Needham & Company has released its latest analysis on the likely impacts of the upcoming Bitcoin halving on the cryptocurrency sector. The report highlights that the reduction in Bitcoin block rewards is expected to have only a modest impact on key industry players, provided that Bitcoin prices stay stable.
Needham & Company observes a general optimism among Bitcoin miners, with projections showing that if Bitcoin prices remain around $60-70k, the halving could have minimal impact on their EBITDA margins.
However, a sharp drop in Bitcoin prices could hit higher-cost producers and those with leveraged positions in Bitcoin holdings hard. Companies like Marathon Digital (NASDAQ:MARA) Holdings could be particularly affected by such a downturn.
For companies like Coinbase (NASDAQ:COIN) and Robinhood (NASDAQ:HOOD), the report suggests varied outcomes based on different Bitcoin price scenarios post-halving. In bullish scenarios, where Bitcoin could rally above $80k, both publicly traded platforms are expected to see the most positive effects.
Conversely, in bearish scenarios with Bitcoin dropping to around $45k, Coinbase and Robinhood might experience limited negative impacts, along with Applied Digital and CompoSecure to a lesser extent.
Needham provides a historical analysis of price and hash rate performances during previous halvings, noting that while there is typically initial volatility, both metrics tend to stabilize and grow post-halving. The report predicts a slight dip in the hash rate right after the 2024 halving, but expects it to recover and begin trending upwards shortly thereafter.
For Bitcoin mining companies, the report highlights a preference for low-cost producers such as Cipher Mining (NASDAQ:CIFR), Riot Blockchain (NASDAQ:RIOT), and Bitdeer Technologies. This is particularly notable if Bitcoin's price remains above the $60-$65k range, effectively mitigating the risks associated with the halving for these firms.
However, should the hash rate increase significantly or Bitcoin prices drop, high-cost producers with large Bitcoin holdings, like Marathon Digital Holdings, could face outsized negative impacts.
Post-halving, the estimated cash costs to mine one Bitcoin will range from $36k to $52.7k, which is well below the current price levels, indicating that mining can remain profitable under current price assumptions.
Moreover, the report considers various outcomes of the halving event, including a potential "sell the news" situation where bitcoin might slightly decline in value. In more severe downturn scenarios, such as a geopolitical crisis leading to a bear market, substantial negative effects are foreseen particularly for companies heavily reliant on bitcoin-related revenue.
Despite these predictions, Needham does not foresee major impacts on Coinbase and Robinhood from the halving event itself. The research references the modest volume increase seen during the 2020 halving which was overshadowed by larger market movements, such as the March COVID crash and DeFi summer peak later that year.
Current global events, like the ongoing Iran-Israel conflict, are expected to continue causing fluctuations in crypto trading volumes, possibly affecting the market more than halving.
Impact on crypto miners
The report highlights that while the 2024 halving is considered to be relatively de-risked for the covered bitcoin miners, each successive halving could erode miners' margins further and pose a long-term threat to their business model.
The report outlines several risks for bitcoin miners including:
Bitdeer Technologies: Faces challenges from broader macroeconomic uncertainties, such as wars and geopolitical tensions, which could negatively impact cryptocurrency and risk markets. Other risks include fewer or slower-than-expected interest rate cuts and increased regulatory hurdles surrounding bitcoin mining. Additionally, a surge in mining competition from entities that can access cheaper power could pose a threat.
Cipher Mining: Could be impacted by a drop in bitcoin prices below $20,000, unfavorable cryptocurrency regulations, natural disasters disrupting operations, strict environmental regulations, supply chain disruptions, and deteriorating macroeconomic and geopolitical conditions.
Hut 8: Might see its plans constrained by deteriorating macroeconomic conditions or fewer rate cuts than expected. A fall in bitcoin prices or rising machine costs could limit HUT’s ability to invest in capital expenditures necessary to lower production costs.
Digital Holdings: Shares similar risks with CIFR, including price drops, regulatory challenges, operational disruptions from natural disasters, and worsening market conditions.
Riot Blockchain: Is particularly vulnerable to unfavorable cryptocurrency regulations, natural disasters, stringent environmental laws, higher than expected power costs, declines in bitcoin spot prices, and supply chain issues.