Corporate miners have been preparing for the Bitcoin halving for months. In contrast, miners mining at home may face extinction.
It seems like almost everyone is eagerly anticipating the Bitcoin halving as it is widely viewed as a trigger for a bull run as the reduction in new coin creation leads to a supply squeeze, thus pushing up the price of Bitcoin.
But in essence, the halving is designed to pump the brakes on the bitcoin powerhouse by making mining more profitable. That puts bitcoin miners in the spotlight during this once-every-four-year transition. Are they as optimistic as the investors who drive much of the cryptocurrency conversation?
Bitcoin mining companies checked in to assess their preparedness for the halving and whether they would be able to maintain operations after the event on Friday evening.
“Remember that revenue is not entirely halved,” he said. “The difficulty may drop by 15% after the halving, so miners who are still hashing will get additional rewards.”
In other words, the most competitive miners that survive will see their share of the overall mining market increase — which is bullish for those miners that survive, Holyoake said.
To stay competitive, efficiency is everything. Mining companies must keep the Joules per Terahash (j/TH) as low as possible and have the right teams in place to ensure their machines are running at peak performance at all possible times.
As mining stocks rise…
The broader market seems to agree. Ahead of the halving, most mining stocks had been steadily falling this year, even as Bitcoin itself rebounded following the approval of a Bitcoin spot ETF.
NASDAQ:CLSK) is up 50% year to date, roughly in line with Bitcoin’s performance. By comparison, shares of Texas-based mining company Riot Platforms (RIOT) have plunged 46%, while British Columbia-based IREN is down 30%. WGMI, Valkyrie’s ETF that diversifies across multiple public miners, is down 19%.
However, upon closer inspection, the market’s pessimism may not be justified. In March, an analysis of public miners was revisited based on Bitcoin prices exceeding $65,000 at the time, and the results showed that all major players will remain profitable after the halving.
“Our margins remain resilient post-halving and we are well positioned to continue growing the business,” an IREN spokesperson told Decrypt.
Assuming a bitcoin price of $70,000, up from current levels of around $64,000 but below last month’s all-time high of nearly $74,000, the new generation of miners (classified as Bitmain T21 and S21 miners) are currently earning around 23 to 25 cents per kilowatt-hour.
By comparison, IREN said, “large operators” like IREN have electricity costs of about 4 cents per kilowatt-hour, thanks in part to the company’s “vertical integration” and “flexibility in electricity costs,” including the use of demand response programs.
Demand response involves ceasing operations when the grid is under stress and being compensated by the state for doing so. Both IREN and Riot are beneficiaries of such programs in Texas and often receive better compensation for participating than if they had remained active.
“Riot is focused on growing horizontally by adding computing power, and vertically by integrating with the energy supply chain,” said Pierre Rochard, the company’s vice president of research. Riot also recently announced a strategic investment in Reformed Energy, which will enable it to convert landfill gas into energy for mining Bitcoin while cleaning up the environment.
Both companies have strong balance sheets, though they have chosen different ways to handle their funding. While IREN currently holds over $300 million in debt-free cash on its balance sheet, Riot holds the Bitcoin it mines, which as of March 31 amounted to 8,490 BTC ($567 million).
CleanSpark holds a relatively small amount of BTC at 5,021, but Riot mined almost double the amount of BTC that month (806 vs. 425).
What about mining pools?
Foundry, the world’s largest bitcoin mining pool, said it saw signs of maturation among public bitcoin miners, with many of its members taking advantage of low prices during the bear market to buy new generation mining machines and locking in orders worth more than $1 billion late last year.
Many miners are also experimenting with aftermarket firmware that allows them to over-deploy or under-deploy depending on power costs and market conditions.
“As the industry evolves, the halving is facilitating a shift toward more efficient operations and smarter capital deployment,” said Charles Chong, Foundry’s director of strategy. “While the prospect of revenue halving overnight every four years is unparalleled in other industries, the predictability of these events allows us to prepare strategically.”
That said, Foundry’s point is more applicable to large corporate miners, while Bitcoin is an open network with small miners spread across the globe. Without strategic maneuvering and economies of scale, it’s easy to argue that domestic and independent miners might not be as well off.
Foundry believes that profitable home mining will “no longer exist” after the halving.
“The widening gap between operational efficiency and cost-effectiveness between home miners and institutional players suggests that each successive halving will make it increasingly difficult for the former to remain viable,” Chong said.
Others are more optimistic. IREN’s Rochard believes that over time, microgrid mining configurations using “rooftop solar, ranch flare gas, or heat reuse for water and air heating” will all become more viable mining alternatives. Cleanspark says there’s still a chance to make money when combined with the most powerful machines.
“The payback period will be longer, but you can still do it,” Holoak said.
Overall, even miners are bullish on the halving in the long run. After all, Bitcoin’s “supply crunch” story has a history of coming true, sparking exponential gains in Bitcoin prices that are more than enough to make up for the short-term drop in miners’ revenue.
IREN pointed out that after the halving, Bitcoin's annual inflation rate will drop to 0.85%, which is much lower than gold. They said that achieving parity with gold means that the price of BTC will reach $700,000 per coin.
IREN predicts: “When high levels of institutional and retail demand for Bitcoin ETF products are combined with expectations of monetary policy easing later in 2024, Bitcoin prices are likely to face significant upward pressure in the coming months.”