The Impact of Bitcoin Halving on Mining Companies
In April or May of next year, the next Bitcoin halving is expected to occur. During this event, Bitcoin miners will receive only half of the current reward for each mined block, effectively halving the inflation of Bitcoin. This means that it will become significantly harder for miners to remain profitable, unless the price of Bitcoin experiences a substantial increase.
“Bitcoin mining stocks could plummet”
In an analysis of Bitcoin mining company Riot Platforms (RIOT), Seeking Alpha suggests that the company will require a Bitcoin price of at least $98,000 after the 2024 halving in order to justify its current stock price.
Riot, like many other miners, aims to expand its production capacity to remain competitive. However, even with a target of 35 exahashes per second (EH/s), such an astronomical price is necessary to prevent the stock from crashing.
According to Seeking Alpha, Riot currently incurs production costs of $41,700. With the current Bitcoin price at around $29,100, Riot is operating at a loss for the coins it mines. However, the analysts are not entirely pessimistic. Seeking Alpha also anticipates a rising Bitcoin price. Even if 2025 is characterized by a bear market, a Bitcoin price of $75,000 is likely.
Nevertheless, the Bitcoin halving poses a significant challenge. With the number of coins for a given mining capacity expected to be halved in 2024, the annual profit is projected to drop to $197 million. This would imply that Riot’s stock would need to have a market value of around $1 billion by that time. However, the company’s current valuation is $3.11 billion. Therefore, the stock could potentially decrease by almost 68% due to the halving.
Many miners are in a precarious position
Even if Riot does not further expand its production capacity, Seeking Alpha believes that a substantial decline is unavoidable. Unfortunately, the situation is not limited to Riot alone. Among listed mining companies, Riot has relatively low production costs, indicating that many other miners could face even greater difficulties.
In July, JP Morgan also predicted a challenging future for miners post-halving. The extent to which miners will be able to navigate this situation successfully remains uncertain.