Bitcoin miners can make serious money from diversifying into artificial intelligence.
That’s according to VanEck head of digital assets research Matthew Sigel and digital assets investment analyst Nathan Frankovitz.
“The synergy is simple: AI companies need energy, and Bitcoin miners have it,” he wrote in an August blog post.
The conclusion: Assuming the 12 major publicly traded Bitcoin miners dedicate 20% of their energy capacity to AI computation by 2027, they could bump their average yearly profits to almost $14 billion.
That’s compared to the $335 million in losses that Bitcoin miners have absorbed in the last 12 months.
Diversifying into AI
Bitcoin mining is a hyper-competitive business. Miners spend enormous computational power to maintain the Bitcoin blockchain, and are rewarded for their efforts with freshly-minted Bitcoin.
This often leaves miners at the mercy of Bitcoin price fluctuations. It’s great when the cryptocurrency is skyrocketing, but devastating when it plunges.
To deal with crypto’s volatility, some mining operations — like Hut 8 or HIVE — have already begun to divert some of their capital and computational resources for AI purposes.
The reason Bitcoin miners have an advantage, VanEck argued, is that they already have processing power that’s ready to go online for AI purposes, whereas AI companies seeking computational power will need at least four years to build out further facilities.
“The economics are compelling given the time-to-market advantage a repurposed Bitcoin mining site has versus greenfield power,” Sigel told DL News, referring to building a facility from the ground up.
Whereas Bitcoin miners now trade at roughly $4.5 million per megawatt of installed capacity, some data centre stocks trade for $30 million per megawatt, the report said.
“If properly equipped with power, bandwidth, and cooling systems, Bitcoin mining sites are ideal for capturing this value for AI cloud services.”
The computational power bottleneck is so fierce that Brian Dixon, CEO of crypto hedge fund Off The Chain Capital, told DL News in May that big tech companies will be tempted to acquire Bitcoin miners’ AI fleets altogether.
“If you’re one of these big tech companies, you have basically two options: You find somebody like a Bitcoin miner that you can retain to do the AI compute, or you buy data centres,” Dixon said. “You can’t build them fast enough.”
“It’s possible we’ll see some of them start buying the mining companies outright,” Dixon added. “Amazon, Google, these big behemoths in the tech space need this AI compute. There’s really no way around it.”
Controversial strategy
Not everyone believes Bitcoin miners are right to diversify into AI, despite the potential advantages.
Elliot Chun, a partner at crypto finance strategy firm Architect Partners, told DL News that Bitcoin miners investing in AI fleets were “taking their eyes off the ball” and making a mistake.
The main reason: The two business models are very different.
“If AI fleets are anything like the data centres hosting the Amazons and the Googles of the world, you need to have a 99.99% uptime,” Chun said. “Bitcoin miners just aren’t used to operating in that kind of environment.”
Crypto market movers
Bitcoin is down 1.2% in the last 24 hours, trading at $63,500.
Ethereum slumped 2% to $2,700.
What we are reading
Why isn’t Bitcoin’s price rallying alongside gold amidst the market chaos — DL News
US Crypto Tax Rules: When Do You Have To Pay Tax On Cryptocurrency? — Milk Road
TRON Memecoin Factory SunPump’s Success Seems to Be Predicated on One Thing: Justin Sun — Unchained
Best Crypto Options Trading Platforms August 2024 — Milk Road
Meet the firms that help crypto investors make millions in backroom deals — DL News
Tom Carreras is a markets correspondent for DL News. Got a tip about Bitcoin miners and AI? Reach out at tcarreras@dlnews.com
