How the Bitcoin Halving Will Affect Miners Big and Small

Almost everyone is eagerly anticipating the Bitcoin halving, it appears, as it's broadly seen as a trigger for a bullish run as the reduction in new token creation leads to a supply crunch that drives up the price of BTC.

But at its core, the halving is designed to tap the brakes of the Bitcoin factory by making mining less profitable. This puts Bitcoin miners in the crosshairs amid this once-every-four-year transition. Are they as optimistic as the investors that drive most of the crypto conversation?

Decrypt checked in with some of largest public Bitcoin mining firms to gauge how well they’re positioned for the halving—and whether they’ll be able to sustain operations after the event takes place late Friday.

“Remember—it is not exactly true that revenue gets cut in half,” clarified Isaac Holyoak, Chief Communications Officer at CleanSpark. “Difficulty could see as much as a 15% drop post-halving, so miners who are still hashing will reap additional rewards.”

In other words, Holyoak says, the most competitive miners that remain afloat will see their share of the total mining market increase—which is bullish for those left standing.

To remain competitive, efficiency is everything. Mining firms must keep their joules per terahash (j/TH) as low as possible and also have teams in place to ensure their machines are running at peak performance at all possible hours.

“As we look at the landscape, we see CleanSpark leading in both of these areas,” Holoyak said.

As mining stock goes…

The broader market appears to agree. Ahead of the halving, most mining stocks have steadily declined this year, even as Bitcoin itself has rallied after the approval of Bitcoin spot ETFs. But CleanSpark stands out as one of the only exceptions.

CleanSpark stock (NASDAQ:CLSK) is up 50% year to date, roughly keeping pace with Bitcoin’s performance. By contrast, Texas miner Riot Platforms (RIOT) has seen its stock plummet 46%, while British Columbia’s IREN is down 30%. WGMI—Valkyrie’s ETF that diversifies across several public miners—is down 19%.

Upon closer inspection, however, the market’s pessimism may not be well founded. In March, based on Bitcoin's price above $65,000 at the time, a fresh examination of Cantor Fitzgerald's analysis of public miners suggested that all of the major players would remain profitable after the halving.

“Post halving, our margins remain resilient and we are well positioned to continue to grow the business,” a spokesperson for IREN told Decrypt.

Assuming a Bitcoin price of $70,000, which is higher than the current mark of around $64,000 but below last month's all-time high price of nearly $74,000, new-generation miners—classified as Bitmain T21 and S21 miners—currently generate about 23 to 25 cents per kilowatt hour of revenue.

By comparison, IREN says its power costs for a “large scale operator” like IREN are about 4 cents per kWh, thanks in part to the firm’s “vertical integration” and “flexibility with power costs,” including the use of demand response programs.

Demand response involves a pullback in operations when power grids are under stress, and being compensated for that consideration by the state. Both IREN and Riot have been beneficiaries of such a program in Texas, and have often received better compensation for participating than they otherwise would have by staying active.

“Riot is focused on growing horizontally by adding hash rate, and vertically by integrating with energy supply chains,” said the firm's VP of Research Pierre Rochard. Riot also recently announced a strategic investment in Reformed Energy, which will allow it to convert waste landfill gas into energy for mining BTC while cleaning up the environment in the process.

Both firms also have robust balance sheets, although they’ve chosen different ways to handle their money. While IREN currently carries over $300 million in debt-free cash on its balance sheet, Riot is instead holding onto the Bitcoin it mines, up to 8,490 BTC ($567 million) as of March 31.

CleanSpark holds comparatively less at 5,021 BTC, but also nearly doubled Riot’s BTC mined (806 versus 425) across the month.

What about mining pools?

Foundry, the world’s largest Bitcoin mining pool, says it sees signs of maturity among public Bitcoin miners. Many of its members purchased new-generation mining machines while prices were low during the bear market, locking in over a billion dollars worth of orders late last year.

Many miners are also experimenting with aftermarket firmware, allowing them to over-deploy or under-deploy their fleet depending on power costs and market conditions.

“As the sector evolves, the halving is catalyzing a shift towards more efficient operations and judicious capital deployment,” said Charles Chong, director of strategy at Foundry. “While the prospect of revenues halving overnight every four years is unparalleled in other sectors, the predictable nature of these events allows for strategic preparation.”

That said, Foundry’s points apply more strongly to large corporate miners, and Bitcoin is an open network with small miners scattered throughout the globe. Without strategic maneuvering and access to economies of scale, it's easy to think that at-home and independent miners may not be so well off.

Foundry, for one, thinks that profitable home mining will “cease to exist” after the halving.

“The widening gap in operational efficiency and cost-effectiveness between home miners and institutional players suggests that each successive halving will make it increasingly challenging for the former to remain viable,” Chong said.

Others are more optimistic. Rochard from IREN believes that microgrid mining configurations using “rooftop solar, flared gas on a ranch, or heat-reuse with water and air heating” are all becoming more viable mining alternatives over time. Combined with the most powerful machines, Cleanspark says there’s still a chance to make some money.

“Payback periods are going to be much longer, but you can still do it,” Holoyak said.

Overall, even miners are bullish on the halving when taking a long-term view. After all, Bitcoin’s “supply crunch” narrative has a history of coming true, triggering exponential Bitcoin price runs that more than compensate for miner’s short-term revenue drop.

IREN noted that Bitcoin’s annual inflation rate will drop to 0.85% post-halving, well below that of gold. Achieving price parity with gold, they said, would imply a BTC price of $700,000 per coin.

“When you overlay high levels of institutional and retail demand for Bitcoin ETF products, and expectations around the loosening of monetary policy later in 2024," IREN predicted, "there could be significant upward pressure on Bitcoin prices in the coming months."