Bitcoin halved for the third time in its history earlier today, reducing its block reward from 12.5 to 6.25 BTC per closed block. Beyond the statistics and other raw numerical data, it represents different opportunities for different people and companies. We can think of the bitcoin halving from two different investment perspectives—those folks looking to buy the coin themselves and the anticipated movements over the next year—and folks looking to buy into the peripherals, the bitcoin mining companies. The trajectories are different for both.
Understanding what the halving means for the individual investor ultimately comes down to the individual themselves, because everyone comes into bitcoin differently. Some hear about it from the news, others an older friend with a little bit of investment knowledge, and some stumble on it completely unaware in their travels. Whether or not it’s a good time to buy in is a decision best made after hours of research, and listening to others experiences is a good way to start that off.
Before we go any further, if you’re only here for the Bitcoin mining companies and couldn’t give a toss about the coin or its benefits, then cycle down the page. The second half of this story is for you.
I first heard about Bitcoin in a food court during a post-work taco binge in 2012. I worked full time midnights and went to school part time for my BA, which often necessitated getting off work at 7 a.m., and being in class for 9:30 a.m. Yes, I am that kind of crazy. I was early that day, and had spread out my array of textbooks for some before-class studying while I scarfed down my tacos. My neighbour noted the title of my books and scoffed. After inquiring, he told me that politics and economics should never be in the same sentence, and thus, I met my first anarcho-capitalist.
Later on, he told me about Bitcoin and over the course of the next few years, we regularly corresponded about the world of cryptocurrency. His favourite analogy was how buying Bitcoin wasn’t gambling, because in gambling you can lose. But not with bitcoin.
“The house always wins and when you buy Bitcoin, you’re the house,” he said.
I thought it sounded too good to be true, so I listened to my spidey senses and didn’t buy in. He regularly sent me YouTube videos featuring Bitcoin’s chief evangelist Andreas Antonopolous. That led me down the path to Bitcoin’s white paper, and then I started looking at exchanges, and then as I watched the price begin to double on an almost daily basis, I sunk my first few hundred bucks into Bitcoin.
I made money. I won’t say how much, but it was enough to quit my job and start writing full time for awhile. My friend was still bullish in 2017, and lost money when Bitcoin took a dive in 2018, and remains bullish today. He asks me if I’m back into Bitcoin—advises me to be 90% Bitcoin and 10% alts—and says I should treat Bitcoin like an investment instead of a speculative opportunity.
“That’s your retirement, right there. You keep putting money into it and don’t take anything out. You’re going to regret not listening to me in ten years.”
He said that in 2012 when BTC was worth roughly $800. He said that in 2016 when BTC was worth roughly $3,000. He’s said that in 2017 when BTC hit $10K. And while I haven’t seen him in a bit, because I’m no longer in school, have since quit the job and gotten this one, and our paths rarely cross, he would probably still tell me to get in, stay in and become a hodler for life, now that Bitcoin’s halved for the third time. If it follows the trajectory of the previous halvings, he’ll probably be right.
That’s an awfully big if. There are reasons to believe that BTC won’t have the same reach that it did last time. It’s gotten a lot more regulatory attention, institutional investors have gotten in with all the manipulative tactics therein, entire countries have banned it and its production (while others have gotten on the bandwagon), and it’s still the number one choice for black market criminals, giving it the kind of negative PR that keeps well-meaning folks away.
Still, it’s not quite enough to ward off the FOMO gurgling around in my gut. If you’re thinking about getting in, feel free to avail yourselves of my crypto 101 stories found at both thedigitaldecryptor and equity guru.
Bitcoin Mining
The story’s a bit different for miners than it is for investors and while this segment is separated, it’s not really unrelated. The price effects that will sink the battleship of less prepared and unlucky Bitcoin miners over the next year will ultimately reduce Bitcoin’s price, and likely outside of the range of standard volatility. This is to be expected and shouldn’t be a cause for concern. This is natural selection and Bitcoin will course correct when the stronger, better prepared, miners arrive.
But if you’re not into the coin itself, but instead looking at the companies involved in mining Bitcoin, you’re probably not going to like the next few quarters. The halving reduces the block reward—we covered that. But what we haven’t covered is that it doesn’t have an immediate effect on the price of Bitcoin. It also hasn’t had any effect on the hashrate or the difficulty for mining bitcoin, or the price of electricity. At the time of writing, it’s a buck or two shy of CAD$12,000, which ain’t bad as far as bitcoin prices go. Companies mining bitcoin are spending the same amount they spent yesterday, but getting less for it.
There are ways to offset this and we’ve written about them in the past. The best companies get the most cost-efficient equipment, seek out the cheapest (subsidized) electricity deals, and diversify their coin portfolios to cover their losses during the period where BTC isn’t profitable to mine.
The final push
Most bitcoin mining companies have been preparing for months for the halving. Chief among them is Hive Blockchain Technologies. (HIVE.V)
Hive has spent most of the last quarter preparing for the halving by diversifying their coin holdings—adding more GPU’s to mine Ethereum—seeking out subsidized cheap electricity in eastern Canada, and updating their equipment. Today’s news from the company involves 750 new Bitmain S17 antminers, which are now operational at their recently acquired Bitcoin mining operation in Quebec. Bringing the total number of machines using green power to mine Bitcoin at the facility to 14,750.
The new S17+s have increased the company’s computing power by approximately a third to 229 Petahashes per second (PH/s). As they acquire more machines, this will go up, especially given their intended investment of CAD$3 million in Bitcoin mining equipment. This company isn’t playing around. They’re geared up and ready for the post-halving blues.
“The halving of Bitcoin rewards effectively cuts in half the diminishing finite supply of newly minted Bitcoin, and is an important milestone for the network. Bitcoin rewards for miners have halved twice previously, in 2012 and 2016, when the price of Bitcoin was approximately $12 and $650 respectively, and prices rose significantly in the ensuing 18 months. Naturally past performance is no guarantee that previous cycles will repeat themselves, therefore we have been preparing for the halving through the acquisition of our own low cost Bitcoin mining operation in April and subsequent investment in high efficiency computing equipment to both increase the operational efficiency of our Quebec facility and maximize use of its existing 30 megawatt power capacity,” said Frank Holmes, interim executive chairman of HIVE.
Marathon Patent Group (MARA.Q) is another company making their final push towards survival post-halving, announcing today their acquisition of 700 M30S+ASIC Miners from MicroBT. These miners produce 80/Th and will generate 56 petahash of hashing power, which is considerably better than the company’s present S9 antminer production of 46 PH/s.
“We are excited to add these advanced next generation miners at the same time Bitcoin prices have recently experienced substantial appreciation and are testing the psychological $10,000 level. We believe this investment, combined with our lean operating structure and recently improving Bitcoin prices, positions us well prospectively. As we approach the Halving, we will wind down the production of our substantially less energy efficient S-9 Bitmain miners and continue to add more advanced next-generation mining equipment if Bitcoin prices maintain price levels which allow our miners to operation profitably,” said Merrick Okamato, chief executive officer for Marathon.
The company paid $1,277,455 and the purchase was funded with cash on hand. The company expects to take delivery at our Hosting Facility by the end of May and our hosting partner, Compute North, expects to install them within 48 hours of their arrival.
Lastly, we have Riot Blockchain (RIOT.Q), which has been busy on their buildout for the past two months, having signed with a colocation service in New York, while upgrading their outdated S9 antminers with S17’s and S19’s, giving them a much better chance of surviving the post-halving price shock.
There’s really no easy to way to say this.
Bitcoin halves basically every four years or every 210,000 blocks, with the next halving due in 2024, when the block reward goes from 6.25 to 3.125 BTC. There’s no way of knowing what the price for Bitcoin is going to be when that happens. Not for sure. Some pundits think it’s going to follow historical trends and hit the moon at some %1000 rate of development, but a little stark reality suggests that that’s unlikely to happen. Some ill-prepared companies are going to bottom out, while others recognize the opportunity, and maybe another coin will come along to solve Bitcoin’s scaling issues (maybe Ethereum 2.0) and push BTC out of the top spot.
But at least for today Bitcoin’s the best game in town for crypto.
Hodl strong. Or don’t. I’m not your father.
—Joseph Morton