Bitcoin Mining Firms Prepare for Halving Event Amid Potential Cost Surge: CoinShares Analysis
Summary:
Bitcoin mining companies Riot, TeraWulf, and CleanSpark are well-equipped to face the expected cost surge after April's Bitcoin halving event, according to an analysis by CoinShares. The halving will likely result in rising production and cash costs, forcing miners to reduce costs or risk running at a loss. CoinShares' analysis considers a post-halving Bitcoin price of $40,000 and notes that Riot seems best prepared due to their cost structure. However, if Bitcoin's price falls below $40,000, only specific companies are expected to remain profitable. The analysis also discusses increased energy demands for mining, and gives the example of Core Scientific, which is seeking solvency after bankruptcy proceedings.
Bitcoin mining companies Riot, TeraWulf, and CleanSpark are poised to manage the cost surge anticipated after the Bitcoin halving event in April. This information comes from an analysis performed by the asset management company, CoinShares. The analysis predicts that due to the halving, the production and cash costs will escalate from roughly $16,800 and $25,000 per Bitcoin in the third quarter of 2023 to $27,900 and $37,800, respectively. The average production cost after the halving for crypto miners is expected to be $37,856.
The halving event decreases the block reward conferred to miners by 50%, thereby cutting the pace of new Bitcoin creation as part of the network's deflationary supply control policy. The approaching halving, expected in April 2024, will lower the Bitcoin block reward to 3.125 BTC. Mining costs, however, either stay the same or could even increase due to miners' operations expansion to maintain profitability.
Riot, TeraWulf, and CleanSpark are believed to be primed to maneuver through the halving event. Miners often encounter heavy SG&A costs. To break even, the halving would likely compel them to slash SG&A costs, or otherwise, they might continue operating at a loss, needing to liquidate their HODL balances and other current assets.
CoinShares' analysis predicts a Bitcoin price of $40,000 after the halving. Any price lower could make miners dip into their financial reserves to keep their businesses afloat. In this context, Riot seems to have the best readiness to face the halving event, thanks to their cost structure. However, they're not immune from hurdles if Bitcoin's price drops below $40,000.
Unless the price of Bitcoin remains above $40,000, CoinShares suspects only Bitfarms, Iris, CleanSpark, TeraWulf, and Cormint will continue to be profitable. CoinShares indicates that while most miners are enhancing their fleet's efficiency, meaning energy consumption compared to mining output, the direct cost structure isn't getting better as they "will need to boost their power draw and energy consumption to mine the same amount of Bitcoin."
CoinShares' analysis shows that electricity costs per Bitcoin, pre-and post-halving, are about 68% and 71% of miners' total cost structure respectively. The larger the miner’s self-mining rigs, the bigger the data center needed on a megawatt basis; this massive capital expenditure can be financed by cash, equity, or debt. However, the latter can jeopardise miners during Bitcoin downturns due to the higher interest expense.
For example, Core Scientific is struggling to regain solvency and recently completed an oversubscribed $55 million equity financing round on Jan. 8. The mining company plans to relist on Nasdaq once bankruptcy proceedings are concluded.
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Published At
1/14/2024 10:37:28 PM
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