December 27, 2024

Analyzing Bitcoin’s upcoming “halving” event

On Friday night, the Bitcoin network completed its fourth “halving”, reducing the rewards received by miners from 6.25 Bitcoins to 3.125 Bitcoins.

Bitcoin’s price had been volatile ahead of the event, falling about 4% this week to trade around $64,100, according to Coin Metrics.

Mechanistically speaking, the halving itself should not affect Bitcoin’s price in the short term, but based on the cryptocurrency’s performance after previous halvings, many investors expect Bitcoin to rise significantly in the coming months. After the halvings in 2012, 2016 and 2020, the Bitcoin price increased by approximately 93 times, 30 times and 8 times respectively from the halving day price to the top of the cycle.

However, the incident is a major test for the mining company.

JP Morgan analyst Reginald Smith said: “All else being equal, the halving will cut industry revenue in half, triggering a wave of consolidation and corporate failures, while (hopefully) reducing network computing power and industry capital. Spending is rationalized, which ultimately benefits the remaining operators.

Hash rate is a measure of the computing power used to process transactions on the Bitcoin network. The greater the hashrate of a miner, the greater the income opportunity.

Mining stocks had been volatile in the days leading up to the incident. Many countries have seen double-digit declines this year after rising around 300% to 600% in 2023. Anti-riot platformFor example, shares were down about 41% in 2024 as of Friday’s close, but soared 356% in 2023.

“So far, the market has viewed Bitcoin mining stocks as pure BTC proxies, with no Bitcoin ETFs,” said Bernstein analyst Gautam Chhugani. “The halving will further differentiate the low-cost, large-scale consolidation winners from other small miners. , the latter may be at a disadvantage after the halving.”

Mining stocks in 2023 and 2024

2024 YTD Return in 2023
Marathon numbers (marathon) -30.2% 586.84%
Riot Control Platform (RIOT) -41.08% 356.34%
Clean the Park (CLSK) 54.4% 440.69%
Iris Energy (IREN) -31.68% 472%
Crypto Mining (CIFR) -7.63% 637.50%

Still, speculators may still take advantage of the event to trade. Another JPMorgan analyst, Nikolaos Panigirtzoglou, said on Thursday that he expects Bitcoin prices to fall in the near future following the halving, citing overbought conditions and the fact that prices remain above the cryptocurrency’s comparison to gold after adjusting for volatility. He also pointed to the decrease in venture capital funding for cryptocurrency projects.

Analysts at Deutsche Bank had a similar view.

The firm’s Marion Laboure said in a report on Thursday that “the Bitcoin halving has been partially priced in by the market, and we do not expect a significant price increase after the Bitcoin halving event,” adding that “it has been widely anticipated in advance. This is the case because of the nature of the Bitcoin algorithm.

“Looking ahead, we continue to expect prices to remain elevated,” she added, citing expectations for future spot Ethereum ETF approvals, future central bank rate cuts and regulatory developments.

Bitcoin is currently trading at just under $64,000, down about 13% from its all-time high of $73,797.68 on March 14.

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