Bitcoin mining CEOs remain 'upbeat' five days away from the halving, Bernstein says

CEOs at leading Bitcoin BTC -0.97% mining firms remain "upbeat" ahead of this week’s halving event despite failing to outperform bitcoin year-to-date, according to research and brokerage firm Bernstein.

The underperformance is due to strong U.S. spot Bitcoin exchange-traded fund flows “sucking away” retail liquidity from miner stocks and concern regarding the halving’s impact on miners’ revenue, Gautam Chhugani and Mahika Sapra wrote in a note to clients on Monday.

According to Bernstein’s recent interviews, Marathon CEO Fred Thiel said the market has seen mining stocks as mere bitcoin proxies so far and that after the ETFs launched, a popular trade has been long spot Bitcoin ETFs and short the miners, explaining the underperformance.

CleanSpark CEO Zack Bradford told Bernstein that Bitcoin mining stocks would trade better post-halving, as it would disproportionately benefit the consolidating winners compared to smaller, less efficient miners.

Bradford expects the mining industry to consolidate into just four leading public miners: CleanSpark, Marathon, Riot Platforms and Cipher Mining. Thiel echoed the sentiment, reportedly naming CleanSpark as their “arch competitor” in the race for acquisition targets.

Meanwhile, Chhugani and Sapra said Riot was more focused on organic expansion, believing the market had penalized it for the lower efficiency and uptime of its existing fleet, but that sentiment should reverse once it brings a new 1 GW site online to more than double its capacity for the rest of 2024. Marathon has recently acquired new Bitcoin mining sites, and CleanSpark also expects to double its capacity by the end of this year.

Bitcoin vs Bitcoin miners year-to-date. Image: Bernstein.

Impact of the Bitcoin halving on miners

Bitcoin’s next halving event is now just five days or approximately 800 blocks away, according to The Block’s Bitcoin Halving Countdown page — setting a potential date of April 20 at around 5:40 a.m. UTC (1:40 a.m. ET), as things stand.

Bitcoin halvings are programmed to occur automatically every 210,000 blocks — roughly every four years. Once a halving event occurs, miners receive 50% fewer bitcoins as a subsidy reward for every block of transactions they mine and add to the blockchain. Bitcoin’s next halving event will see the subsidy reward for miners on the network drop from 6.25 BTC to 3.125 BTC per block. However, they continue to earn additional transaction fee rewards for each block mined as normal.

The Bitcoin halving is often cited as a headwind for miners every cycle, the analysts noted. However, given Bitcoin’s substantial price rise this year — up 60% year-to-date — the Bitcoin mining CEOs pointed to dollar revenues being near all-time highs, providing a solid balance sheet pre-halving alongside relatively low debt.

Furthermore, the miners told Bernstein that strong economic activity on the blockchain has added a new transaction fee revenue stream, leaving Bitcoin miners in a relatively comfortable financial position to withstand the impact of the halving.

Chhugani and Sapra noted Bitcoin has seen renewed interest from application developers, Layer 2 scaling infrastructure teams and NFTs this cycle — leading transaction fees to spike up to 40% of revenues at times. They currently account for 10% of revenues — providing an additional cushion post-halving.

Growing AI demand is another impact and a double-edged sword for the mining industry, according to the analysts. “In the near term, AI is helping miners in reducing Bitcoin ASIC chip costs, but creating more competition on acquiring sites in low power cost states such as Texas,” they said. 

HUT8 CEO Asher Genoot told Bernstein that Bitcoin miners had advantages in pursuing AI data center opportunities to diversify their revenue streams, given the volatility of bitcoin’s price. However, most miners remain focused on Bitcoin.

Bitcoin drops amid geopolitical tensions

Bitcoin has fallen 8.7% during the past week to $66,016, according to The Block’s price page — amid geopolitical tensions over the weekend.

BTC/USD price chart. Image: The Block/TradingView.

However, “subject to no further geopolitical surprises, these levels could be attractive for those investors on the sidelines,” the analysts added.

Ultimately, with the “temporary” halving headwind out of the way, likely increased market share, strong revenues and capacity pipeline, and additional opportunities, the Bernstein analysts said they expect 12 months of outperformance for top public miners compared to bitcoin from here.