With the halving just around the corner, scheduled for April 20, investors are closely assessing the potential impact on the cryptocurrency market.
To shed light on the event, analysts at Bernstein delved into five key questions.
What is Bitcoin halving?
Bitcoin halving refers to the process where the reward for mining new Bitcoin blocks is reduced by half approximately every four years. This mechanism is built into the Bitcoin protocol to control the supply of Bitcoin and ensure its scarcity over time. The upcoming halving will reduce the block rewards from 6.25 to 3.125 Bitcoins per block.
How has Bitcoin price reacted to past halving cycles?
Analysts at Bernstein explain that historically, Bitcoin has experienced price cycles tied to halving events, typically initiating new four-year cycles. However, they state the halving itself does not guarantee price appreciation; instead, price gains often coincide with increased “demand catalysts,” such as institutional adoption and favorable market conditions, they explain.
What will be the impact on Bitcoin network hash rate post halving?
The analysis by Bernstein suggests a potential 7% reduction in the network hash rate post-halving. Despite this, the investment research firm expects strong Bitcoin prices and additional revenue sources like network fees to mitigate significant disruptions in mining operations.
How does halving impact the miners covered by Bernstein?
“For top listed Bitcoin miners we cover, ‘halving’ is a potential catalyst for further market consolidation,” say analysts at Bernstein.
Top Bitcoin miners, such as RIOT and CLSK, anticipate doubling their capacity by 2024 to offset reduced block rewards. These miners operate at competitive production costs and are strategically positioned to capitalize on market consolidation through acquisitions and organic growth.
Why have mining stocks experienced constant selling?
Despite Bitcoin’s optimistic outlook, mining stocks have underperformed the cryptocurrency in 2024. This discrepancy is attributed to mining stocks being viewed as “mere Bitcoin proxies,” overshadowing fundamental differences among mining companies.
Overall, the analysis by Bernstein underscores the resilience of Bitcoin amid market fluctuations, with mining stocks poised for potential revaluation post-halving. The firm recommends “investors to start adding RIOT, CLSK here, and expect, post halving, the market would reward these names for superior execution as they emerge market leaders by self-mining hash rate.”
