3 Losers of the Bitcoin Halving

Conventional wisdom is that the halving will push the price of Bitcoin (CRYPTO: BTC) higher. But that doesn’t mean everything crypto-related will rise as well. Actually, quite the opposite.

I’m particularly concerned about some of the formerly high-flying Bitcoin mining stocks like Riot Platforms (NASDAQ: RIOT) and Marathon Digital Holdings (NASDAQ: MARA). And the Bitcoin halving could be even more bad news for Ethereum (CRYPTO: ETH), which appears to have fallen out of favor with investors. Let’s take a closer look.

Bitcoin mining stocks

It may seem counterintuitive that Bitcoin mining stocks are poised for a market downturn after the halving. Weren’t these among the best-performing stocks of 2023? Aren’t they widely celebrated among the best Bitcoin proxy stocks you can buy?

Yes, but that was before the Bitcoin halving. During the halving event, the reward paid to Bitcoin miners for adding a new block to the Bitcoin blockchain is cut in half. Before the halving, miners earned 6.25 Bitcoins for each block they created; After the halving, they will earn 3,125 Bitcoins for each block.

Once you do the math, you’ll definitely be surprised to see what this means for the revenues and earnings of Bitcoin miners like Riot Platforms and Marathon Digital Holdings. Considering the current Bitcoin price is $66,000, they are effectively losing over $200,000 in revenue for each new block they mine! Unless the price of Bitcoin doubles, they will have a very hard time breaking even.

For this reason, there may be a major shake-up in the Bitcoin mining industry in 2024. At the end of the day, only the most efficient miners running the most powerful Bitcoin mining hardware have a chance of remaining profitable. That’s why I’m biased towards companies like Riot Platforms and Marathon Digital Holdings. The Bitcoin halving has a direct, immediate and consequential impact on the way business is done.

Ethereum

The other big loser could be Ethereum. Simply put, the Bitcoin halving comes at a really bad time for Ethereum.

In mid-April, the SEC decided to postpone any decision on new spot Ethereum ETFs until later this year. The initial hope was for SEC approval in May, but that will no longer happen. The earliest decision on the Ethereum ETF will be made in June. But even this might be a little too optimistic. Remember, the SEC put a lot of effort into approving spot Bitcoin ETFs, so this process may take a while longer.

The story continues

Moreover, there are rumors that the SEC is investigating Ethereum. This doesn’t mean Ethereum is doing anything wrong; it’s just that the SEC isn’t fully convinced that Ethereum is not a “security.” It may be obvious to you and me that Ethereum is a crypto. But that is not the case for the SEC. The SEC has been skeptical since Ethereum transitioned from a proof-of-work blockchain to a proof-of-stake blockchain in September 2022.

There are currently several different theories as to why the SEC may be investigating Ethereum. One concern, of course, is that Ethereum will somehow become a security as a result of becoming a proof-of-stake blockchain. It all depends on the methodology the SEC uses to determine whether something is a security or not. The SEC may have a negative view on certain activities (such as staking) on ​​the Ethereum blockchain.

Image source: Getty Images.

So it’s not like Ethereum is a bad investment; It currently looks like a much less attractive investment compared to Bitcoin. It does not have spot ETFs like Bitcoin. It does not have the full support of Wall Street like Bitcoin. And it doesn’t seem to have all the SEC regulatory approval that Bitcoin has. So, if you had to choose between Bitcoin and Ethereum, which would you choose?

Is there a silver lining?

Of course, there could be a happy ending to the story for both Bitcoin mining stocks and Ethereum. Some Bitcoin miners are now looking for ways to repurpose their massive computing power for artificial intelligence. This could lead to a whole new revenue opportunity in a potentially trillion-dollar industry.

For Ethereum, the Bitcoin halving could be the catalyst for further clarification of crypto-related regulations. This could pave the way for more Wall Street products targeting crypto investors. During the previous Bitcoin halving, Ethereum was a stellar performer, so maybe things will turn around soon.

That said, I’m avoiding Bitcoin mining stocks and Ethereum for now. They offer more risk and fewer benefits compared to investing in Bitcoin. Bitcoin is still the simplest way to play the Bitcoin halving.

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Dominic Basulto has positions in Bitcoin and Ethereum. The Motley Fool has positions in and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.

3 Losers of Bitcoin Halving was first published by The Motley Fool