Originally published April 23, 2024
Bitcoin’s much anticipated quadrennial halving occurred last weekend. And one of the byproducts of that event is the rewards earned by bitcoin miners will be, well, halved. To be exact, the most recent halving pares the rewards earned by miners to 3.125 bitcoins from 6.25.
Before the halving, some market observers speculated that reduced rewards for miners would crimp bottom lines. That's a significant concern in a young, margin-sensitive industry. The specter of the halving potentially imperiling some miners that haven’t reached profit consistency even as bitcoin prices have jumped is something for investors to ponder and it shouldn’t be ignored when considering exchange traded funds such as the Invesco Alerian Galaxy Crypto Economy ETF (SATO) and the Bitwise Crypto Industry Innovators ETF (BITQ), among others.
There is good news, though. While the halving clearly reduces rewards for miners, some of those companies, including some residing in ETFs such as BITQ and SATO, are making strides in diversifying their business models. This reduces dependence on mining bitcoin and other digital assets.
For Bitcoin Miners, Diversification Matters
Shares of bitcoin miners have tendencies to react adversely in the run-up to halvings. That was on display this year. A basket of 14 U.S.-listed miners tracked by JPMorgan shed 28% of its market capitalization in the first half of this month.
That underscores the importance of diversification for BITQ and SATO holdings. However, there is good news. Some firms residing in those ETFs and other comparable funds have already taken steps to diversify their revenue streams. This includes spreading into the artificial intelligence (AI) space and powering data centers.
“Bitcoin mining data centers in the future will work hand-in-glove with power generators and grid operators to serve as a virtual battery for grid operators – allowing them to increase base load, curtail bitcoin data centers when they need to, and avoid peak generation loads,” reported MacKenzie Sigalos for CNBC, citing Core Scientific CEO Adam Sullivan.
The halving also prompted some miners to evaluate their power costs. This stoked renewed emphasis on efficiencies and the adoption of renewable energy. Some firms that proved successful on that front aren’t just prepared to survive and thrive in a post-halving world. They’re also generating excess energy that can be marketed to industrial customers. As noted above, AI is a potentially rich area for bitcoin miners. That could increase the long-term allure of some BITQ and SATO holdings.
“In the last year, there has been a surge in demand for AI computing and infrastructure that can support the massive workloads required to power these novel machine learning applications. In a new report, digital asset fund manager CoinShares says it expects to see more miners shift toward artificial intelligence in energy-secure locations because of the potential for higher revenues,” according to CNBC.
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