previous halvings did not single-handedly initiate bull runs, as macroeconomic factors like fiat liquidity conditions also played a significant role, according to MacroMicro data. The growth rate of the M2 money supply by major central banks, including the U.S. Federal Reserve, European Central Bank, Bank of Japan, and People's Bank of China, is expected to impact the magnitude of the halving-induced uptrend.
The upcoming Bitcoin halving in April 2024 will reduce block rewards for miners, prompting them to focus on strategies such as securing lower electricity rates, using more energy-efficient equipment, and accumulating excess capital in order to maintain profitability. Miners may also explore alternative revenue streams like Bitcoin Ordinals, which generate transaction fees within the Bitcoin network.
Bitcoin is expected to experience a strong upward pressure on its price due to the upcoming halving mechanism, making it an attractive time for investors to consider bitcoin mining stocks like Bitfarms and Cipher Mining.
Texas has become the leading state for Bitcoin mining in the United States, hosting 28.5% of the nation's hash rate, thanks to government incentives and favorable conditions.
Crypto mining stocks such as Marathon Digital Holdings, Riot Blockchain, and CleanSpark are experiencing a rise as the price of Bitcoin gets a boost from optimism surrounding a potential spot ETF, with members of the House Financial Services Committee calling for its approval.
Bitfarms, a Canadian Bitcoin mining firm, experienced significant growth in September 2023, mining 411 BTC and increasing its hash rate by 9%, with hopes for further expansion and opportunities from the upcoming BTC halving in April 2024.
Summary: Mining stocks have significantly outperformed Bitcoin this year, with the average return of the top public mining companies standing at 148.59%, compared to Bitcoin's 84.61% increase, due to higher beta and increased revenue from Bitcoin mining activities and new use cases like Ordinals. However, mining firms are preparing for the upcoming halving event, which may pose challenges to their profitability and business models.
