BITCOIN

Bitcoin Halving Is Here, And So Is Trouble For Miners

Houston to Earth, the Bitcoin ($BTC) halving is hours away — but the moon is nowhere in sight. This much-anticipated event, which will cut the rewards for mining Bitcoin in half, is expected to make the world’s most valuable cryptocurrency even rarer. And based on forecasts and historical trends, it could set off a new bull run — but will it?

Halve to hold: Bitcoin has gone through this process four times since its inception in 2008. Each time, the number of new coins mined per block gets halved, from 50 Bitcoins to 6.25 by 2020. Every halving has been followed by massive price rallies — a 93x, 30x, and 8x increase in 2012, 2016, and 2020, respectively — from the price on halving day to the peak of that cycle. Now, with Bitcoin having quadrupled to record highs since the lows of 2021, analysts are uncertain if this trend will repeat, especially with interest rate cuts in limbo.

• The amount of new Bitcoin generated in each block will drop to 3.125 BTC, drastically reducing new supply — meaning just 656K new coins will be mined over the next four years (~3% of total supply).

• Some analysts predict that this scarcity, along with the introduction of new Bitcoin ETFs, could drive prices higher. However, JPMorgan ($JPM) CEO Jamie Dimon argues, “manufactured scarcity doesn’t create any real underlying value.”

With scarcity comes competition

Since the last halving in 2020, the difficulty of mining Bitcoin has increased almost sixfold, while rising electricity costs have also added to miners’ woes, making it harder for them to secure favorable deals from utility companies. As a result, mining companies are hoarding near-record amounts of bitcoin — and CoinShares’ Matthew Kimmell believes that “This is the final push for miners to squeeze out as much revenue as they can before their production takes a big hit.”

• After the halving, the number of bitcoins mined daily will fall from ~900 to 450 — potentially costing the industry $10B in annual revenue.

• Mining stocks like Marathon Digital ($MARA) and Riot Blockchain ($RIOT) have already seen their values drop 53% and 54% from earlier highs this year.

Breaking The Cycle (BTC): While previous halvings have typically been bullish for Bitcoin, Goldman Sachs warns that factors like high inflation and interest rates could alter past price trends. But despite warnings, mining CEOs remain optimistic, with Riot's CEO Jason Les foreseeing “a very positive movement in Bitcoin over the next several months” (BBG).

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LARGECAP RECAP

💰 Pensions shift from stocks to discount bonds and private deals

As bond prices remain low and yields show no signs of picking up soon, investors in the $9T pension market are starting to cash in their stock market gains — and are turning to bonds and alternative investments for safety. Goldman Sachs predicts that pension funds will look to dump $325B worth of equities this year, nearly double the amount from last year.

• State-managed funds like those in California and New York, as well as private employers like Johnson & Johnson ($JNJ), have trimmed their stock holdings in the first quarter to minimize potential losses from stock market volatility.

• Managing New York State’s Common Retirement fund, Michael Lombardi explained that the shift towards real estate, private equity, and other markets offers “very slightly higher return[s] for very slightly lower risk.”

Pension problems: Timothy Braude, managing director at Goldman Sachs, believes the  “move out of stocks bodes well for the long-term health of pension systems” (WSJ). That’s because pensions have struggled to completely meet the funding demands of employees in recent years. But the pivot creates confidence that pensions won’t lose the massive gains they’ve made in the recent bull market — keeping beneficiaries in good hands as they approach retirement.

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Markets & Economy

Alaska Airlines ($ALK) forecasts strong Q2: Despite a net loss of $132M in Q1 due to a notable Boeing-related mishap, the outlook for Q2 and beyond looks bright as airlines brace for another year of strong travel demand. [Read]

Trump Media ($DJT) posts short-selling prevention tips on its site: The company’s stock has been wildly erratic, so it's urging shareholders to choose cash accounts over margin accounts, opt out of securities lending programs, or hold shares in retirement accounts in order to prevent their stock from being borrowed by short sellers. [Read]

Vanguard says the Treasury market is in a “danger zone”: Investment advisors fear a potential selloff if yields tick back up to even 4.75%. It was at 4.57% yesterday and has gone up and down as bets on a Fed rate cut move from June to September. [Read]

Business & Wealth

Airlines expect record summer travel: Various safety mishaps and persistent inflation won’t hold back the travel industry, with just about every airline noting strong demand for summer flights on recent earnings calls. [Read]

Nestlé ($NSRGY) to vote on making products healthier: A group of investors, led by the campaign ShareAction, is concerned about “reputational damage” from selling foods so high in sugar, fat, and salt — but the company says cutting back on their indulgent products could limit their “strategic freedom.” [Read]

Trust in health information shifts to self-assessment: Amid dwindling trust in government leaders and public health institutions, most people rely on their own judgment to assess health information. Despite skepticism toward the healthcare system, 83% still trust their primary care providers. [Read]

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DIGIT OF THE DAY

Climate Change Could Cost The Global Economy $38T Per Year By 2049

We’ve always been told to save for a rainy day, but it looks like we'll need to budget for hotter ones, too. A Nature study warns that by 2049, climate change could cost the global economy a staggering $38T every year (measured in 2005 dollars). If we don't cut emissions soon, we'll not only feel the heat literally but financially as well.

• In the next 25 years, rising temperatures could slash global income by 19% — with the potential loss growing to 60% if we fail to address the issue quickly.

• Developed nations like the US, Germany, and France could miss out on an 11% to 13% increase in GDP — and poorer countries could face an income decrease of 61%.

Turning climate losses into gains: While the impact of the climate crisis hits harder in less-industrialized nations, the US has found a way to profit from natural disasters — or the lack thereof. Hedge funds are investing in catastrophe bonds (cat bonds), yielding ~20% returns, significantly outpacing other asset classes. However, these bonds only pay out if a specific natural disaster doesn’t occur within a set period — a high-stakes game where investors win big if nature plays along but lose everything if disaster strikes.