Bitcoin price has emerged as the best-performing big asset in the past year. It has jumped by almost 120% in the past 12 months while the Nasdaq 100 and S&P 500 indices have surged by 27% and 60%, respectively. This rally was mostly driven by the speculation that the Securities and Exchange Commission (SEC) would approve spot ETFs.
Now, the focus among investors will turn to the upcoming Bitcoin halving, which is set to happen in April of this year. This article explores how this halving will affect Bitcoin mining stocks like Marathon Digital (MARA), Riot Blockchain (RIOT), Bitfarms, and Cypher Mining.
Bitcoin halving and BTC price
Bitcoin halving is an important process that is baked in Bitcoin’s architecture as a way of reducing supply growth in the ecosystem. It happens every four years and it leads to a sharp decline in the number of Bitcoins that are mined every day. The last halving happened in 2020 at the height of the Covid-19 pandemic. This year’s halving will happen in April.
Before that, the other halving happened in July 2016 while the other one took place in November 2012. The block reward before the first halving was 50 and has now dropped to 12.5. This year’s halving will bring the figure to about 6.25.
Analysts believe that halving is an important thing in the Bitcoin ecosystem because it helps to balance Bitcoin’s supply. The law of supply and demand says that a lower supply, will always lead to a higher price especially when the demand is rising.
In most cases, Bitcoin price tends to move higher into the next halving. As shown below, Bitcoin was trading at $25 when the first halving happened. It then moved to over $580 in the second halving and over $9,500 in the last halving event.
Another thing is that BTC price tends to rally ahead of the halving event and then pull back after it happens as investors sell the news.
Impact on Bitcoin mining stocks
Bitcoin mining companies are similar to traditional mining firms. In this, these companies do the mining and then make money by selling their products to the buyers. Bitcoin mining companies do the same in that they mine new coins and then sell them to exchanges and other OTC buyers.
Therefore, these companies tend to do well when the price of Bitcoin is rising and vice versa. This explains why most of them have jumped by more than double digits in the past few months as Bitcoin jumped.
Bitcoin halving will have a major impact on these companies. First, it means that the amount of Bitcoins that they produce now will be slashed in half, leading to lower revenues if Bitcoin remains intact.
Second, it will lead to a higher mining difficulty, making it difficult to produce new coins. In some cases, these companies will also suffer depreciation as their current mining equipment lags behind.
Therefore, there is a likelihood that their revenue and profitability growth will slow. On the positive side, halving could lead to higher Bitcoin prices in the long term while these companies have boosted their mining operations. As such, there is also a possibility that their stocks will rise in the long term.
Which are the best Bitcoin mining stocks?
I believe that the best Bitcoin mining stocks are the bigger ones because they have better balance sheets to help them expand their operations. They have also spent years accumulating their Bitcoin holdings. Some of the best Bitcoin mining companies are Riot Platforms, CleanSpark, Marathon Digital, Cypher Mining, and Bitfarms. The riskiest ones are Bit Brother and Argo Blockchain.
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