Bitcoin‘S (CRYPTO:BTC) The halving is complete, and surprisingly, miners have been among the beneficiaries, despite the impact the change could have on their profit and loss statements.
Riot Platforms (NASDAQ:RIOT) was the biggest beneficiary, rising as much as 36.3% this week, according to S&P Global Market Intelligence Marathon Digital (NASDAQ:MARA) even rose by 20.1% and Cipher mining (NASDAQ:CIFR) rose by 20.3%. Shares were up 33.1%, 17.8% and 19%, respectively, as of 2 p.m. ET on Friday.
The Bitcoin Halving
Earlier this week, Bitcoin’s halving took place, and as a result, each block reward was almost halved. In theory, this means that Bitcoin revenue per block is decreasing, but in reality there are probably fewer competitors in the market.
Miners with low margins before the halving are likely to be squeezed out, leaving stronger companies to take over the rest. More market share along with a higher Bitcoin price could mean more profits.
The halving and the price of Bitcoin
Bitcoin undergoes a halving approximately every four years, and in the past this has been accompanied by a large price increase. This is partly due to speculation and partly because the halving itself requires a higher price to maintain block production.
It is currently not clear whether this trend will continue. The computing and energy consumption of Bitcoin mining has become so expensive that it now requires hundreds of millions of dollars in investment to turn it into a business.
Up to date on Bitcoin
It is possible that the increased market share will have a positive impact on miners, but ultimately they have to make money on the spread between their costs and the price of Bitcoin. And Bitcoin itself is down 0.8% in the last week, so that doesn’t help.
Keep in mind that miners often keep a large portion of Bitcoin on their balance sheets to increase their exposure to the cryptocurrency. However, this is a double-edged sword on the way down if Bitcoin falls.
Part of what we are seeing is a recovery in the Bitcoin price trend. After falling in recent weeks, mining stocks were likely undervalued, leading to a rapid recovery this week.
The long-term picture for miners
What investors should keep an eye on is both the price of Bitcoin and the costs incurred by these miners. Higher interest rates and operating costs will have a negative impact on their operating costs.
I think the competition for computing power will only get stronger and the declining revenue potential will make it harder for these companies to make money. The only cure is the rising price of Bitcoin, but even this can have its limits. Bitcoin now has a market cap of $1.3 trillion and many of the ETF approval tailwinds are now behind us. That’s why I’m staying away from Bitcoin mining stocks today.
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Travis Hoium has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.
Bitcoin Miners Surge This Week After Halving, originally reported by The Motley Fool