Next week, the highly anticipated Bitcoin halving event is expected to cause a supply shock in the market and drive the price of Bitcoin higher. However, for crypto miners, this event may bring about significant challenges and result in a multi-billion dollar decline in revenue.
The halving event, set to occur on April 20, will reduce the daily rewards for miners from 900 to 450 Bitcoins. This decrease in rewards could lead to an annual loss of approximately $10 billion for the entire mining industry, based on Bitcoin’s current price.
In order to mitigate this potential loss, companies such as Marathon Digital Holdings Inc. and CleanSpark Inc. are investing in new mining equipment and acquiring smaller competitors. These efforts aim to offset the expected decline in revenue caused by the halving event. Matthew Kimmell, a digital asset analyst at CoinShares, commented on this development, stating that “this is the final push for miners to maximize their revenue before their production takes a hit. How each miner strategically responds and adapts could determine their success or failure.”
Historically, Bitcoin has seen significant gains after previous halving events, which has helped to balance out the drop in mining rewards and the rise in operational expenses. However, one major challenge for the mining industry is the need to constantly increase their expenditure in order to stay competitive in the ever-evolving technological landscape, despite the decreasing rewards.
The rising value of Bitcoin has helped to offset these energy expenses and drive the growth of cryptocurrency mining operations. Since the introduction of specialized mining equipment in 2013, the combined market capitalization of 14 miners listed on U.S. exchanges has reached approximately $20 billion, according to a report from JPMorgan Chase & Co. issued on April 1.
While publicly-listed miners in the U.S. are prominent in the industry, they only represent 20% of the sector’s overall computing power, according to findings from crypto research firm TheMinerMag. The remaining 80% is attributed to private miners, who may face greater vulnerability following the halving. These private miners often rely on debt financing or venture capital to meet their operational requirements, whereas public companies have the option to raise capital through share offerings.
As anticipation builds around the halving event, some traders are taking a bearish stance on mining stocks. As of April 11, the total short interest in these stocks reached approximately $2 billion, representing nearly 15% of the group’s outstanding shares, according to an estimate by S3 Partners LLC. This is three times higher than the U.S. average of 4.75%, noted Ihor Dusaniwsky, managing director of predictive analytics at S3.