blockworks.co
Though most mining stocks have so far taken a dive this year, industry watchers expect investors to buy back into the strongest such companies after the Bitcoin halving dust settles.
Some of the world’s largest public mining companies have watched their stock prices plummet in recent months.
The stock of mining giant Marathon Digital is down roughly 33% so far this year.
Shares of rivals Hut 8 and Riot Platforms are slightly worse off over that span, down about 35% and 46%, respectively. Core Scientific’s stock has dropped about 16% since coming out of bankruptcy in January.
Las Vegas-based CleanSpark has been an anomaly, as its stock price has seen a 55% boost in 2024.
These nearly across the board declines come as investors wait to see which miners will be best positioned after the halving given the upcoming reduced block rewards — from 6.25 BTC and 3.125 — and the impact of that on miner profitability.
Read more: The Bitcoin halving is just weeks away — here’s how miners have prepared
Bitcoin halving events, which occur every four years, often trigger “speculative bubbles” that peak about a year after each cycle, said StoneX Digital data scientist David Kroger.
“Investors may have adjusted their expectations and positions based on historical market trends surrounding halving events, including significant price fluctuations and market sentiment shifts,” he added.
Those allocating capital to the space have also had a new way to access BTC since Jan. 11, when the Securities and Exchange Commission approved the first US spot bitcoin ETFs.
“You now have a situation where there is an option to get commodity exposure as an institutional investor with the spot bitcoin ETF that mitigates the company risk that you take on when you invest in a bitcoin miner,” Sue Ennis, head of investor relations at Hut 8, said during a Tuesday X space.
While demand for the US spot bitcoin ETFs has slowed recently, the fund category has brought in roughly $12.5 billion of net inflows in just over three months on the market.
Waiting until the dust settles
Miner stocks have previously underperformed bitcoin going into the halving and outperformed BTC after the event, said Compass Point Research & Trading analyst Joe Flynn.
Read more: Why most bitcoin mining stocks are down amid a persistent crypto rally
With spot bitcoin ETFs available, Flynn said miners appear to be trading based on the halving-fuelled hash price declines rather than the BTC exposure they provide.
Hash price takes into account bitcoin price, network difficulty, block subsidy and transaction fees. Measuring how much a miner can expect to earn from a specific quantity of hash rate, the metric is positively correlated to BTC price and negatively linked to fluctuations in bitcoin mining difficulty.
“Any bounce of hash price off the lows post-halving and we think the stocks react positively,” Flynn told Blockworks. “Based on past cycles, we would expect a period of consolidation of BTC prices before a resumption of an uptrend higher in the second half of 2024 and into 2025.”
Miners holding hefty sums of bitcoin on their balance sheet are likely to benefit from any post-halving BTC price growth from a stock perspective, Flynn added.
Marathon currently leads that category among miners, with 17,381 BTC BTC on its balance sheet as of March 31. Hut 8 and Riot Platforms held 9,102 BTC and 8,490, respectively, at that time.
“But we think investors [will] start to look at fundamentals like EBITDA, [free cash flow] and operating leverage on low power costs post-halving,” he said.
Executives said the public market appears to be struggling to put a proper value on mining companies.
Ennis argued that the market is discounting Hut 8’s managed services and high-performance computing businesses, for example.
As the market matures, she added, investors and institutions are likely to do more due diligence around the varying business models of different miners.
“I do think we are going to see capital and interest come back to this asset class after the halving after the market can see sort of who still has their shirt on and what’s the upside,” Ennis said.
Jeff Hancock, CEO of Coinpass, said he expects the mining stocks to behave similarly to bitcoin’s post-halving price action in previous cycles.
“It could be some time before these mining stocks recover, unless these firms can reduce their energy and operational costs,” he said. “Some of them may have to wait out the storm until bitcoin prices rise if they don’t have any additional income streams.”
Bitcoin’s price (BTC) was at about $63,800 at 12:30 pm ET Thursday — up 4% on the day but down nearly 10% from a week ago.
The public miners could see more immediate share price gains if more bitcoin exchange-traded products are approved in areas such as Asia and the UK, Hancock argued.
Read more: After crypto ETF movement in Hong Kong, other Asia regulators could act
“These institutional spot instruments were already absorbing more bitcoin than was being mined pre-halving,” he told Blockworks. “Post-halving, we could experience an extreme supply shock returning bitcoin’s price to current or higher levels, while also increasing miners stock prices.”
Those that are best positioned?
Galaxy analysts said in a February report that between 15% and 20% of the bitcoin network hash rate could come offline after the halving.
Read more: Financial trouble for bitcoin miners: A look back, and ahead as the halving looms
CleanSpark executive Chairman Matthew Schultz said during the Tuesday X space that access to capital — allowing companies to deploy the most efficient machine fleets — will be a real differentiator after the halving.
On the balance sheet alone, Marathon Digital and Riot Platforms each have more than $1 billion in combined cash and BTC.
CleanSpark had about $300 million in cash and 5,021 BTC (worth roughly $320 million) available at the end of March.
Companies with big warchests are expected to acquire machines and companies from smaller, less capitalized .
Stronghold Digital has seen its stock price dip 58% in 2024. The company, if deemed an attractive M&A target by an industry peer, would “consider” such a deal, CEO Greg Beard previously told Blockworks.
Argo Blockchain, which has endured a similar share price drop to Stronghold, declined to comment on its post-halving M&A strategy.
Read more: Buyers and sellers: How bitcoin miners are thinking about post-halving M&A
As for miners with potential high upside, Flynn noted that Riot’s cash and BTC represent roughly 50% of the company’s market cap.
Iris Energy and Bitfarms both intend to double their hash rate this year, he said, while infrastructure-minded Core Scientific and Terawulf are “mispriced.”
The stock prices of Iris Energy and Bitfarms both stand about 30% below where they started the year. Terawulf has fared better, down about 7% year to date.
Flynn added: “I like miners trading at the lowest multiples that have locked in next generation machines — which lowers hash costs — and have the ability to grow to offset initial halving impact.”