Cutting Costs and Joining Forces, Bitcoin Miners Hoping for Rebound

After a rocky 2022, bitcoin miners could be in for a lucrative year, at least if past market cycle patterns repeat. 

The largest cryptocurrency posted a 64% loss last year, coupled with skyrocketing electricity costs around the world and a dramatic drop in mining profitability made 2022 a bust for most of the crypto mining industry. But a rebounding market and upcoming halving cycle could be the catalysts the industry needs for a turnaround. 

The next bitcoin halving, expected in the second quarter of 2024, should create a positive imbalance between bitcoin’s supply and demand, Christopher Bendiksen, bitcoin research lead at CoinShares, said in a report Monday. 

“Historically, there has been a recurring tendency for the halvings to be closely followed by bull markets, leading to the now famed four-year bull/bear cycles in bitcoin price,” Bendiksen said. 

When market conditions are strong, miners restrict new supply by holding more bitcoin on their own treasuries, meaning the supply of newly mined bitcoin hitting the market is much smaller than the actual production amount, Bendiksen said. But when there are challenges in the market, miners are forced to liquidate their holdings. 

“Because good times in mining tend to happen during bitcoin bull markets, and bad times tend to happen during bear markets, miner hoarding behavior happens right when demand is already overpowering supply, and vice versa,” Bendiksen said. “This adds further fuel to the volatility fire, both to the upside and the downside.”

Some bitcoin mining companies have already reported a stronger start to the year. Riot Platforms increased its production 62% year-over-year last month, the company said in an unaudited report Monday. Riot reported selling 700 of its 740 mined bitcoin in January 2023, resulting in net proceeds of around $13.7 million, the company said. 

Stronghold Digital Mining, which has been publicly traded since October 2021, has paused all debt payments until July 2024, giving the firm runway for the next 18 months, the company said Tuesday. Holding off on debt payments means Stronghold can take advantage of the current distressed mining market, a spokesperson said. 

After losing nearly 98% since its Nasdaq debut, Stronghold has rallied more than 30% so far this year. Analysts surveyed by CNN Business give Stronghold a buy rating with a median price target of $2 per share, a roughly 257% increase from its current price of around $0.56. 

In yet another consolidation move spurred by the distressed market, mining companies Hut 8 and US Bitcoin Corp announced merger plans Tuesday. The two companies will be wholly-owned subsidiaries of the new Hut 8 Corp. Hut 8’s shares will be consolidated five-to-one, per the press release. 

“Once miners are better able to cover ongoing cash needs through mining revenue, the exacerbating effect from treasury liquidations on downside volatility is reduced, removing an ankle weight from the bitcoin price itself,” Bendiksen said. “This in turn has the potential to act as a virtuous cycle.

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