The fourth Bitcoin (BTC-USD) halving, scheduled for mid-April 2024, is poised to significantly impact the crypto market. Understanding how the halving will impact Bitcoin price dynamics and crypto mining is critical, especially when choosing which stocks to sell after the halving.
The three picks we will explore focus on different niches. Two are crypto miners, and one is a company that feels Bitcoin is better than gold. Assuming that the price of Bitcoin stays stable, the two miners will see an immediate decrease in revenue following the halving. This is because miners who perform the same amount of computing power will earn fewer bitcoins post halving. Two other factors also make the stocks unappealing: shareholder dilution and decreasing Bitcoin production.
MicroStrategy (MSTR)
MicroStrategy (NASDAQ:MSTR) exemplifies the type of company to watch when researching stocks to sell after the halving. Known for its aggressive stance in purchasing and holding Bitcoin, MSTR’s aggressive, debt-fueled path of Bitcoin acquisitions will have significant implications after the Bitcoin halving.
The strategy is starting to catch. In early March, when MSTR launched a new $500 million convertible note offering, the markets reacted negatively. The stock reported a 7% price drop after the announcement, indicating investors are getting tired of loading up on the digital asset through debt.
However, MicroStrategy founder Michael Saylor continues to remain a passionate advocate for accumulating Bitcoin. He believes the digital asset is going to “eat” gold because it has all of its positives of the metal and none of the negatives.
With its most recent purchase, MicroStrategy now owns around 1% of all Bitcoin or 214,246 bitcoins. To put things into perspective, a total of 21 million Bitcoins are available for mining, with 19.7 million in circulation. Overexposure to any asset class is bad, but it becomes worse when it is volatile, like Bitcoin.
Short seller Kerrisdale Capital is also criticizing MicroStrategy for overvaluation because of its significant holdings of Bitcoin. The investment company claims that the inflated stock price is the result of MicroStrategy’s decision to value its Bitcoin assets at $177,000 per token, which is far more than the current market price. According to Kerrisdale, there are more appealing investment options than MicroStrategy when it comes to digital asset exposure.
The report suggests MSTR stock deserves a valuation between $700 and $800 a share. The number is significantly less than its most recent closing price of around $1,700.
Argo Blockchain (ARBK)
Argo Blockchain (NASDAQ:ARBK) holds the potential to become one of the biggest losers as we approach the Bitcoin halving event in mid-April, with mining efficiency slowing down at a critical juncture.
ARBK revealed a 20% decrease in daily Bitcoin output in January. As a result, mining income decreased from $6.6 million sequentially to $5.3 million in January, a 19% decrease.
A 16% drop in the hash price of Bitcoin and, to a lesser extent, weather-related delays contributed to the drop.
It is noteworthy that increasing network difficulty and reduced transaction fees on the Bitcoin network caused the hashprice decline. These elements point to a tough operating environment for miners. Changes in transaction fee income and network difficulty can significantly influence profitability. Given the current state of affairs, things will not get better for Argo Blockchain after the halving event.
Shareholder dilution is the other main problem that Argo investors are dealing with. 523.5 million shares are currently issued for ARBK, a sharp increase from 293.8 million shares as of December 2018. This is not a crypto-specific issue; rather, it deals with the management’s growth strategy. However, with markets in a volatile mode in the runup to Bitcoin’s fourth “halving” in April this is a stock to sell.
Iris Energy (IREN)
Iris Energy (NASDAQ:IREN) is in the same boat as ARBK, suffering from a slowdown in Bitcoin production and significant shareholder dilution.
In contrast to 341 bitcoins mined in January, IREN mined 310 bitcoins in February. The operational hash rate was 7 exahashes per second (EH/s) for the whole month.
From $14.5 million in January to $15.2 million in the current month, mining income increased. The primary reasons for this gain in revenue are the higher average hash rate of 6.3 EH/s and the rise in the price of Bitcoin to $49.1k. These factors imply that although fewer bitcoins were mined, the output’s worth was greater because of advantageous market circumstances.
IREN is also infamous for using share issuances to fuel organic growth. The most current report states that there are 84.4 million outstanding shares, which is 660% greater than the 11.1 million shares reported in June 2019.
Lastly, the absence of Bitcoin holdings is another factor that will probably make investors avoid IREN. These significant holdings will probably help peers like Riot Blockchain (NASDAQ:RIOT), Marathon Digital Holdings (NASDAQ:MARA), and CleanSpark (NASDAQ:CLSK). All have sizable quantities of Bitcoin in their portfolios to complement their mining activities. In the event of a halving, Bitcoin is predicted to rise.
As a result, companies like RIOT, MARA, and CLSK will benefit more from a halving event. It makes them potentially better investments than IREN.
On the publication date, Faizan Farooque did not have (directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
