Leading cryptocurrency miners are bracing themselves for the challenges ahead as the mining industry prepares for a major transformation with the 2024 Bitcoin (BTC) halving event.
Asset manager CoinShares analysis suggests that Riot (NASDAQ: RIOT), TeraWulf (NASDAQ: WULF), and CleanSpark (NASDAQ: CLSK) are among the best-positioned companies to weather the impending storm.
The Bitcoin halving event, slated for April 2024, entails a reduction in the block reward given to miners by half, leading to a decrease in the rate of new Bitcoin creation.
This deflationary policy is designed to control the network’s supply. While this reduction in rewards is part of Bitcoin’s intrinsic design, it presents miners with a unique set of challenges.
CoinShares’ analysis paints a clear picture of what miners can expect post-halving.
The cost of production and cash costs per Bitcoin, which were approximately $16,800 and $25,000 in the third quarter of 2023, are expected to surge to $27,900 and $37,800, respectively.
Analysts project that the average production cost for crypto miners post-halving is going to be around $37,856.
These anticipated cost increases stem from the reduction in rewards and the need for miners to expand their operations to remain profitable.
“[…] we think Riot, TeraWulf, and CleanSpark are best positioned going into the halving,” the report said.
One of the key challenges miners face is the significant SG&A (selling, general, and administrative expenses) costs.
Failure to reduce these costs might force miners to operate at a loss. This could potentially lead to the liquidation of their holdings and assets.
$40,000 Bitcoin Price is Necessary for CleanSpark and Other Crypto Miners Post-Halving
CoinShares’ analysis assumes a post-halving Bitcoin price of $40,000.
Below this threshold, mining firms could deplete their financial reserves and operational buffers.
Riot, with its favorable cost structure and robust financial position, appears to be in the best position to navigate the halving event.
Nevertheless, the company is not immune to challenges if the Bitcoin price falls below $40,000.
CoinShares warns that only a select few mining companies, including Bitfarms, Iris, CleanSpark, TeraWulf, and Cormint, are likely to remain profitable if Bitcoin prices dip below the $40,000 mark.
While miners are improving their fleet efficiency by optimizing energy consumption, the direct cost structure remains a concern.
Miners may have to increase their power draw and energy consumption to mine the same amount of Bitcoin. however, The increase in power draw leads to higher operational costs.
Electricity costs continue to account for a significant portion of miners’ total expenses. They comprise about 68% and 71% of the cost structure pre- and post-halving, respectively.
This growing need for electricity is also driving a requirement for larger data centers. Unfortunately, such demand comes with a substantial capital expenditure.
Miners often fund this expansion through cash, equity, or debt financing. The latter, however, potentially increases interest expenses and vulnerability during Bitcoin downturns.
As an illustrative example, Core Scientific, a mining company mentioned in the analysis, recently closed a $55-million equity financing round to return to solvency.
The company intends to relist on Nasdaq after completing its bankruptcy proceedings. Core Scientific highlights the challenges miners face in maintaining profitability in an evolving industry.
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