The Bitcoin halving that happened a few days ago halved the block rewards to 3,125 BTC. Cryptocurrency miners were likely to feel this, as they have long been trying to diversify their business models, modernize infrastructure, or expand their activities into the artificial intelligence sector.
According to “CompaniesMarketCap” data, 22 companies working in the field of digital mining are listed on stock exchanges. The halving, even before it arrived, had a negative impact on the ratings of the vast majority of them. According to a recent note from JPMorgan, from the beginning of the month through mid-April, shares of 14 mining companies monitored by the bank have lost a total of 28%.
The largest decline in this period affected the American company Stronghold Digital, whose shares fell by 46%. Singaporean company Bitdeer recorded the smallest losses, with its prices shrinking by 20% by April 15. The largest mining company by market capitalization – Marathon Digital – recorded a price decline of almost 30%.
However, it appears that the market may have overreacted. As described by CNBC, Needham analysts calculated in their note dated April 16 that with Bitcoin’s valuation above $60,000, listed cryptocurrency miners will practically not feel the negative effects of the halving. Estimated EBITDA margins for BTC mining companies should remain at a similar level as before as long as the cryptocurrency remains above this threshold.
JPMorgan analysts expressed a similar view in their note a week ago, noting that the current weakness of mining companies may constitute a suitable entry point for investors. They also reiterated their “bullish” stance on Riot Blockchain.
Prices of companies associated with Bitcoin mining began to rise shortly after the recommendations and just before the halving. During the session on Friday, April 19, Riot Blockchain shares rose 10.13%, Marathon Digital shares rose 9.78%, and GRIID Infrastructure shares rose 8.89%.
On that day, only cryptocurrency mining producers Gryphon Digital Mining (-2.16%), BIT Mining (-6.13%), and Caanan (-18.25%) declined in price.
At the time of writing on April 22 at 9:30 AM, Bitcoin was trading at $66,000.
Bitcoin price April 22, 2024 (Tradingview)
An unexpected ally for cryptocurrency miners: Bitcoin tokens
In addition to the rise in the price of Bitcoin, which means that cryptocurrency miners do not have to worry about a sudden drop in profits at the moment, as at the moment of the halving there was a launch that led to an increase in their profits. The long-awaited event that lowered the block reward was accompanied by the launch of the “Runes” protocol. Coincidence of dates was the developer's idea behind the solution.
A new protocol in the Bitcoin network allows tokens to be created on its blockchain in a manner similar to the Ethereum blockchain. Until now, the oldest cryptocurrency was devoid of this function. Users cannot easily issue their own tokens on it.
The creator of “Runes” is Casey Rodarmor, who is also known for launching the “Bitcoin Ordinals” protocol, thanks to which NFT tokens appeared on the blockchain of the oldest cryptocurrency. Just like back then, the premiere of the new solution led to a sudden increase in activity in the Bitcoin network and, as a result, increased transaction fees.
Transaction fees are the second component of rewards for cryptocurrency miners. They receive it in addition to the block rewards that were halved as a result. After its implementation and the launch of the “RON” protocol, which coincided with the night of April 20-21, transaction fees in the Bitcoin network rose to an unprecedented level of $127.
It was more than 7 times the average price from the previous day and more than 2 times the previous record set 3 years ago – CoinDesk calculated. As a result, cryptocurrency miners' revenues increased on that day despite falling to a record level of US$107.8 million per day – according to YCharts, an analytical platform.
Cryptocurrency analysts agree that these high transaction fees will not last for long. Currently, on April 22, the price has dropped to $34. However, this case shows that the fate of Bitcoin mining companies is not certain. Even after the halving, they are able to make profits. However, you must remember that Their shares are considered very risky assets and their price depends on the state of the cryptocurrency market.
Sources: CoinDesk, CNBC, CryptoSlate
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