Bitcoin (BTC) mining companies appear to have bottomed out following the approval of spot bitcoin exchange-traded funds (ETFs) in the U.S. last month, and broker Bernstein advises buying its preferred stocks in the sector ahead of the next reward halving, it said in a research report Thursday.
The world’s largest cryptocurrency has performed well ahead of the halving, in which the reward miners earn for their efforts is slashed by 50%, and will probably sustain momentum for the rest of the year, Bernstein said. The cut is expected to take place in April. The bitcoin price broke out after each of the three previous events, and this time is already strong ahead of the catalyst, it said. Bitcoin rose to $46,000, a one-month high, early Friday in Europe.
Bernstein recommends achieving bitcoin exposure through mining stocks, and outperform-rated Riot Platforms (RIOT) and CleanSpark (CLSK) are the broker’s top picks in the sector.
“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,” analysts Gautam Chhugani and Mahika Sapra wrote. “The institutional narrative led by bitcoin ETFs is driving demand, and bitcoin being the reflexive asset, we expect higher price will bring higher ETF inflows, leading to new highs in 2024.”
Normally halving is a “risk-off” event for the sector as the market “looks to clear out high-cost miners, operating at unsustainable costs,” the report said. The broker expects 15% of the bitcoin hash rate to shut down after the halving, but if prices remain strong, the decline could be more muted. “At $44,500 bitcoin price, most of the U.S. listed miners look relatively well positioned, even if their costs double post halving.”
ETF flows have also turned positive, giving the world’s largest cryptocurrency an additional tailwind. “Consistent net ETF inflows means the overall market will lean bullish and reflexivity should ensure a higher price-higher inflows feedback loop,” the report said.