Bitcoin miners are facing significant challenges this year, facing reduced rewards, tougher mining conditions, and competition from new bitcoin exchange-traded funds (ETFs).
Major US-listed mining companies such as Marathon Digital and Riot Platforms have seen their share values fall by around 10% and 33%, respectively, even though bitcoin itself has risen 60% this year, reaching $67,859 after setting a new record in March.
Mining stocks typically follow bitcoin price movements because higher bitcoin prices generally mean higher profit margins for miners. However, the launch of 11 bitcoin ETFs earlier this year has diverted investor interest from mining stocks to these ETFs, which directly track the price of bitcoin.
“A lot of institutional money has been invested in ETFs instead of mining stocks,” explained Pascal St-Jean, president of digital asset management company 3iQ.
Bitcoin miners perform energy-intensive calculations to validate transactions on the blockchain, earning new bitcoins as a reward. In April, the reward for mining each block was halved to 3.26 bitcoins, part of a regular adjustment that occurs every four years to manage the supply of bitcoins.
As a result, miners’ transaction revenue has fallen from more than $192 in March to just $60, the lowest level since last September, according to Blockchain.com. Furthermore, the difficulty of mining bitcoins has steadily increased, reaching an all-time high in early May.
“Miners must improve efficiency, often by investing in better equipment,” said David Morrison, an analyst at Trade Nation.
According to JP Morgan, publicly traded miners in the United States, who represent 23% of global bitcoin mining power, are better positioned to meet these challenges due to better access to financing. In the first quarter of 2024, these miners raised more than $3 billion through equity financing, the highest amount in two years.
To reduce energy costs, some miners are moving to countries with cheaper energy and more favorable regulations. “The United States is less attractive due to potential fiscal risks,” said Youwei Yang, chief economist at Bit Mining, who mentioned new operations in Ethiopia.
Consolidation and diversification of the industry towards AI
With revenues falling, analysts predict an increase in mergers and acquisitions among bitcoin miners. Companies with more capital are likely to acquire smaller, less efficient miners to remain competitive. For example, CleanSpark has expanded by purchasing additional mining rigs and smaller mining facilities this year.
“The market is divided between companies that can access capital and grow and those that could sell due to reduced revenue after the halving,” explained Gregory Lewis, an analyst at BTIG.
Some crypto mining companies are also expanding into the artificial intelligence (AI) sector, using their existing computing power for AI and high-performance computing services. Miners such as Bit Digital, Hut8, Iris Energy and Core Scientific are exploring artificial intelligence services to increase their income.
“There are many small-scale bitcoin mining operators, while demand for artificial intelligence and data centers continues to grow, creating competition for resources,” said Gautam Chhugani, an analyst at Bernstein.
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