Crypto miners are expected to take a hit to their earnings after the Bitcoin (BTC-USD) halving event is completed in April this year. Crypto miners get rewarded with newly minted bitcoin for contributing computing power to validate transactions on the blockchain network. However, every four years, the Bitcoin protocol cuts in half the reward miners receive for mining new blocks, an event known as “halving.”
The next halving will reduce the per-block subsidy miners receive from 6.25 BTC to 3.125 BTC. The 50% decrease in new bitcoin supply issued could significantly impact miners’ profitability if Bitcoin’s price remains stagnant. Miners with high overhead costs and inefficient mining rigs may be forced to shut down operations if the revenue from freshly minted coins fails to cover their expenses.
While all crypto miners are expected to take a hit, some could fare worse than others. So, in light of this shift in Bitcoin’s supply dynamics, here are three crypto miners for investors to consider selling.
Canaan (CAN)
Canaan (NASDAQ:CAN) is a leader in manufacturing cryptocurrency mining equipment, known for its high-performance ASIC (application-specific integrated circuit) miners.
In the long term, I think it might be risky for investors to invest in companies like CAN, which focuses on ASIC-mining equipment. The long-term energy use of Proof-of-Work (PoW) cryptos like Bitcoin is high and perhaps to an unsustainable level. More coins are also coming out that are intentionally ASIC-resistant as well, with a shift to Proof-of-Stake (PoS) becoming the standard for many coins.
Furthermore, CAN reported for the fiscal year of 2023 that it faced challenges, with its revenue at $211.48 million, marking a steep decline from the previous year. Despite a 29.6% increase in computing power sold, Canaan’s net income significantly suffered, resulting in a net loss of $414.15 million, illustrating the harsh economic conditions it operated under.
While I expect CAN to outperform in the short term, a longer view suggests that risk might be high for investors.
Cipher Mining (CIFR)
Cipher Mining (NASDAQ:CIFR) specializes in Bitcoin mining with an industrial-scale ecosystem of data centers.
With a market cap of $1.5 billion at the time of writing, it’s one of the smaller companies on this list, and I feel that the smaller miners could be the most at risk from the halving event. Smaller operations typically have higher overhead costs and tighter profit margins compared to larger, more established miners. When block rewards are cut in half, these slimmer margins get eroded further, making it difficult for inefficient miners to turn a profit without a significant increase in Bitcoin’s price.
However, CIFR has some plans to mitigate its risks, including the purchase of 16,700 new Avalon miners, expected to be delivered and installed in its Texas facilities by the second quarter. Following this expansion, the company’s total self-mining capacity is expected to reach 8.4 EH/s.
Hut 8 Mining (HUT)
Hut 8 Mining (NASDAQ:HUT) is known for its high-capacity mining operations. It’s also one of the smaller Bitcoin mining operations I feel will struggle.
The issue with Bitcoin mining companies, in general, is that their futures are becoming increasingly more speculative as time goes on. If Bitcoin prices stagnate or decline, these companies’ profitability comes under significant pressure. As mining difficulty increases over time due to how Bitcoin is designed, mining operations must continually invest in more powerful and energy-intensive hardware just to maintain the same output levels.
That has led companies like HUT to expand their physical infrastructure. Construction is underway at a new digital asset mining site in Culberson County, Texas. Expected to be operational in Q2 2024, the site is anticipated to have a self-mining capacity of approximately 3.6 EH/s.
Just like with CIFR, investing in crypto miners may be risky enough without also assuming all additional company-specific risks of smaller companies, and the rewards might not be there to compensate for them fully.
On the date of publication, Matthew Farley did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
