The quadrennial software update (known as "halving") has arrived.
Data shows that on April 20, 2024 at 8:09 Beijing time, Bitcoin successfully completed its fourth halving at a block height of 840000. The mining rewards of the Bitcoin network were halved from 6.25 BTC to 3.125 BTC, with the last halving occurring on May 11, 2020.
After the halving of Bitcoin, the price of Bitcoin has slightly increased and is currently reported at $63914 per coin.
The supply of Bitcoin in the market will be significantly reduced starting from late April. Based on the pre halving price of Bitcoin (approximately $64000 per unit), the entire mining industry may lose over $10 billion in the next year.
Decline in revenue? Miners are busy hoarding coins
What is Bitcoin halving? It is understood that halving Bitcoin is an event that occurs approximately every four years, which means halving the rewards for "mining" Bitcoin transactions. By reducing the production speed of new Bitcoin and halving it, the economic model of Bitcoin has introduced the property of deflation. The halving event is a key feature of Bitcoin's design to ensure its scarcity, value preservation, and long-term sustainability as a digital currency. According to the design of the Bitcoin protocol, the halving event occurs after approximately every 210000 blocks are mined, with a time interval of approximately four years. Therefore, the next time Bitcoin is halved will depend on the accumulation of block heights, rather than a fixed point in time.
It is understood that the daily production of Bitcoin varied before halving, but all revolved around the blockchain reward system, producing an average of 6.25 Bitcoins every 10 minutes. According to previous block rewards, this is equivalent to producing approximately 900 bitcoins per day. However, after the halving event, this number will become approximately 450 output per day.
If Bitcoin cannot continue the growth momentum of the past year and instead maintains a price fluctuation before halving ($60000 to $65000 per coin), the entire mining industry will lose over $10 billion in revenue in the next year.
(Bitcoin halving schedule. Source/Coinwarz)
And for the potential losses that may arise after halving, miners were not eager to sell their Bitcoin before halving. They hoped that the value of Bitcoin could rise after halving, so that they could sell more Bitcoin at high prices to offset the losses caused by declining production.
According to cryptocurrency research firm The Miner Mag, just a few days before mining rewards were halved, several mainstream Bitcoin miners around the world, including listed miners such as Marathon Digital Holdings, CleanSpark, and Bitarms, had already stockpiled approximately $2.8 billion worth of Bitcoin. As of the end of March, Clean Spark held over 5000 Bitcoins, an increase of 2400% compared to the same period last year. Marathon Digital Holdings increased its holdings by 50% to 17300 Bitcoins, while Bitarms also increased its holdings by 50%.
Matthew Schultz, Executive Chairman of Clean Spark, said, "We hope Bitcoin can appreciate, which will solve the problem of halving rewards."
In a statement, LMAX Group's market strategist Joel Kruger said, "Everything known has been priced in." "However, anyone who wants to buy Bitcoin due to a halving event has already done so, indicating that in the short term after the halving, we may see a selling reaction."
Officially halved, miners accelerate internal competition
According to Coinwarz, a Bitcoin production data statistics website, on April 20, 2024 at 8:09 Beijing time, Bitcoin successfully completed its fourth halving at a block height of 840000. The mining reward for Bitcoin network was halved from 6.25 BTC to 3.125 BTC, with the last halving occurring on May 11, 2020.
It is understood that due to the upper limit of Bitcoin output within a certain period of time, in other words, the more computing power miners have, the greater the proportion of rewards they receive. Marathon Digital Holdings, Clean Spark, and other miners compete for fixed Bitcoin rewards by using high-speed computers to solve mathematical problems. They have invested in new equipment this year and are seeking to acquire smaller competitors in an attempt to mitigate the impact of declining revenue.
On January 16, 2024, Marathon Digital Holdings announced the acquisition of two Bitcoin mines with a total operating capacity of 390 megawatts. Although ownership of these two sites has been acquired, another Canadian miner, Hut8 Mining, continues to serve as the operator. On January 30, 2024, a subsidiary of Marathon Digital Holdings signed an agreement with Hut8 Mining to terminate Hut8 Mining as the operator of these sites and transfer operational responsibilities to Marathon Digital Holdings. Fred Thiel, Chairman and CEO of Marathon Digital Holdings, said, "By personally operating the factories in Granbury and Colney, we will be able to fully recognize the operational and economic benefits of owning these assets." "The stable performance of our Abu Dhabi site clearly indicates that we have some of the best operators in the industry. We look forward to the new factories in Texas and Nebraska gaining greater influence and utilizing our operational expertise to achieve all the benefits of our recent acquisitions."
On April 2, 2024, Marathon Digital Holdings announced on its official website the acquisition of a 200 megawatt Bitcoin mining data center adjacent to a wind farm. Freddie Thiel stated, "With the completion of this acquisition, our operational impact will be greater, with the opportunity to reduce the production cost of the site and add an additional 100 megawatts of production capacity." However, market investors are not optimistic about whether Bitcoin prices can continue to rise to compensate for the loss of miners' output. JPMorgan Chase gave Marathon Digital Holdings a "underweight" rating in a report on April 10. According to data, the stock price of Marathon Digital Holdings has fallen by over 28% since the beginning of the year.
Clean Spark announced its acquisition of three Bitcoin mining data centers in Mississippi on February 27, 2024. "We are pleased to start operating in Mississippi with the latest expansion. We are working hard to increase more computing power as soon as possible," said CEO Zach Bradford. "Expanding to new states is an important milestone for our company, and we look forward to collaborating with the communities we join. By maximizing the grid service capabilities of Bitcoin miners, our goal is to create employment opportunities and promote economic growth, benefiting both of us." The reporter found that the reality is that the stock price of Clean Spark has also fallen by more than 15% in the past month.
The impact of halving Bitcoin on the expected returns of miners has also recently affected the stock price performance of multiple miners. The stock prices of RiotPlatforms and HIVE Digital Technologies, two mining companies, have fallen by 26.37% and 15.58% respectively in the past month. The stock price of Hut8 Mining has fallen by 36.11% since the beginning of the year.
Coin Shares digital asset analyst Matthew Kimmel said, "This is the final effort for miners to extract as much revenue as possible before production is severely impacted." "As revenue declines overnight, each miner's strategic response and how they adapt are likely to determine who leads and who falls behind."
Electricity costs skyrocket, technology giants take the lead
Looking back at the past, the value of Bitcoin has reached a new high after each halving, which helps alleviate the cyclical decline in mining rewards and the increase in operating costs. However, the success potential of this industry is becoming increasingly small, and miners need to constantly spend more funds on endless technology competitions to obtain smaller returns. At the same time, miners are now facing electricity competition from the emerging and financially strong artificial intelligence industry.
According to The Miner Mag, although miners listed in the United States represent the industry, they only account for about 20% of the industry's computing power. The remaining private miners may become more vulnerable after halving, as compared to listed companies that can raise funds through stock sales, private miners typically have to rely on debt financing or venture capital to meet their needs. Regarding the potential move of listed miners selling stocks to generate cash flow in the coming months, market traders are generally betting that stocks in the mining industry will fall. According to financial analysis and technology firm S3 Partners LLC, as of April 11th, the total short equity of 15 crypto mining stocks is close to $2 billion.
(Source/S3 Partners LLC)
It is understood that the current cryptocurrency market has undergone significant differences from a few years ago. In the past, most mining activities were scattered around the world. However, in recent years, most mining activities have shifted to the United States, which has intensified domestic electricity competition.
Adam Sullivan, CEO of Core Scientific Bitcoin, headquartered in Austin, Texas, said, "Energy in the United States is extremely limited." "Currently, miners are competing with some of the world's largest technology companies, which are working hard to find space in data centers that also have high energy consumption attributes."
The emerging artificial intelligence industry is attracting a large amount of capital, making it more difficult for miners to obtain preferential electricity prices from utility companies. Amazon announced that it will spend nearly $150 billion on data centers, while Blackstone Group is building a $25 billion data center empire. Google and Microsoft are also making significant investments.
David Foley, co-managing partner of Bitcoin Opportunity Fund, previously stated that "the artificial intelligence industry is willing to pay three to four times the electricity bills paid by Bitcoin miners last year, and this is happening globally." It is understood that the fund has invested in both public and private miners.
Given the stable income sources of large technology companies, tech giants also have an advantage in obtaining electricity from utility companies, while cryptocurrency mining revenue fluctuates with the rise and fall of Bitcoin prices. Taras Kulyk, CEO of Sunny Digital, a cryptocurrency mining service provider, said, "Given the strong earnings of technology companies, utility companies consider them more reliable buyers."
Due to competition, it may be more difficult to renew low-cost electricity contracts when existing agreements expire. Greg Beard, CEO of Stronghold Digital Mining, a listed Bitcoin miner, said that large Bitcoin miners often lock in energy prices, typically for several years.
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