Published: December 4th, 2024
As the Bitcoin's price peaked above USD 99,500 in November, the stock prices of Bitcoin mining firms got a notable boost.
Analysts at JP Morgan say that the cumulative market capitalization of 14 companies in its Bitcoin mining index jumped by a ‘staggering’ 51 per cent month-over-month to reach USD 36.1 billion. Among the biggest winners was Singapore-based Bitdeer, which Morgan analysts pegged for a price rise of 83 per cent, reaching USD 14.26.
So far in 2024, Bitcoin miners have had to deal with the aftermath of Bitcoin’s fourth halving. The quadrennial event, which is programmed into the cryptocurrency's underlying blockchain network, reduced BTC’s per-block reward to 3.125 BTC in April, or roughly USD 299,000 at time of writing.
Before the event, Bitcoin’s per-block reward was 6.25 BTC, or roughly USD 598,000 today. According to a note to investors from the Wall Street banker, overall mining revenues have since dropped by a whopping 50 per cent. Despite that, analysts say that Bitcoin’s November price surge made mining lucrative again.
The cut tested how efficiently mining firms could operate after having their margins suddenly stretched thin. By measuring miners’ daily BTC revenues per one exahash (EH) of mining capacity, Morgan analysts calculate that revenues increased 24 per cent in November, rising to USD 52,000 from around 42,000 the month before. An exahash represents the speed at which Bitcoin miners can generate the random number required to earn a BTC block reward.
Last month, Bitdeer said it had suffered a USD 50 million loss in Q1 2024, blaming the halving specifically for dramatically reduced revenues. On a more positive note, the firm also announced ‘substantial progress’ in bringing its line of purpose-built Bitcoin mining chips to market. Bitdeer aims to compete directly with market leader Bitmain’s popular processors.
In February, Crypto investment firm Grayscale predicted that this year’s Bitcoin halving would unfold in ways that the previous three did not, as the arrival of spot Bitcoin exchange traded funds (ETFs) and Bitcoin ordinals had altered the market.
In a market study, Grayscale analysts said Bitcoin ETFs had created a steady source of BTC demand that could offset the sell pressure from new mining issuance.
Though the report noted that Bitcoin's price typically rises in the aftermath of a halving, it offered the caveat that cryptocurrencies like Litecoin, which also have a halving mechanism, had not experienced the same appreciation in price after a halving.
Analysts also pointed out that previous Bitcoin price increases post-halving have been impacted by the timing of major macroeconomic events like COVID-19 and the Eurozone debt crisis.
Grayscale said there was evidence that ‘miners have been getting ready for the halving’s financial effects for a long time, taking pre-emptive steps to stem potential losses like selling their holdings on chain.’
Given that these moves were visible as far back as Autumn of 2023, Grayscale analysts believed that this time, miners would be in a stronger financial position ahead of the halving. Even if some miners depart the market as a result, the hashrate decline would prompt an adjustment in mining difficulty to sustain network stability.
The report also highlighted the arrival of Bitcoin ordinals on the number one crypto's underlying market structure. The pace of ordinal inscriptions (and the transaction fees attached to them) could serve as a bellwether, signaling how miners will be incentivized to keep the network secure when block rewards decline.
In mid-October 2023, the difficulty level for Bitcoin mining reached a new high for the year, rising by 6.48 per cent on Monday 16th October and raising the computational bar for miners seeking to uncover blocks.
Data from the CoinWarz analytics service tracked the required number of hashes needed to mine a block at 61.02 trillion. It marked the third consecutive rise in difficulty faced by miners since August of that year andd nearly double the difficulty level reached in October 2022.
Bitcoin's network is calibrated to readjust every 2,016 blocks (or roughly once a fortnight), as the blockchain measures whether mining activity has increased or reduced the time needed to find a new block. An increase in time usually means more miners have joined the network.
The network responds by raising the level of mining difficulty. The complex equations that need to be solved become even more complex, and miners have to apply more computational power in order to mine a block.
Some analysts blamed the spike in activity on the upcoming Bitcoin halving, which at the time was about six months away.
In an interview with Reuters, Geoffery May, an executive with crypto exchange BTSE, said that the surge in mining activity ‘probably means everyone is trying to maximize returns before next year’s halving. After it happens, the rewards for BTC mining will be cut by fifty per cent. Miners are surely trying to wring every bit of value out of their equipment before the cutoff.’
‘We expect to see a rush of miners coming online between now and April 2024. It will be in every miner’s interest to max out use of their equipment at the current payout rate of 6.25 BTC/per block. After the halving that drops to 3.125 BTC/block.’
Significant changes in mining activity usually signal that something is afoot in the market. It might be an upcoming network event like the next Bitcoin halving or indicate that gains or losses for a given crypto asset are imminent.
In February 2023, leading Bitcoin Miner Iris Energy said that its hash rate was rising again after a notable downturn at the end of 2022. The company’s self-mining capacity rose from two exahashes per second to five.
A single exahash equates to one quintillion hashes, which represent possible solutions to the complex math equations required to approve and confirm a Bitcoin transaction.
