A Bitcoin (BTC 1.32%) halving even is likely to happen within just a few months. In previous halving events, that has typically resulted in a higher value of Bitcoin in the following months.
But what will the impact be on the stocks of companies that mine for Bitcoin? A halving event means that they will receive fewer Bitcoins, which, in turn, means less revenue for their operations -- unless, of course, the digital currency rises in value and offsets those losses.
Does this mean crypto mining stocks could be headed lower this year? Here's a look at what happened the last time there was a halving event.
CRYPTO: BTC
Key Data Points
Halving isn't necessarily bad news for mining stocks
Mining companies earn Bitcoins, which are essentially rewards, for validating transactions. But because there is a finite supply of Bitcoin (21 million coins), there is a need to cut those rewards in half periodically. That has happened every four years, starting with 2012. The next event is likely to happen in April.
The last time a halving event occurred on May 11, 2020, here's what happened to some of the more popular crypto mining stocks over the following 150 days:
| Stock Price on May 11, 2020 | Stock Price on Oct. 8, 2020 | Return | |
| Marathon Digital | $0.76 | $2.14 | 182% |
| Riot Platforms | $1.59 | $2.93 | 84% |
| Bitfarms | $0.42 | $0.22 | (47%) |
| Hut 8 | $4.60 | $3.69 | (20%) |
In the 150 days after the halving event, there is a significant disparity in how these popular crypto-mining stocks performed. Marathon Digital and Riot Platforms both generated significant returns, while Bitfarms and Hut 8 saw declines.
There were many factors to consider during that time frame (e.g. earnings reports, broader market developments, and COVID-19 relief bills) so it can be difficult to assess just how much weight the Bitcoin halving event had on their respective stock performances. And even Bitcoin's price gain during that period is modest compared with how well Marathon and Riot performed.
There were no significant news developments relating to Marathon Digital that would have suggested it should have achieved significantly higher returns than its peers in August 2020. Unfortunately, speculators can add a significant degree of volatility to crypto stocks, and that has largely worked out well for Marathon's valuation -- today it's worth close to $6 billion.
While there is no pattern evident when it comes to halving and these stocks, they have all risen in value since the 2020 halving event. It would be fair to say that, at most, halving is only likely to have a temporary impact on mining stocks if there is any impact at all.
It ultimately all comes back to the price of Bitcoin
Mining companies are constantly investing and working toward increasing their hash rates, resulting in more Bitcoins mined. And so a halving event may not have much of an impact on these companies. Investors have likely also priced these halving events into the stock valuations, as there is an expectation that halving events are inevitable given the finite supply of Bitcoin.
How these stocks perform will likely remain tied to how Bitcoin does. If its value continues to skyrocket, then it may not matter that mining rewards are cut in half as their revenues may still be much higher in the future.
Should you buy crypto mining stocks today?
The big risk for investors continues to be that Bitcoin's path can be unpredictable. While investors are bullish on its future prospects, government regulations and user adoption will ultimately dictate the digital currency's price in the future. There is a lot of hype around crypto, but investing based on that alone can be a dangerous approach. These are speculative investments at best.
Crypto stocks are only suitable for investors with a high tolerance for risk due to their volatility, and there are much better options out there for growth investors to consider.
