Author: Climber, Golden Finance

On July 5, as BTC fell below $54,000, many mining companies’ mining machines have reached the shutdown price. F2Pool data shows that currently only five mining machine models can bring profits to their operators, which means that companies whose main business is crypto mining urgently need to find new business profit points.

Previously, due to the change of consensus mechanism from POW to POS, the fourth Bitcoin halving and energy costs, the stocks of leading listed mining companies plummeted before the halving, and some even declared bankruptcy. Now, with the decline in Bitcoin prices, it is even more difficult for mining business profits to cover costs. Bloomberg predicts that the entire cryptocurrency mining industry will lose about $10 billion after the halving.

In the face of the crisis, mining companies have begun to take the road of self-rescue. Joining forces, updating mining machines, and improving computing power are routine operations, but the most effective way at present is to transform into the field of AI. Compared with companies in other industries, the business path of mining companies is highly overlapped with the track of artificial intelligence, and both have a strong demand for computing power, which happens to be the strength of crypto mining companies.

Core Scientific

In January 2024, Core Scientific's Chapter 11 reorganization plan was approved by the bankruptcy court. However, the company's stock price fell by more than 30% on the day of listing, closing at only $3.75.

The financial report released by Core Scientific in March showed that total revenue for fiscal year 2023 was US$502.4 million, a decrease of 22% from the previous year.

But the company has since decided to expand into the AI ​​field and signed a multi-year contract with CoreWeave that month, with potential revenue exceeding $100 million. Under the terms of the contract, Core Scientific will provide up to 16 MW of capacity in its new data center in Austin, Texas, to host CoreWeave's infrastructure. Core Scientific is leasing a Tier 3 data center in Austin, which was previously home to HP, to expand its hosting business to include HPC.

Soon after, Core Scientific announced that it had signed a 12-year contract with CoreWeave, which is expected to generate an average annual revenue of approximately US$290 million for Core Scientific, with total cumulative revenue exceeding US$3.5 billion over the 12-year period.

The shift to AI has also given Core Scientific confidence and a new life. Not only did it reject CoreWeave’s proposal to acquire the mining company at $5.75 per share, but the company’s market value has also achieved positive growth as its stock price has risen.

As can be seen from the above figure, before the halving, Core Scientific's stock price was about $3, and after the halving, it has been rising all the way to $10, an increase of nearly 300%. It is worth noting that after Core Scientific announced in June that it had signed a 12-year contract with CoreWeave, its stock price doubled.

CoreWeave

Core Weave started out as a mining company, but now it is known as an "AI computing power scalper". Founded in 2017, the company is a professional cloud provider with large-scale GPU computing resources, that is, tens of thousands of NVIDIA AI "computing cards". Its customers include many AI giants such as OpenAI and Microsoft.

CoreWeave was originally a mining company that mainly mined Ethereum, and their means of production was GPU. By the end of 2018, it had deployed more than 50,000 GPUs, accounting for more than 1% of the Ethereum network's computing power, becoming the largest Ethereum miner in North America.

Since then, considering the increasingly fierce competition in the crypto mining market and the huge impact of electricity prices, since 2019, CoreWeave has begun to focus on purchasing enterprise-level GPU chipsets, building dedicated cloud infrastructure, and adjusting its business around Nvidia's chips.

Currently, with the globalization of AI at its peak, CoreWeave has become a cloud computing service company relying on NVIDIA graphics cards, and has won major customers such as Microsoft and Google, entering the ranks of unicorns in one fell swoop and becoming one of the world's largest independent GPU cloud providers, providing services to customers in various industries such as VFX, artificial intelligence, games, and medical care.

The transformation has brought huge commercial returns to CoreWeave and freed traditional mining companies from the constraints of cryptocurrency price fluctuations.

In April 2023, CoreWeave completed a US$221 million Series B financing round. Just one month later, Magnetar Capital invested another US$200 million, bringing the company's total Series B financing round to US$421 million.

In August of that year, CoreWeave completed a $2.3 billion debt financing led by Magnetar Capital and Blackstone, which directly increased the company's valuation to $8 billion.

This year, CoreWeave completed a $1.1 billion Series C financing, and another mining company, Core Scientific, announced a 12-year contract with CoreWeave, under which the former will provide the latter with about 200 megawatts of infrastructure. In addition, in June this year, CoreWeave announced that it would invest $2.2 billion in building data centers in Europe by the end of 2025.

Currently, market rumors suggest that CoreWeave plans to IPO in 2025.

Hut 8 Corp

In the third quarter of last year, Hut 8 suffered a net loss of approximately 54 million Canadian dollars (approximately 40 million U.S. dollars), and its revenue fell 46% year-on-year. Since then, Hut 8 has changed its leadership, and the new CEO Asher Genoot said before the halving that the current task is to "make difficult decisions to divest, invest and grow assets."

To this end, Hut 8 began to make business adjustments and transformations at the end of last year, acquiring four Canadian power plants and a new Bitcoin mine, but more importantly, Hut 8 stated that it will actively look for more opportunities to invest in the "huge growth potential of artificial intelligence."

On July 4, Hut8 announced plans to begin commercializing its AI business in the second half of 2024.

Hut8 Corp mentioned in its operational update in June this year that the company managed a computing power of 17.8 EH/s, a managed power capacity of 762 megawatts, and produced 107 bitcoins in June.

At the same time, the company plans to start commercializing its AI business in the second half of 2024 and predicts that annual revenue will reach approximately US$20 million. CEO Asher Genoot said that the company is actively optimizing existing assets and plans to upgrade the mining machine fleet to further improve the productivity and long-term operational efficiency of the data center.

Hut8's transformation into an AI business also enabled it to obtain a strategic investment of US$150 million from Coatue in June this year, which will be used to support the construction of the next-generation AI infrastructure platform. It is expected that the transformation will be realized in the previously announced 1,100-megawatt energy project in the near future.

In addition, Hut8’s AI transformation also caused its stock price to double after the halving.

As can be seen from the above figure, the price of Bitcoin before the halving on April 20 was about 8 US dollars. After the halving, it has been rising all the way to now exceeding 16 US dollars, doubling its price.

Marathon Digital Holdings

Marathon Digital Holdings is the largest publicly traded Bitcoin mining company. According to Bitcointreasuries.net, Marathon holds over 17,000 Bitcoins. The company’s main business is self-operated Bitcoin mining, and its strategy is to (finance) purchase mining machines to deploy mining farms, pay the cash operating costs of production, and then hold Bitcoin as a long-term investment.

But unlike the above three mining companies, Marathon is more focused on updating mining machines and increasing production capacity under the pressure of halving.

In the past few months, Marathon has been continuously optimizing its mining machine products and expanding its own computing power. It plans to reach 50 EH/s by the end of 2024, doubling its computing power from the beginning of the year. For example, Marathon Digital acquired Applied Digital's Bitcoin mining data center for US$87.3 million, cooperated with NiceHash to launch customized firmware for Bitcoin ASIC mining machines optimized for the NiceHash mining platform, and launched mining products MARAFW firmware and MARA UCB 2100 control board, aiming to improve the efficiency and performance of Bitcoin mining machines.

In addition, Marathon is also trying other approaches, including launching the Bitcoin sidechain and related development platform Anduro, and signing an agreement with Kenya to invest more than US$80 million to develop the African country's energy infrastructure.

In May this year, Marathon Digital released its financial report, saying that in the first quarter of 2024, the company mined a total of 2,811 bitcoins, worth about $176 million at current prices. But this is mainly due to a 15% increase in its operating computing power, and the increase in profits is also due to the rise in Bitcoin prices.

However, the above efforts only allowed its stock price to maintain a slight increase. Before and after the halving, its stock price rose from approximately US$15 to US$21.

Conclusion

Practice has proven that mining companies that embraced AI early have realized rich returns, and some have even gotten rid of the shackles of the currency price. However, mining companies that choose to stick to their existing product lines and production models still need to find a way out before the next Bitcoin halving cycle arrives.

For mining companies that choose the AI ​​field, this may be the best option, because mature mining infrastructure, personnel management experience, and power resources are enough to avoid the pain period of cross-field transformation.