Miners stockpile Bitcoin ahead of upcoming halving event

Cryptocurrency miners are stockpiling near-record amounts of Bitcoin, hoping the token will rise in value and offset a drop in new supply that will cut the rewards for verifying transactions in half, according to a recent Financial Times report.

Major listed miners like Marathon Digital, CleanSpark, and Bitfarms have collectively hoarded Bitcoin worth around $2.8 billion, according to data from The Miner Mag. This comes just days before the reward for mining is cut in half.

After the change, which is set to take place on Friday, global miners will only receive 450 BTC daily (3.125 BTC per block) for verifying the latest transactions, down from the current 900. This quadrennial adjustment was built into the creation of cryptocurrency as a way to hedge against inflation.

Hedge funds have been betting against listed crypto miners, anticipating that the halving will likely hurt their profitability. As a result, their share prices have fallen this year.

The industry spends heavily on energy and technology to compete for new Bitcoin, and less efficient miners are expected to be pushed out of the market as production costs rise. Larisa Yarovaya, associate professor of finance at the University of Southampton commented:

Mining companies are playing a constant game of chicken with each other. […] It’s a business model that’s based more than ever on faith that bitcoin’s price will go up and demand for it will grow.

To offset the decline in mining rewards, crypto executives and traders are betting that Bitcoin, which hit a record high last month, will continue to rise in value this year, following a trend established after previous “halvings.”

Miners are currently holding 46,200 BTC in reserve, the highest recorded level since May 2022, when a market-wide crash forced them to sell their holdings, according to The Miner Mag.

Major US-based miners have significantly increased their Bitcoin hoards. CleanSpark held over 5,000 BTC at the end of March, a 2,400% increase from the same period a year earlier. Marathon Digital has grown its holdings by 50% to 17,300 BTC, while Bitfarms and Riot have increased their holdings by 50% and 20%, respectively. Matthew Schultz, executive chair at mining firm CleanSpark said:

Everyone is hopeful Bitcoin will go up in value and that will solve rewards being cut in half.

This optimism has been fueled by Bitcoin’s 121% rise in the past six months, as US regulators approved stock market funds that invest directly in the cryptocurrency. Bitcoin surged to a record high of $73,800 in mid-March but has since dropped more than 14% to below $60,000. Asher Genoot, chief executive of US miner Hut 8:

Bitcoin is going to be worth more in the future than it is today.

Bitcoin miners are optimisitic

Miners have struggled with profitability after a debt-fueled expansion during the 2021 crypto bull market was curtailed by a crash. However, as the latest halving approached, they spent over $1 billion on new equipment to gain market share and squeeze out competitors.

Despite the miners’ optimism, hedge fund short sellers continue to maintain sizeable bets against a number of them. About 24% of Marathon’s shares are out on loan, indicating strong short interest, according to S&P Global Market Intelligence. Short interest in Hut 8 has risen this year from less than 10% to over 14%, while bets against Riot Platforms have dipped slightly but remain above 19%.

Miners are also hoping that increased activity on the Bitcoin network, such as the trading of non-fungible tokens, will boost their transaction fee revenue. However, experts caution that it is too early to tell whether this will be sufficient to keep mining activity economically viable in the long run.

The report follows an early Bitcoin miner moving 50 Satoshi-era BTC in a widely covered transaction. The Bitcoin mining industry was also in the spotlight in mid-March, when President Joe Biden’s proposed 30% tax on crypto mining power faced criticism for potentially harming the industry and erasing investor wealth.

Featured image: Ideogram