Bitcoin mining companies present a compelling investment opportunity as they seem to have reached a bottom following the approval of spot bitcoin exchange-traded funds (ETFs) in the U.S. last month. According to a research report by Bernstein released on Thursday, the broker advises investors to consider buying preferred stocks in the sector before the upcoming reward halving event.
The reward halving, a process where the rewards miners receive for their efforts are cut by 50%, is expected to occur in April. Despite this impending reduction, Bitcoin has exhibited strong performance leading up to the event, with the cryptocurrency likely to maintain momentum throughout the year. The price of Bitcoin surged to $46,000, marking a one-month high early Friday in Europe.
Bernstein recommends gaining exposure to Bitcoin through mining stocks, particularly highlighting Riot Platforms (RIOT) and CleanSpark (CLSK) as top picks in the sector.
Analysts Gautam Chhugani and Mahika Sapra stated, “Given the positive ETF flows momentum, resilient BTC price action and healthy miners adding capacity into the halving, we feel comfortable recommending investors to enter here for our preferred names.” They also noted the institutional narrative driven by bitcoin ETFs, which is expected to fuel demand. As Bitcoin reacts to market dynamics, higher prices are anticipated to attract higher ETF inflows, potentially leading to new highs in 2024.
Historically, halving events have been perceived as “risk-off” occasions for the sector as they prompt the market to eliminate high-cost miners operating at unsustainable costs. Bernstein anticipates that around 15% of the bitcoin hash rate may shut down following the halving. However, if prices remain robust, the decline could be less severe. The report highlights that even at a $44,500 bitcoin price, most U.S.-listed miners appear relatively well positioned, even if their costs double post-halving.
Additionally, positive ETF flows have contributed to a favorable environment for Bitcoin, providing an additional tailwind for the cryptocurrency market. “Consistent net ETF inflows mean the overall market will lean bullish, and reflexivity should ensure a higher price-higher inflows feedback loop,” the report emphasized.
