It’s still six months away, but the April 2024 bitcoin halving is already generating plenty of attention among cryptocurrency investors. The reasoning behind that is simple. History shows that halvings often boost the price of the largest digital currency.
Should that scenario play out again, it could benefit exchange traded funds such as the Invesco Alerian Galaxy Crypto Economy ETF (SATO). Again, the reasoning is simple. SATO ‘s 37 holdings include an array of crypto miners, shares of which are intimately correlated to bitcoin prices. Translation: If the halving lifts bitcoin itself, there could be trickle-down effects to SATO components.
Recent bitcoin price action suggests there is already some halving-related appreciation being priced into the largest digital currency. That’s pertinent to investors considering SATO. The near-term upside could give SATO member firms the opportunity to lock in profits ahead of the halving. This will almost certainly make mining activities more difficult.
Ahead of Halving, Margins Matter for SATO Holdings
Broadly speaking, many SATO member firms haven’t returned to the profitability levels seen during bitcoin’s go-go days of 2021. This is the result of the digital currency still being well off the highs seen that year. Still, some of these firms are stemming losses and boosting margins. This indicates they’ll likely be more margin-conscious ahead of the halving.
“A measure of miners’ earnings from using 1 petahash per second of computing power in a day has risen to over $81 from $70 at the start of November but remains well below a peak of $127 in early May, according to mining data platform Hashrate Index,” reports Reuters. “With six months to go till miners’ share of rewards is slashed, they are looking for ways to keep their margins from shrinking in the highly competitive environment.”
Another point to note is that bitcoin halving’s usually make mining the cryptocurrency more energy-intensive. That could compel more SATO holdings to embrace cost-effective renewable energy or move mining operations to locations outside North America in an effort to support margins.
Some of the companies residing in SATO are also upgrading mining rigs ahead of the halving because that can help with energy costs and other efficiencies. Perhaps that could be impactful post-halving – periods that often seen bitcoin soar.
“Bitcoin prices have typically rallied in the past following halvings. Six months after the first halving in 2012, the price jumped to $126 from $12. After the second halving in 2016, it went to $1,000 from $654 within seven months and in 2020 it shot up to $18,040 from $8,570 in the same time period,” adds Reuters.
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