Peter Eberle, president and chief investment officer at Castle Funds, discussed the potential winners and losers of the upcoming halving event in the Bitcoin mining industry.
Winners:
- Established Miners: Companies with efficient mining operations and access to low-cost energy sources are likely to weather the halving event better than others. They can maintain profitability despite the reduction in block rewards.
- Miners with Strong Financial Backing: Mining operations backed by substantial financial resources are better positioned to navigate through the reduced rewards and invest in upgrading their equipment or expanding their operations.
- Mining Pools: Larger mining pools that can spread out the reduced rewards among a larger network of miners may be more resilient to the impact of halving.
Losers:
- Inefficient Miners: Miners operating with outdated equipment or relying on expensive energy sources may struggle to remain profitable after the halving event.
- Small-Scale Miners: Individual miners or small mining operations with limited resources may find it challenging to sustain profitability with the reduced block rewards.
- High-Cost Energy Regions: Mining operations located in regions with high energy costs may face increased pressure on their profit margins following the halving.
Potential winners and losers
“Halving is a challenge to inefficient miners, such as those who have older, slower machines, or machines that are exceptionally electricity consuming, or those who are in places where the electricity costs are high,” Eberle said in a call.
Larger companies with strong balance sheets tend to be in a better position during halvings, Eberle noted. “They’ve invested heavily, so they probably have stronger infrastructure than many,” he said.
Marathon Digital Holdings Inc., one of the largest bitcoin-mining companies in the U.S., said it has been prioritizing agility in preparation for different scenarios after the halving, according to Adam Swick, the company’s chief growth officer.
Marathon has been conducting extensive forecasts on different scenarios for bitcoin’s price and global hash rate after the halving, ensuring it has the most efficient machines, Swick told MarketWatch in a February interview. Hash rate refers to the total computational power being used to mine bitcoin.
It will depend, in part, on bitcoin’s price after the halving to determine how miners will fare, Swick said. “If bitcoin’s price doubles and global hash rate doubles, the bitcoin miners’ economics are still the same,” Swick said.
“If a miner was able to run a profitable business when bitcoin was at the price of $15,000, then certainly they can run a profitable business with half as many bitcoins mined at $70,000,” according to Eberle.
Bitcoin reached an all-time high at $73,798 last week, though it has since fallen back to around $65,500 on Wednesday, according to CoinDesk data.
Bitcoin vs. Gold ETFs
Assets managed by bitcoin exchange-traded funds (ETFs) have reached a “staggering” $58 billion as of Monday since they began trading on Jan. 11, according to Mason Mendez, investment strategy analyst, and John LaForge, head of real asset strategy at Wells Fargo Investment Institute.
“It took only 57 days for these ETFs to cross $50 billion in AUM — a feat that took spot-based gold ETFs more than five years,” the analysts wrote in a Monday note.
To be sure, Grayscale Bitcoin Trust, the largest spot bitcoin ETF by assets, was already managing more than $28 billion in early January before it was approved to convert to an ETF from a closed-end fund, according to data from YCharts. (GBTC is the only spot bitcoin ETF to have seen net outflows since the Securities and Exchange Commission approved 10 funds for trading in January, with its AUM now standing at $23.7 billion.)
If bitcoin ETFs continue to see inflows at their current rate, their total AUM could soon surpass that of spot gold ETFs, according to the Wells Fargo analysts.
Crypto in a snap
Bitcoin has fallen 13.7% over the past seven days, while ether has declined 20% during the same period, according to CoinDesk data.