Day: May 13, 2024

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The latest report from Bernstein reveals a notable 6% decline in Bitcoin (BTC) mining difficulty last week, marking the most substantial drop since the crypto winter of December 2022. This downturn is seen as a beneficial shift for miners, particularly those with lower operational costs.

According to analysts Gautam Chhugani and Mahika Sapra, this adjustment in mining difficulty reflects broader market dynamics post-Bitcoin halving, with higher-cost mining rigs being phased out due to escalating costs and lower Bitcoin prices. This has led to a decrease in the overall hashrate—the total computational power used in mining and processing transactions on Bitcoin’s proof-of-work blockchain.

The report highlights that the reduction in hashrate has allowed lower-cost miners to increase their market share by approximately 20 basis points since the halving. Companies like Riot Platforms (NASDAQ:RIOT) and CleanSpark (NASDAQ:CLSK), known for their low production costs and robust financial positions, are particularly well-placed to benefit. These companies are expected to continue consolidating their market share through both organic growth and mergers and acquisitions.

Bernstein also points out that a temporary stabilization in Bitcoin prices could advantage these efficient miners, allowing them to capitalize on their expansion strategies without the pressure of a rising hashrate. Furthermore, when Bitcoin prices eventually regain momentum, these miners are positioned to generate increased revenue due to higher production capabilities.

Despite the current fluctuations, Bernstein does not foresee a significant downturn in Bitcoin prices. They predict that the cryptocurrency will remain range-bound in the short term, with the potential for an upward breakout as spot exchange-traded funds (ETFs) begin to receive allocations from registered investment advisors (RIAs), wealth platforms, and other institutional investors.

Bernstein maintains an ‘outperform’ rating for CleanSpark and Riot Platforms, indicating a favorable outlook for these firms, while Marathon Digital (NASDAQ:MARA) holds a ‘market-perform’ rating, suggesting a more neutral expectation.

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Keith Gill, known as @TheRoaringKitty on X (formerly Twitter), recently sparked a significant rally in both meme coins and stocks, notably GameStop (NYSE:GME), after making his first post since late 2021. The post, a meme suggestive of an intense focus period, inspired users to surge into trading, propelling GameStop shares up by 44% in pre-market trading and even doubling during market hours before a trading halt. Similarly, AMC Entertainment Holdings (NYSE:AMC) saw its shares jump as much as 30% after the market opened.

This activity extended into the cryptocurrency sector, particularly on the Solana blockchain where a GameStop-themed meme coin surged over 550%. Other meme tokens like AMC rose by 1200%, and smaller cat-themed coins like kitty (KITTY) saw increases in the thousands of percent. Larger-cap meme coins like Dogecoin (DOGE) and Shiba Inu (SHIB) also enjoyed gains.

Gill, whose bullish stance on GameStop started gaining serious attention on Reddit in 2019, became a key figure in the January 2021 short squeeze that saw the stock skyrocket from $4 to over $120 in just one month, making his initial $53,000 investment worth nearly $50 million at its peak. This dramatic event impacted major hedge funds, notably Melvin Capital, which suffered significant losses due to its short positions in meme stocks.

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Bitcoin mining companies are reducing their operational scale as revenues have significantly decreased, following a recent industry adjustment known as the “halving,” according to a May 13 Coinshares report. The Bitcoin network’s seven-day rolling average hash rate, which measures the computing power used to mine Bitcoin, showed a sharp decline from an all-time high of approximately 650 exahashes per second (EH/s) on April 19 to 586 EH/s by May 11.

The halving event, which occurred on April 19, cut the reward for mining a block of Bitcoin from 6.25 BTC to 3.125 BTC, effectively slashing the miners’ revenue by nearly half. This reduction has forced miners to adopt cost-cutting measures such as optimizing energy expenditures, enhancing mining efficiency, and securing better terms for hardware procurement.

Despite these challenges, CoinShares’ analysis based on Q4 2023 figures suggests that publicly listed Bitcoin mining firms, like Marathon Digital Holdings Inc. (NASDAQ:MARA) and Riot Platforms Inc. (NASDAQ:RIOT), are still profitable, with the average production cost per Bitcoin estimated at $53,000, while Bitcoin traded at $63,000 on Monday. However, profitability has diminished compared to pre-halving levels.

Additionally, new Bitcoin applications such as Ordinals and Runes have increased on-chain activity and network transaction fees, offering another revenue stream for miners. According to Ki Young Ju, CEO of CryptoQuant, transaction fees now constitute 7% of miner revenue, a significant increase from 1% two years ago. This change reflects the evolving landscape and adaptation strategies within the Bitcoin mining industry.

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