Struggling bitcoin miners may be revived by Fed rate decision, regardless of cut size

By Frances Yue

Bitcoin miners have been struggling with higher borrowing costs and battered stock prices

Whether the Federal Reserve delivers an ordinary, or slightly larger interest-rate cut on Wednesday, it could trigger a turnaround for bitcoin miners, which have been struggling with higher borrowing costs and battered stock prices, market participants said.

Major public crypto miners have been significantly underperforming bitcoin this year, as they face intense competition and limited profit. Marathon Digital Holding's (MARA) shares fell 32.7% year to date, and those of Riot Platforms (RIOT) lost 54.6%, while bitcoin (BTCUSD) rose 44% during the same period.

This could change, some analysts said, if the U.S. central bank delivers its first rate cut since March 2020 on Wednesday, as expected. Fed-fund futures traders have been pricing in a 63% likelihood that the central bank will cut its key interest rate by half a percentage, and a 37% chance that the policymakers will deliver a cut of 25 basis points, according to the CME FedWatch tool.

Either way, the start of a rate-cutting cycle should bode well for bitcoin's (BTCUSD) price, which could then benefit miners, noted Henry Robinson, co-founder at Decimal Digital Currency. Bitcoin rose over 5% to around slight below $61,000 Tuesday afternoon, according to Dow Jones Market Data.

While some argue that a bigger rate cut might signal recession concerns, potentially leading to a short-term selloff in risk assets, the cut may still be bullish for bitcoin in the medium to long-term, noted Robinson. A lower risk-free rate may lead to more capital to flow into risky investments such as bitcoin, as investors try to secure higher returns, Robinson said in a call.

For most crypto miners, the average cost of producing a bitcoin stands at around $50,000, according to Joe Nardini, co-head of investment banking at B. Riley Securities. If bitcoin could trade significantly higher, it would alleviate some pressure facing miners, Nardini said in a call.

Lower interest rates would also reduce the cost of borrowing for bitcoin miners, said Nardini. Fed rate cuts would "make it cheaper for bitcoin miners to raise money to go buy assets or infrastructure," Nardini said.

Fed's rate cut also might further boost the artificial intelligence complex and high-performance computing businesses, which would be bullish for bitcoin miners with resources allocated to those sectors, noted Rahul Mewawalla, chief executive at Mawson Infrastructure Group.

Bitcoin miners such as Core Scientific (CORZ), TeraWulf (WULF) and Hut 8 (HUT) have been using some of their infrastructure to power AI and cloud computing.

-Frances Yue

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09-17-24 1551ET

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