The conventional wisdom is that the halving will send the price of Bitcoin (CRYPTO: BTC) soaring. But that doesn't mean that everything crypto-related is going to soar as well. In fact, quite the opposite.
I'm particularly concerned about some of the formerly high-flying Bitcoin mining stocks, such as Riot Platforms (NASDAQ: RIOT) and Marathon Digital Holdings (NASDAQ: MARA). And the Bitcoin halving could be more bad news for Ethereum (CRYPTO: ETH), which already appeared to be falling out of favor with investors. Let's take a closer look.
Bitcoin mining stocks
It probably sounds counter-intuitive that Bitcoin mining stocks could be poised for a market downturn after the halving. Weren't these some of the best-performing stocks of 2023? Weren't they roundly celebrated as some of the best Bitcoin proxy stocks you could buy?
Yes, but that was before the Bitcoin halving. In a halving event, the reward paid to Bitcoin miners for adding a new block to the Bitcoin blockchain is cut by one-half. Before the halving, miners earned 6.25 Bitcoins for every block they created; after the halving, they will earn 3.125 bitcoins for every block.
Once you do the math, you'll be absolutely blown away by what that means for the revenue and earnings of Bitcoin miners such as Riot Platforms and Marathon Digital Holdings. Given the current Bitcoin price of $66,000, they are effectively losing more than $200,000 in revenue for every new block they mine! Unless the price of Bitcoin doubles, they are going to have a very difficult time breaking even.
That's why there could be a major shakeout in the Bitcoin mining industry in 2024. At the end of the day, only the most efficient miners running the most powerful Bitcoin mining rigs have any chance of remaining profitable. So that's why I'm bearish on the likes of Riot Platforms and Marathon Digital Holdings. The Bitcoin halving has a direct, immediate, and consequential impact on how they do business.
Ethereum
The other big loser could be Ethereum. Quite simply, the Bitcoin halving comes at a really bad time for Ethereum.
In mid-April, the SEC decided to postpone any further decision on new spot Ethereum ETFs until later this year. The initial hope was for SEC approval sometime in May, but that simply is not going to happen now. The earliest decision on a spot Ethereum ETF will come in June. But even that might be a bit too optimistic. Remember, the SEC did a lot of foot-dragging before ever approving the spot Bitcoin ETFs, so this process could last for some time.
Moreover, there are now rumblings that the SEC is investigating Ethereum. It's not that Ethereum did anything wrong it's just that the SEC is not fully convinced that Ethereum is not a "security." For you and me, it might be obvious that Ethereum is a crypto. But not so for the SEC. Ever since Ethereum converted from a proof-of-work blockchain to a proof-of-stake blockchain in September 2022, the SEC has been skeptical.
Right now, there are a handful of different theories of why the SEC might be investigating Ethereum. One concern, of course, is that Ethereum somehow morphed into a security as a result of becoming a proof-of-stake blockchain. It all comes down to the methodology that the SEC uses to determine whether or not something is a security. The SEC might take an unfavorable view of certain activities (such as staking) on the Ethereum blockchain.
So it's not so much that Ethereum is a bad investment; it just looks like a much less attractive investment compared to Bitcoin right now. It doesn't have the spot ETFs like Bitcoin does. It doesn't have the full support of Wall Street like Bitcoin has. And it doesn't have the full SEC regulatory sign-off that Bitcoin apparently has. So, if you were making a choice between Bitcoin and Ethereum, which one would you choose?
Is there a silver lining?
Of course, there might be a happy ending to the story for both the Bitcoin mining stocks and Ethereum. Some Bitcoin miners are now looking into ways to repurpose their massive computing power for artificial intelligence. That might lead to a brand-new revenue opportunity in a potential multitrillion-dollar industry.
For Ethereum, the Bitcoin halving might be the catalyst for more regulatory clarity on crypto. In turn, this might open the floodgates for more Wall Street products targeted to crypto investors. During the previous Bitcoin halving, Ethereum was a star performer, so maybe things will turn around soon.
That being said, I'm avoiding Bitcoin mining stocks and Ethereum for now. Compared to investing in Bitcoin, they offer more risk and less upside. Bitcoin is still the clear no-brainer way to play the Bitcoin halving.