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Needham & Company has released its latest analysis on the likely impact of the upcoming halving on the cryptocurrency sector. The report highlights that the reduction in Bitcoin block rewards is expected to have only a modest impact on major industry players, assuming Bitcoin prices remain stable.
Needham & Company observes a general optimism among Bitcoin miners. Predictions show that if Bitcoin prices remain around $60,000 to $70,000, 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:) Holdings could be particularly affected by such a downturn.
For companies like Coinbase (NASDAQ:) and Robinhood (NASDAQ:), the report suggests different outcomes based on different post-halving Bitcoin price scenarios. In bullish scenarios where Bitcoin could rise above $80,000, both publicly traded platforms are expected to see the most positive impact.
Conversely, in a bearish scenario where Bitcoin falls to around $45,000, Coinbase and Robinhood could experience limited negative impact, as could 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 volatility typically occurs initially, both metrics tend to stabilize and grow post-halving. The report predicts a slight decline in hash rate immediately after the halving in 2024, but expects it to recover and begin an uptrend shortly thereafter.
The report highlights that Bitcoin mining companies favor low-cost producers such as Cipher Mining (NASDAQ:), Riot Blockchain (NASDAQ:), and Bitdeer Technologies. This is particularly notable if the Bitcoin price remains above the $60,000-$65,000 range, effectively mitigating the risks associated with the halving for these companies.
However, if the hash rate increases significantly or Bitcoin prices decline, high-cost producers with large Bitcoin holdings, like Marathon Digital Holdings, could suffer an outsized negative impact.
After the halving, the estimated cash cost to mine one Bitcoin will be between $36,000 and $52.7,000, well below current price levels, suggesting that mining can remain profitable under current price assumptions.
Additionally, the report considers various outcomes of the halving event, including a possible “sell the news” situation in which Bitcoin could easily lose value. In more severe downturn scenarios, such as a geopolitical crisis leading to a bear market, significant negative impacts can be expected, especially for companies that rely heavily on Bitcoin sales.
Despite these predictions, Needham does not expect the halving event itself to have a major impact on Coinbase and Robinhood. The study points to the modest volume increase during the halving in 2020, which was overshadowed by larger market moves such as the COVID crash in March and DeFi's summer peak later that year.
Current global events, such as the ongoing Iran-Israel conflict, are expected to continue to cause fluctuations in crypto trading volumes, potentially causing the market to more than halve.
Impact on crypto miners
The report highlights that while the 2024 halving is considered relatively low-risk for covered Bitcoin miners, any subsequent halving could further erode miners' margins and pose a long-term threat to their business model.
The report details several risks for Bitcoin miners, including:
Bitdeer Technologies: Faces challenges from broader macroeconomic uncertainties such as wars and geopolitical tensions that could negatively impact cryptocurrency and venture markets. Other risks include lower or slower rate cuts than expected and increased regulatory hurdles related to Bitcoin mining. Additionally, an increase in mining competition from companies with access to cheaper electricity could pose a threat.
Cipher Mining: Could be impacted by a drop in Bitcoin prices below $20,000, adverse cryptocurrency regulations, natural disasters disrupting operations, strict environmental regulations, supply chain disruptions, and worsening macroeconomic and geopolitical conditions.
Hut 8: Plans could be constrained by worsening macroeconomic conditions or fewer interest rate cuts than expected. A decline in Bitcoin prices or rising machinery costs could limit HUT's ability to invest in the capital expenditures necessary to reduce production costs.
Digital Holdings: Has similar risks to CIFR, including price declines, regulatory challenges, business interruptions due to natural disasters and deteriorating market conditions.
Riot Blockchain: Is particularly vulnerable to unfavorable cryptocurrency regulations, natural disasters, strict environmental laws, higher-than-expected electricity costs, falling Bitcoin spot prices, and supply chain issues.
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