Digital asset markets are bracing for a 50 percent reduction in rewards for validating Bitcoin transactions. Photo/123RF
Cryptocurrency miners are stockpiling near-record amounts of Bitcoin in hopes of increasing the value of the tokens and offsetting a drop in new supply that has cut rewards for transaction verification in half.
Listed miners etc.
Days before mining rewards were halved, Marathon Digital, CleanSpark and Bitfarms had collectively hoarded around US$2.8 billion (about $4.7 billion) worth of bitcoin, according to data provider The Miner Mag.
After the change in schedule, which will take place on Friday, miners around the world will share a total of 450 new Bitcoins, down from 900 Bitcoins each day to see the latest Bitcoin transactions. This quadrennial move was planned along with the creation of the cryptocurrency and was intended to hedge against inflation.
Hedge funds have long bet on publicly traded cryptocurrency miners, and the halving is seen as likely to hit profitability, pushing the stock price lower this year. The industry spends a lot of money on energy and technology to compete for each new Bitcoin, and rising production costs are expected to drive inefficient miners out of the market.
“Mining companies are constantly playing chicken with each other,” said Larisa Yalovaya, an associate professor of finance at the University of Southampton. “This is a business model that is based more than ever on the belief that the price of Bitcoin will rise and the demand for Bitcoin will increase.”
To offset this decline, crypto industry executives and traders are betting that Bitcoin, which hit an all-time high last month, will rise further this year, following a trend established by the past three halvings. I'm betting on it.
According to The Miner Mag, miners held 46,200 coins in reserve, the highest since May 2022, when a market-wide crash forced miners to sell their holdings.
US-based Cleanspark held over 5,000 Bitcoins at the end of March, an increase of 2,400% compared to the same month last year. Rival miner Marathon Digital increased its holdings by 50% to 17,300 Bitcoin, while BitFarms and Riot increased their holdings by 50% and 20%, respectively.
“Everyone is hopeful that Bitcoin will rise in value and solve the problem of halving rewards,” said CleanSpark Executive Chairman Matthew Schultz.
Such optimism was fueled by Bitcoin's 121% rally over the past six months after U.S. regulators approved stock market funds investing directly in Bitcoin. Bitcoin soared to a record high of $73,800 in mid-March, but has fallen more than 14% this month to less than $60,000 on Wednesday.
“The value of Bitcoin will be higher in the future than it is today,” said Asher Genuto, CEO of another US miner, Hut8.
Miners are struggling to remain profitable as the 2021 crypto bull market saw its debt-driven expansion curtailed by the crash. But as the latest halving approaches, miners have spent more than $1 billion on new equipment to gain market share and eliminate competitors.
But hedge fund short sellers continue to make large bets against a large number of miners. About 24% of Marathon stock is outstanding, according to S&P Global Market Intelligence, a strong indicator of short interest. This is lower than the more than 50 percent reached at the beginning of last year, but still higher than at the beginning of 2024.
Short interest in Hut8 has risen from less than 10% to more than 14% this year, and bets on Riot Platforms have fallen slightly this year, but still account for more than 19% of the stock.
Miners also hope that developments such as non-fungible token trading will increase activity on the Bitcoin network and increase transaction fee income.
“This is all at a very early stage,” said Andrew O'Neill, managing director of S&P Global's Digital Asset Institute. It's too early to tell.”
-Additional reporting by Laurence Fletcher.
Author: Scott Cipollina
© financial times
