Why Bitcoin and Crypto Stocks Soared or Slumped in the First Half of 2024

The Bitcoin (CRYPTO:BTC) cryptocurrency has been on a solid run in the first half of 2024, starting with the launch of spot Bitcoin exchange-traded funds (ETFs) in January. Bitcoin mining rewards were halved on April 19, which didn’t immediately move the crypto’s price but set the stage for a four-year boom-and-bust cycle. It gained a solid 44.2% through the end of June, according to data from S&P Global Market Intelligence.

Then there’s MicroStrategy (NASDAQ: MSTR). The enterprise software company decided to live off Bitcoin in the most extravagant way four years ago. MicroStrategy had $7.5 billion worth of Bitcoin on its balance sheet but only $81 million in cash at the end of March. Mirroring Bitcoin’s rise with an extra shot of adrenaline, MicroStrategy is up a whopping 118.1% in six months.

Meanwhile, most crypto miners haven’t suffered the same bullish fate. The reward halving had an immediate impact on their financials, sending leading miners in different directions. Marathon Digital Holdings (NASDAQ: MARA) saw its price drop 15.5%, while Riot Platforms (NASDAQ: RIOT) lost 40.9% of its market cap. Underscoring the complexities of today’s crypto market, CleanSpark (NASDAQ: CLSK) managed to keep pace with Bitcoin’s gains, posting a 44.6% return.

Bitcoin Price Chart

Same fundamental news, different market reactions

Why have these crypto-related investments gone in different directions? Their trades are quite different, and market makers are paying attention to these unique characteristics.

CleanSpark

CleanSpark acquired a total of 13 new mining sites from other companies in the first half of the year, traversing the U.S. map from Georgia to Wyoming.

The all-American Bitcoin miner also crushed Wall Street consensus estimates in its February first-quarter report and May second-quarter update. The company turned a profit in both free cash flow and adjusted earnings per share in those two earnings reports.

With proven profitability, a debt-free balance sheet, $323 million in cash reserves, and a similar amount of Bitcoin in its holdings, CleanSpark looks set to weather the low production rates of this halving cycle.

It’s no surprise that this success story has inspired a surge in stock prices.

Marathon

Marathon experienced the same reward halving as CleanSpark and has gone on a manufacturing facility acquisition spree of its own. The company currently has 31.5 exahashes per second (EH/s) of mining equipment installed, targeting its Bitcoin mining business. A much smaller rig with a capacity of 0.6 EH/s is instead mining the smaller Kaspa cryptocurrency, diversifying Marathon’s crypto operations a bit.

The story continues

The crypto miner is also exploring international production beyond its Texas facilities, running a small test project in Finland and a power grid partnership in Kenya. Marathon burns more cash than it produces, and its Bitcoin holdings outstrip its cash balance by a factor of 4 to 1.

Investors see this as a riskier structure, making Marathon stock more vulnerable to economic challenges.

Platforms of Revolt

Riot Platforms runs a smaller Bitcoin mining operation than Marathon or CleanSpark, with average throughput sitting at 11.4 EH/s and targeting 31 EH/s by the end of 2024. Both Marathon and CleanSpark are targeting 50 EH/s of capacity at the same milestone.

The company supplements its Bitcoin revenues with energy credits, which it obtains by reducing or halting mining operations when the Texas power grid needs a boost. The company is involved in a stock swap buyout attempt by Bitfarms (NASDAQ: BITF), creating a 14% ownership stake as Bitfarms adopts a poison pill policy.

The takeover has yet to happen and investors generally hate uncertainty, so Riot Platforms’ stock performance in 2024 doesn’t impress anyone.

MicroStrategy

MicroStrategy is a different story. The company doesn’t run any Bitcoin mining machines, so it doesn’t really care about the low mining rewards.

Founder and Chairman Michael Saylor’s company has a keen eye on Bitcoin’s price, both now and in the long term, as almost all of its cash reserves are now in Bitcoin holdings. What’s more, the company continues to buy more Bitcoin at every opportunity.

The purchases were funded with profits from MicroStrategy’s software business, additional stock sales, new debt, and, in a short-term test, a loan collateralized by some of the company’s Bitcoin holdings. This coin-buying strategy boosts Bitcoin gains when times are good, but exposes investors to more risk when Bitcoin prices fall.

The cryptocurrency has been on the rise this year, so MicroStrategy’s stock price is benefiting from the crypto trend.

How Bitcoin halving boosts crypto mining profits

Bitcoin’s halving of mining rewards is making it harder to run a profitable mining operation — at least for a while. This hard-coded four-year cycle is designed to limit the supply of new coins while the cryptocurrency builds real-world demand.

In this scenario, the basic laws of supply and demand dictate rising prices, and Bitcoin’s price chart has shown this pattern in each of the first three halvings. History does not repeat itself, but it often reflects familiar patterns, and the fourth halving cycle looks set to send Bitcoin prices sharply higher over the next year or so.

This predictable trend is the foundation of Michael Saylor’s Bitcoin strategy. It also weeds out weaker hands from the costly Bitcoin mining industry when rewards are low and Bitcoin’s price has yet to begin its bullish routine. Riot’s attempt to acquire Bitfarms is an ambitious but risky effort to exploit the target company’s financial weakness before the cryptocurrency chart rebounds.

There is a clear lesson for investors to learn from Bitcoin trends in early 2024: Understanding the cyclical nature of Bitcoin and the strategic moves of key players in the surrounding industry can be a significant advantage. Pay attention to players that thrive under pressure, as they are the ones most likely to shine when the market recovers. The existence of spot Bitcoin ETFs should support and boost the current cycle thanks to the heavy influx of money from institutional investors.

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Anders Bylund has positions in Bitcoin. The Motley Fool has positions in Bitcoin and recommends Bitcoin. The Motley Fool has a disclosure policy.

The article Why Bitcoin and Crypto Stocks Are Up or Down in the First Half of 2024 was originally published by The Motley Fool