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<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="820" height="461" src="https://cms.cnbcafrica.com/wp-content/uploads/2024/04/103389971-GettyImages-154793097-820x461.jpg" alt="" class="wp-image-480295" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2024/04/103389971-GettyImages-154793097-820x461.jpg 820w, https://cms.cnbcafrica.com/wp-content/uploads/2024/04/103389971-GettyImages-154793097-300x169.jpg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2024/04/103389971-GettyImages-154793097-160x90.jpg 160w, https://cms.cnbcafrica.com/wp-content/uploads/2024/04/103389971-GettyImages-154793097-768x432.jpg 768w, https://cms.cnbcafrica.com/wp-content/uploads/2024/04/103389971-GettyImages-154793097-1536x864.jpg 1536w, https://cms.cnbcafrica.com/wp-content/uploads/2024/04/103389971-GettyImages-154793097.jpg 1920w" sizes="(max-width: 820px) 100vw, 820px" /><figcaption class="wp-element-caption">Chris Ratcliffe | Bloomberg | Getty Images</figcaption></figure>



Elliott Management has built a roughly $1 billion stake in miner Anglo American in recent months, a person familiar with the matter told CNBC.



Anglo American shares were up 5% on the news Friday.



News of the activist’s position comes as the $43 billion, London-based miner faces takeover interest from BHP, a mining giant with worldwide operations. Anglo rejected BHP’s $39 billion takeover offer Friday morning, saying BHP’s offer “significantly undervalues Anglo American and its future prospects.”



Anglo American declined to comment. The company is one of the largest producers of copper in the world.



BHP’s bid would have called for the spinoff of Anglo American’s South African subsidiaries. The metal plays a critical role in the worldwide transition to clean energy, and is used in the manufacture of EVs and wind turbines.



Anglo American chairman Stuart Chambers noted in the company’s rejection that copper represented “30% of Anglo American’s total production, and with the benefit of well-sequenced and value-accretive growth options in copper and other structurally attractive products,” there was more value to be created for shareholders in the months and years ahead.



Elliott’s position was first reported by Bloomberg.



Elliott has extensive experience with mining companies, including at suitor BHP in 2017. The activist urged the company to spin off its petroleum businesses and ditch its primary listing in Australia in favor of one in London.



BHP initially rejected those proposals, before exiting the oil business in 2021. The Australian miner is one of the largest in the world, with a market cap of $145 billion and mining sales of $53.8 billion in 2023.



CNBC’s Karen Gilchrist contributed reporting.

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Elliott takes $1 billion stake in Anglo American as miner faces takeover interest

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<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="820" height="462" src="https://cms.cnbcafrica.com/wp-content/uploads/2024/04/107406139-1714028329607-gettyimages-81814144-garljk052k-820x462.jpeg" alt="" class="wp-image-479881" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2024/04/107406139-1714028329607-gettyimages-81814144-garljk052k-820x462.jpeg 820w, https://cms.cnbcafrica.com/wp-content/uploads/2024/04/107406139-1714028329607-gettyimages-81814144-garljk052k-300x169.jpeg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2024/04/107406139-1714028329607-gettyimages-81814144-garljk052k-160x90.jpeg 160w, https://cms.cnbcafrica.com/wp-content/uploads/2024/04/107406139-1714028329607-gettyimages-81814144-garljk052k-768x432.jpeg 768w, https://cms.cnbcafrica.com/wp-content/uploads/2024/04/107406139-1714028329607-gettyimages-81814144-garljk052k.jpeg 929w" sizes="(max-width: 820px) 100vw, 820px" /><figcaption class="wp-element-caption">Miners carrying out operations. Graeme Williams | Gallo Images Roots Rf Collection | Getty Images</figcaption></figure>



Mining giant BHP Group on Thursday said it had made an all-share takeover offer for rival Anglo American, valuing the smaller company at £31.1 billion ($38.9 billion).



Anglo American shares leapt at the market open and were 12% higher at 9 a.m. in London.



The company confirmed it had received an “unsolicited, non-binding and highly conditional combination proposal,” which it said it was reviewing with advisers.



Australia-based BHP, the biggest listed miner according to Companies Market Cap, said that the deal would deliver 0.7097 BHP shares per Anglo American share to Anglo American’s ordinary shareholders.



A combination of the firms would form a juggernaut in copper mining and the world’s largest player in the space which would supply 10% of global output, according to a Reuters analysis. Anglo American has a huge copper operation based in South America and a production target for the metal of 730,000 to 790,000 tons in 2024. This compares with a copper output aim between 1.7 million and 1.9 million for BHP over the same period.



Mining firms are seeking to shore up copper supplies over the years ahead due to projected shortages and the metal’s key role in the energy transition, with uses in electric vehicles, power grids and wind turbines.



The mining industry has experienced an uptick in merger and acquisition activity over the last four years as companies position themselves for changing demand patterns.



BHP in 2022 merged its dual-floated business into a single legal entity with a primary listing in Australia.



Markets had closed before the announcement Thursday morning.



The proposal would entail divestments by Anglo American to its shareholders of its stakes in South Africa-based Anglo American Platinum Limited and Kumba Iron Ore Limited.



“The combination would bring together the strengths of BHP and Anglo American in an optimal structure. Anglo American would&nbsp;bring its assets and long-term growth potential. BHP would bring its higher&nbsp;margin cash generative assets&nbsp;and growth projects along with its larger free cash flows and stronger balance sheet,” BHP Group said.

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Anglo American shares pop 13% after BHP Group’s $39 billion takeover bid to form mining juggernaut

<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="820" height="462" src="https://cms.cnbcafrica.com/wp-content/uploads/2024/04/107383266-1709738325082-gettyimages-2055746202-AFP_34KV84R-820x462.jpeg" alt="" class="wp-image-479878" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2024/04/107383266-1709738325082-gettyimages-2055746202-AFP_34KV84R-820x462.jpeg 820w, https://cms.cnbcafrica.com/wp-content/uploads/2024/04/107383266-1709738325082-gettyimages-2055746202-AFP_34KV84R-300x169.jpeg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2024/04/107383266-1709738325082-gettyimages-2055746202-AFP_34KV84R-160x90.jpeg 160w, https://cms.cnbcafrica.com/wp-content/uploads/2024/04/107383266-1709738325082-gettyimages-2055746202-AFP_34KV84R-768x432.jpeg 768w, https://cms.cnbcafrica.com/wp-content/uploads/2024/04/107383266-1709738325082-gettyimages-2055746202-AFP_34KV84R.jpeg 929w" sizes="(max-width: 820px) 100vw, 820px" /><figcaption class="wp-element-caption">US Federal Reserve Board Chairman Jerome Powell arrives to testify at a House Financial Services Committee hearing on the “Federal Reserve’s Semi-Annual Monetary Policy Report,” on Capitol Hill in Washington, DC, March 6, 2024.  Mandel Ngan | Afp | Getty Images</figcaption></figure>



With the economy humming along and the stock market, despite some recent twists and turns, hanging in there pretty well, it’s a tough case to sell that higher interest rates are having a substantially negative impact on the economy.



So what if policymakers just decide to keep rates where they are for even longer, and go through all of 2024 without cutting?



It’s a question that, despite the current conditions, makes Wall Street shudder and Main Street queasy as well.



“When rates start climbing higher, there has to be an adjustment,” said Quincy Krosby, chief global strategist at LPL Financial. “The calculus has changed. So the question is, are we going to have issues if rates remain higher for longer?”



The higher-for-longer stance was not what investors were expecting at the beginning of 2024, but it’s what they have to deal with now as inflation has proven stickier than expected, hovering around 3% compared with the Federal Reserve’s 2% target.



Recent statements by Fed Chair Jerome Powell and other policymakers have cemented the notion that rate cuts aren’t coming in the next several months. In fact, there even has been talk about the potential for an additional hike or two ahead if inflation doesn’t ease further.



That leaves big questions over when exactly monetary policy easing will come, and what the central bank’s position to remain on hold will do to both financial markets and the broader economy.



Krosby said some of those answers will come soon as the current earnings season heats up. Corporate officers will provide key details beyond sales and profits, including the impact that interest rates are having on profit margins and consumer behavior.



“If there’s any sense that companies have to start cutting back costs and that leads to labor market trouble, this is the path of a potential problem with rates this high,” Krosby said.



But financial markets, despite a recent 5.5% sell-off for the S&amp;P 500, have largely held up amid the higher-rate landscape. The broad market, large-cap index is still up 6.3% year to date in the face of a Fed on hold, and 23% above the late October 2023 low.



<h2 class="wp-block-heading" id="h-higher-rates-can-be-a-good-sign"><a></a>Higher rates can be a good sign</h2>



History tells differing stories about the consequences of a hawkish Fed, both for markets and the economy.



Higher rates are generally a good thing so long as they’re associated with growth. The last period when that wasn’t true was when then-Fed Chair Paul Volcker strangled inflation with aggressive hikes that ultimately and purposely tipped the economy into recession.



There is little precedent for the Fed to cut rates in robust growth periods such as the present, with gross domestic product expected to accelerate at a 2.4% annualized pace in the first quarter of 2024, which would mark the seventh consecutive quarter of growth better than 2%. Preliminary first-quarter GDP numbers are due to be reported Thursday.



For the past several decades, higher rates have not been linked to recessions.



On the contrary, Fed chairs have often been faulted for keeping rates too low for too long, leading to the dot-com bubble and subprime market implosions that triggered two of the three recessions this century. In the other one, the Fed’s benchmark funds rate was at just 1% when the Covid-induced downturn occurred.



In fact, there are arguments that too much is made of Fed policy and its broader impact on the $27.4 trillion U.S. economy.



“I don’t think that active monetary policy really moves the economy nearly as much as the Federal Reserve thinks it does,” said David Kelly, chief global strategist at J.P. Morgan Asset Management.



Kelly points out that the Fed, in the 11-year run between the financial crisis and the Covid pandemic, tried to bring inflation up to 2% using monetary policy and mostly failed. Over the past year, the pullback in the inflation rate has coincided with tighter monetary policy, but Kelly doubts the Fed had much to do with it.



Other economists have made a similar case, namely that the main issue that monetary policy influences — demand — has remained robust, while the supply issue that largely operates outside the reach of interest rates has been the principle driver behind decelerating inflation.



Where rates do matter, Kelly said, is in financial markets, which in turn can affect economic conditions.



“Rates too high or too low distort financial markets. That ultimately undermines the productive capacity of the economy in the long run and can lead to bubbles, which destabilizes the economy,” he said.



“It’s not that I think they’ve set rates at the wrong level for the economy,” he added. “I do think the rates are too high for financial markets, and they ought to try to get back to normal levels — not low levels, normal levels — and keep them there.”



<h2 class="wp-block-heading"><a></a>Higher-for-longer the likely path</h2>



As a matter of policy, Kelly said that would translate into three quarter-percentage point rate cuts this year and next, taking the fed funds rate down to a range of 3.75%-4%. That’s about in line with the 3.9% rate at the end of 2025 that Federal Open Market Committee members penciled in last month as part of their “dot-plot” projections.



Futures market pricing implies a fed funds rate of 4.32% by December 2025, indicating a higher rate trajectory.



While Kelly is advocating for “a gradual normalization of policy,” he does think the economy and markets can withstand a permanently higher level of rates.



In fact, he expects the Fed’s current projection of a “neutral” rate at 2.6% is unrealistic, an idea that is gaining traction on Wall Street. Goldman Sachs, for instance, recently has opined that the neutral rate — neither stimulative nor restrictive — could be as high as 3.5%. Cleveland Fed President Loretta Mester also recently said it’s possible that the long-run neutral rate is higher.



That leaves expectations for Fed policy tilting toward cutting rates somewhat but not going back to the near-zero rates that prevailed in the years after the financial crisis.



In fact, over the long run, the fed funds rate going back to 1954 has averaged 4.6%, even given the extended seven-year run of near-zero rates after the 2008 crisis until 2015.



<h2 class="wp-block-heading"><a></a>Government spending issues</h2>



One thing that has changed dramatically, though, over the decades has been the state of public finances.



The $34.6 trillion national debt has exploded since Covid hit in March 2020, rising by nearly 50%. The federal government is on track to run a $2 trillion budget deficit in fiscal 2024, with net interest payments thanks to those higher interest rates on pace to surpass $800 billion.



The deficit as a share of GDP in 2023 was 6.2%; by comparison, the European Union allows its members only 3%.



The fiscal largesse has juiced the economy enough to make the Fed’s higher rates less noticeable, a condition that could change in the days ahead if benchmark rates hold high, said Troy Ludtka, senior U.S. economist at SMBC Nikko Securities America.



“One of the reasons why we haven’t noticed this monetary tightening is simply a reflection of the fact that the U.S. government is running its most irresponsible fiscal policy in a generation,” Ludtka said. “We’re running massive deficits into a full-employment economy, and that’s really keeping things afloat.”



However, the higher rates have begun to take their toll on consumers, even if sales remain solid.



Credit card delinquency rates climbed to 3.1% at the end of 2023, the highest level in 12 years, according to Fed data. Ludtka said the higher rates are likely to result in a “retrenchment” for consumers and ultimately a “cliff effect” where the Fed ultimately will have to concede and lower rates.



“So, I don’t think they should be cutting anytime in the immediate future. But at some point that’s going to have to happen, because these interest rates are simply crushing particularly low-income-earning Americans,” he said. “That is a big portion of the population.”

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<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="820" height="462" src="https://cms.cnbcafrica.com/wp-content/uploads/2024/04/107266210-1688397617168-gettyimages-1508048254-_dsc5612-820x462.jpeg" alt="" class="wp-image-479264" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2024/04/107266210-1688397617168-gettyimages-1508048254-_dsc5612-820x462.jpeg 820w, https://cms.cnbcafrica.com/wp-content/uploads/2024/04/107266210-1688397617168-gettyimages-1508048254-_dsc5612-300x169.jpeg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2024/04/107266210-1688397617168-gettyimages-1508048254-_dsc5612-160x90.jpeg 160w, https://cms.cnbcafrica.com/wp-content/uploads/2024/04/107266210-1688397617168-gettyimages-1508048254-_dsc5612-768x432.jpeg 768w, https://cms.cnbcafrica.com/wp-content/uploads/2024/04/107266210-1688397617168-gettyimages-1508048254-_dsc5612.jpeg 929w" sizes="(max-width: 820px) 100vw, 820px" /><figcaption class="wp-element-caption">A food shopper searches for vegetables July 1, 2023 at the Hannaford supermarket in South Burlington, Vermont.  Robert Nickelsberg | Getty Images</figcaption></figure>



Rising food prices around the world may finally be seeing a bottom this year.



According to Oxford Economics, global food prices are expected to decline in 2024, offering some relief for shoppers.



“Our baseline forecast is for world food commodity prices to register an annual decline this year, reducing pressure on food retail prices further downstream,” the economic advisory firm wrote in a recent note.



The key driving force behind the decline in food commodity prices is the “abundant supply” for many important crops, especially wheat and maize.



Bumper harvests in recent months for both staple crops led to a steady decline in prices. Wheat futures have fallen almost 10% year-to-date, while maize futures lost about 6% over the same period, according to FactSet data.



Farmers ramped up production of both wheat and corn grains following higher prices after Russia began its invasion of Ukraine in 2022.



As a result, global maize harvests for the marketing year ending August this year are likely to come in at record levels, according to Oxford’s analysis. Wheat harvests are also forecast to come in high, although slightly lower than the record level in marketing year 2022 to 2023, the Oxford report said.



<h2 class="wp-block-heading" id="h-russia-ukraine-war"><a></a>Russia-Ukraine war</h2>



Supply pressures of grains in Russia and Ukraine have also eased.



Despite the collapse of the Black Sea Grain initiative in July last year, Ukrainian agricultural exports have been holding up well, Oxford Economics’ Lead Economist Kiran Ahmed wrote.



Russian wheat exports have also been flooding international markets, keeping prices low, he added.



Wheat and maize, along with rice, account for over half of global caloric intake. That means the direction of their prices will critically influence consumers’ food budgets around the world, the report pointed out.



Even though wheat and corn prices have seen a robust decline, rice prices have been steadily climbing, with global supplies hampered by export restrictions imposed by India, which accounts for around 40% of the world’s rice production. Poor harvests in the country last year also pushed prices higher. Contrary to the slump seen in wheat and maize prices, rough rice futures have gained over 8% year-to-date.



Global food prices registered a decline of 9% in 2023, according to the World Bank. Similarly, the United Nations food agency’s world price index hit a three-year low in February, but saw a slight rebound in March, lifted by increases for dairy products, meat and vegetable oils. 



“We expect prices to fall a further 5.6% this year before picking up on an annual basis next year,” said Ahmed.



That said, Oxford Economics noted that risks to its food price forecast are still “overwhelmingly skewed to the upside,” with adverse weather conditions on the cards.



Bad weather has been denting confidence of agribusinesses and crop outlooks, with cocoa recently soaring to record levels as West African farmers battle with inclement weather and disease. If poor weather conditions persist, harvest prospects could be impaired in other key crop growing regions, the note added.



“However, we think prices are now near a floor and will begin to rise gradually through [the second half of] 2024,” the report said.



Buyers in Africa and Asia have also held back from purchasing wheat on hopes of even lower prices — and their return to the market could drive a recovery in prices, Ahmed said. Additionally, rice prices, which remain high, could also encourage more export restrictions coming out of India.



“Thus, while our base case is for food prices to remain subdued this year, the risks are building that prices could rebound more sharply than anticipated. This could keep food price inflation higher than in our base case, maintaining pressure on the consumer,” he concluded.

107266210-1688397617168-gettyimages-1508048254-_dsc5612

High global food prices may finally see a bottom in 2024, says Oxford Economics

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<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="820" height="410" src="https://cms.cnbcafrica.com/wp-content/uploads/2024/04/106962761-1634667390508-Screen_Shot_2021-10-19_at_90550_AM-820x410.jpg" alt="" class="wp-image-478995" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2024/04/106962761-1634667390508-Screen_Shot_2021-10-19_at_90550_AM-820x410.jpg 820w, https://cms.cnbcafrica.com/wp-content/uploads/2024/04/106962761-1634667390508-Screen_Shot_2021-10-19_at_90550_AM-300x150.jpg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2024/04/106962761-1634667390508-Screen_Shot_2021-10-19_at_90550_AM-160x80.jpg 160w, https://cms.cnbcafrica.com/wp-content/uploads/2024/04/106962761-1634667390508-Screen_Shot_2021-10-19_at_90550_AM-768x384.jpg 768w, https://cms.cnbcafrica.com/wp-content/uploads/2024/04/106962761-1634667390508-Screen_Shot_2021-10-19_at_90550_AM.jpg 884w" sizes="(max-width: 820px) 100vw, 820px" /><figcaption class="wp-element-caption">Photo: via CNBC</figcaption></figure>



AUSTIN, TEXAS — Adam Sullivan left investment banking to mine bitcoin at an awkward time. It was May 2023, bitcoin was trading at around $21,000, U.S. regulators were in the thick of cracking down on the sector writ large, and Core Scientific, the company he had agreed to take over, was battling angry lenders in a Texas bankruptcy court over tens of millions of dollars in outstanding debt.



But Sullivan knew that, with a lifeline, he could get the business to a much better place. That’s because the halving was on the way, and with it would likely come a big rally in bitcoin.



Late Friday night, the bitcoin code automatically cut new issuance of the world’s largest cryptocurrency in half. It happens roughly every four years, and in addition to helping to stave off inflation, it historically precedes a major run-up in the price of bitcoin.



The technical event is relatively simple: Bitcoin miners get paid in bitcoin to validate transactions, and after 210,000 blocks of transactions are computed and added to the main chain, the reward given to the miners securing bitcoin is ‘halved.’



There are more than a dozen publicly traded miners on the network and thousands of smaller, private ones around the globe, constantly racing to process transactions and get paid in new bitcoin. Because the event leads to a cut to rewards paid to miners directly, they’ll be the first ones to feel the impact of the halving.



Typically, when the halving cuts supply, it’s led to huge rallies for bitcoin.



In fact, the previous (and only) three halvings in the chain’s history have come before every bull run, in which the coin has touched new all-time highs and a surge of investors have entered the market for the first time.



That rapid price increase has helped many miners stave off the worst since it tends to offset the impact of having the block prize cut in half.



“As a company that was already in the process of scaling our infrastructure during the previous halving, we know the toll that halvings can take on a company if it is not adequately prepared,” Core’s Sullivan told CNBC.



The aggregate market cap of the 14 U.S.-listed bitcoin miners tracked by JPMorgan analysts, which accounts for around 21% of the global Bitcoin network, declined 28% over the first half of April to $14.2 billion, reaching year-to-date lows. Bitdeer was the best-performing stock over the period, down around 20%, versus Stronghold Digital, which was 46% lower.



Some have billed the 2024 bitcoin halving as a seminal moment for the mining sector. Depending on how much prep work miners have done, it could easily make or break them.



“Being prepared for a halving means evaluating all of your power strategies, all of your software capabilities, all of your operations,” continued Sullivan.



Others are less concerned given recent price moves in bitcoin.



In a research note from Needham on Apr. 16, analysts said they expect the halving to only have a modest impact to miners’ estimated EBITDA margins, despite the 50% reduction in revenue, since the price of bitcoin has been trading in the range of $60,000 to $70,000.



“We expect geopolitical tensions and interest rate policy to be the biggest near-term drivers of crypto price action,” Needham analysts wrote, adding that at a bitcoin price above $60,000, the halving is “derisked for nearly all public miners.”



The bank did, however, single out their preference for low-cost bitcoin producers like Riot Platforms, Bitdeer, and Cipher Mining. Meanwhile, if bitcoin prices fall, Needham says the most outsized native impact will be felt by higher cost producers that are also levered to higher bitcoin prices via large treasury holdings.



Analysts from JPMorgan echoed a similar sentiment, writing in an Apr. 16 research note that they think “recent weakness offers an attractive entry point” for investors and that they are “especially bullish” on Riot, which they believe offers attractive relative valuations.



<h2 class="wp-block-heading" id="h-years-spent-bracing-for-the-halving">Years spent bracing for the halving</h2>



Miners have had years to prepare for the halving, including seeking lower power costs and upgrading their fleets to more efficient machines.



“Bitcoin’s halving happens like clockwork every four years,” said Haris Basit, chief strategy officer of Bitdeer Technologies Group. “It’s a known variable that is a benchmark for us to remain focused on operational excellence.”



To that end, the Singapore-headquartered mining firm has invested in new data centers, but its core strategy has been to increase vertical integration through research and development. 25% of its staff is focused on R&amp;D efforts, which Basit says have “led to new innovations and revenue pathways, such as our recently announced 4nm mining rigs and AI Cloud offerings.”



Analysts at Cantor Fitzgerald recently named Bitdeer as having one of the industry’s lowest “all-in” cost-per-coin.



Greg Beard, the CEO and Chairman of Stronghold Digital Mining, tells CNBC that&nbsp;miners whose only lever is more efficient machines will be at a disadvantage.



“Miners who own their low-cost power are better positioned,” said Beard. “Operational costs will be lower, allowing them to be more flexible with their capital.”



Core’s Sullivan agrees, noting that bitcoin mining data centers in the future will work hand-in-glove with power generators and grid operators to serve as a virtual battery for grid operators – allowing them to increase base load, curtail bitcoin data centers when they need to, and avoid peak generation loads, which he says are dirty and expensive.



“We own and operate our infrastructure, giving us greater control over operational and strategic decisions, such as the potential to expand into high-performance computing hosting,” said Sullivan.



Core Scientific, which launched in 2017 and now manages seven mining sites in five U.S. states, also owns the full technology stack. The company has been looking to diversify its revenue streams beyond purely bitcoin. Sullivan says that existing data centers offer reconfiguration opportunities to accommodate new types of high-value compute.&nbsp;



“Certain data centers are located in close proximity to major metropolitan areas, making them candidates for low-latency, high-value compute applications,” said Core’s CEO.



Riot Platforms CEO Jason Les told CNBC that preparation for the halving came down to the company’s long-standing focus on achieving a low cost of power, strong balance sheet, and significant scale of operations. Les says that’s what has positioned the firm to both withstand the halving with positive margins and be well positioned for upside on the other side of it.&nbsp;&nbsp;



“Our new Corsicana Facility was energized just this week, and we will be significantly scaling up our hash rate with next-generation equipment at that new site over the remainder of the year,” said Les. “As a result, we are positioned to mine more bitcoin per day at the end of the year than we do today, despite the halving.”



Marathon Digital, which has seen its stock rise more than 70% in the last year, took a different approach to scaling the business than its rivals. CEO Fred Thiel tells CNBC that the company grew quickly using an asset-light approach, where Capex was spent on mining rigs rather than infrastructure. 



“In December, we owned less than 5% of the sites where we were hosting our miners,” said Thiel. “Today we now own 53% of our total 1.1 gigawatts of capacity, having purchased it at less than the build and replacement cost.”



Owning sites lowers Marathon’s cost to mine by up to 20% on a marginal cost basis. Thiel also noted that by the end of 2024, Marathon expects to further improve efficiency by 10% to 15% as they deploy the next generation rigs across their new sites.&nbsp;



That boost to efficiency isn’t just about new gear, however. The firm is deploying its own custom firmware, which allows it to operate even more efficiently.&nbsp;



Marathon, along with other mining firms, has begun diversifying its business model into ancillary operations beyond purely bitcoin mining, as well.



Thiel says the company recently launched an energy harvesting division, where they are compensated for converting stranded methane and bio-mass into energy, which they then sell heat back into an industrial or commercial process. The service essentially subsidizes and lowers Marathon’s cost to mine significantly. The company expects this new business line to generate a significant portion of its revenues by the halving in 2028. 



<h2 class="wp-block-heading">Diversifying revenue</h2>



The April 2024 bitcoin halving looks a lot different than the three that came before it.



For years, increased competition resulting from new miners coming online has been cutting into profits, because more miners means more people are sharing the same pool of rewards.



In a research note from JPMorgan on Apr. 16, analysts note that the network hashrate, a proxy for industry competition and mining difficulty, was up 4% in April from the month before. Stronghold’s Beard says the halving is a headwind dwarfed by the global hashrate increasing nearly five-fold from the last one in May 2020.



“Mining is a tough industry especially because there are a lot of nation states that have extra power power and they’re dedicating it to mining,” said Nic Carter of Castle Island Ventures. “It’s a free market, anybody can enter into it as long as they have the basics.”



U.S. spot bitcoin exchange-traded funds have also significantly shifted the pricing dynamics. In years past, the price of bitcoin didn’t surge until after the halving. But in the wake of record flows into these spot bitcoin funds, the world’s largest cryptocurrency touched a fresh all-time-high above $73,000 in March.



“The recently approved bitcoin ETFs have proven to be huge pipelines of capital into bitcoin and that universe of ETFs continues to grow with the recent approvals in Hong Kong as well,” said Riot’s Les. “We think the price action we’ve seen in bitcoin year-to-date reflect that and has us very optimistic on what bitcoin mining economics can look like in the months and years post-halving.”



Blackrock’s ETF reached $17 billion in net assets within a few months of launching. Beard of Stronghold tells CNBC that if Blackrock added even just a billion dollars more of bitcoin in April to its ETF, it would single handedly create demand for more coins than the mining industry will supply post halving.



What is also different this time around is that the block reward is no longer the primary form of miner revenue. Recent programming innovations in bitcoin have given way to a burgeoning ecosystem of projects building on top of bitcoin’s blockchain, which has translated to greater transaction fee revenue for miners.



There is a limit to how large the blocks can go but the value of those blocks is about to increase significantly, according to Bill Barhydt, who is the CEO and founder of Abra. From Barhydt’s vantage point, he supports miners with a mix of services, including their auto liquidations, so he has access to a lot of macro data across the sector.



“The math is simple,” begins Barhydt. “Bitcoin blocks are fixed in size and the demand for data within those blocks is going to increase significantly for several reasons, including more retail wallet holders moving their bitcoin into and out of storage, new uses cases like Ordinals (NFTs for bitcoin) and DeFi on bitcoin, institutional settlement requirements for exchange traded products in the U.S., Hong Kong, Europe, etc., lightning settlement transactions, and more.”



At the current rate of adoption, Barhydt believes that transaction fees in this cycle would likely peak within 24 months at 10 times their cost during the previous cycle peak, due to a combination of a higher price for bitcoin itself, combined with higher demand for the space inside each block.&nbsp;



Castle Island’s Carter isn’t so sure that fee-based revenue can completely make up for lost income post-halving.



“It’s not entirely clear that fees are fully offsetting the lost revenue, and in fact, I don’t expect that to happen” said Carter.



Fees tend to be really cyclical. They rise sharply during periods of congestion, and they fall back to near zero during other normal periods. Carter cautions that miners will see spikes in fees, but there is not yet an enduring, strong, and robust fee market most of the time.



<h2 class="wp-block-heading">Swapping ASICs for AI</h2>



In the last year, there has been a surge in demand for AI compute and infrastructure that can support the massive workloads required to power these novel machine learning applications. In a new report, digital asset fund manager CoinShares says it expects to see more miners shift toward artificial intelligence in energy-secure locations because of the potential for higher revenues.



Already, mining firms like BitDigital, Hive, Hut 8, Terawfulf, and Core Scientific all have either current AI operations or AI growth plans.



“This trend suggests that bitcoin mining may increasingly move to stranded energy sites while investment in AI grows at more stable locations,” write analysts at CoinShares.



But pivoting from bitcoin mining to AI isn’t as simple as re-purposing existing infrastructure and machines. The data center requirements are different, as are the data network needs.



“AI presents several challenges, notably the need for distinct and considerably more costly infrastructure, which establishes barriers to entry for smaller, less capitalized entities,” continues the report. “Additionally, the necessity for a different skill set among employees leads to increased costs as companies hire more AI-skilled talent.”



The rigs used to mine bitcoin are called ASICs, short for Application-Specific Integrated Circuits. The “Specific” in that acronym means that it can’t be used to do other things, like supporting the underlying infrastructure for AI.



“If you’re a bitcoin miner, your machines can’t be repurposed,” explains Carter. “You have to buy net new machines in order to do it and the data center requirements are different for AI versus bitcoin mining.”



Sullivan says that Core Scientific, which has been mining a mix of digital assets since 2017, began to diversify into other services in 2019.



“The company has owned and hosted Nvidia DGX systems and GPUs for AI computing, having built and deployed a specialized facility specifically for high-value compute applications at our Dalton, Georgia data center campus,” he said.



Core Scientific has also partnered with CoreWeave, a cloud provider which provides infrastructure for use cases like machine learning.



Sullivan says the combined capabilities will support both AI and High Performance Compute workloads, resulting in an estimated revenue of $100 million, though he says the total potential revenue is much higher given their significant infrastructure footprint that can be fitted to host some of the most advanced GPU compute coming to market.



“Bitcoin mining is an early example of high-value compute, attracting significant capital and a number of companies scaling their operations to support the Bitcoin network,” said Sullivan.



But Sullivan thinks few operators will be able to make the transition to AI.



Sullivan continued, “Bitcoin mining sites can only be repurposed if they meet the attributes that are required for HPC. Many existing sites across North America do not meet these needs.”

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