Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.
Streamlined by new mining rigs, the cost-effectiveness of mining increases alongside Bitcoin’s bullrun. Not even the halving of the rewards in May to only 6.25 BTC per block could have stopped the increase of mining gains.
The Stock/Flow Model Paints a Positive Long-Term Picture
With Bitcoin passing through its bearish moment this week, it is now back on schedule toward the magical $100k. Remember, the Stock/Flow model has thus far proven to be one of the most accurate tools for predicting BTC’s price moves. This is possible because its algorithm predicts the price of assets based on their rarity and mining rate.
With the current BTC price being so high, mining rewards still managed to surpass its peak in July 2019, regardless of much-reduced mining rewards since the 3rd halving:
1st halving – November 28, 2012 – mining rewards reduced to 25 BTC per block.
2nd halving – July 9, 2016 – mining rewards reduced to 12.5 BTC per block.
3rd halving – May 11, 2020 – mining rewards reduced to 6.25 BTC per block.
Miners’ Revenue Looms Over the Last Peak
Effectively, thanks to Bitcoin’s all-time-high (ATH) price, the mining rewards have increased by nearly 200%—in terms of USD—since the third halving, despite the mining rewards being twice as low in terms of BTC.
This means that Bitcoin continues to work as intended. Its halving protocol is a coding design placed to create an artificial scarcity. From scarcity rises an increase in demand, which is why the post-third-halving period has been so bullish for Bitcoin.
Of course, Bitcoin’s bullrun in the second half of 2020, continuing into 2021, has been greatly magnified by institutional investors. They saw the opportunity to safeguard their cash reserves against an economic landscape dominated by the Fed’s relentless money supply increases. The recent BTC price slump could have deepened without the timely major milestone in legitimizing public blockchains.
The Mining Market Reacts Accordingly
Before 2016, when mining rewards were between 50 to 25 BTC, mining rigs could be found across apartments. From that period, the mining sector has undergone systemic professionalization. PC gamers would often have trouble buying new GPUs (especially from AMD), as they were already bought up by large mining ventures.
With the ongoing Bitcoin bullrun, history is repeating itself. According to Hashr8’s mining report on December 11, 2020, the most current mining rigs have increased by 35% in price. This means that the demand for mining rigs is outpacing the supply, which forced many miners to buy machines on the secondary market. While buying Bitcoin has become popular, mining Bitcoin has soared as well.
Accordingly, this may be a good opportunity to check out the stock prices of crypto mining companies. For instance, the Las Vegas-based Marathon Patent Group (NASDAQ: MARA) has gone up considerably in the last month.
Canaan (NASDAQ:CAN), Ebang International Holdings (NASDAQ:EBON), and Bit Digital (NASDAQ:BTBT) show similar stock rises, between 6% to 30%. This is understandable given that their expenses remain the same as Bitcoin’s price, and mining rewards, increase. Thanks to the usability of popular stock trading apps, stocks have also soared in popularity—and price—throughout 2020.
Outside of Bitcoin, what are you favorite altcoins—or are you a Bitcoin maximalist? Let us know in the comments below.
Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate on the investment team at RW Baird's US Private Equity division, and is also the co-founder of Protective Technologies Capital, an investment firms specializing in sensing, protection and control solutions.