Bitcoin (BTC) miners are scrambling to adapt after the network’s April “halving” cut into revenue prospects. Savvy miners are finding new ways to put BTC mining equipment to work. Supplying computational power to artificial intelligence (AI) applications is the most promising. Bet on the BTC miners investing in AI.
Bitcoin mining stocks have had an incredible run, but performance is beginning to level off. The Valkyrie Bitcoin Miners ETF (WGMI) — which includes miners such as Iris Energy Ltd. (IREN), Core Scientific Inc. (CORS), CleanSpark Inc. (CLSK), and Cipher Mining Inc. (CLFR) — returned more than 300% in 2023, according to data from Morningstar, a fund researcher.
So far in 2024, WGMI has clocked returns of less than 9%. According to asset manager Van Eck, Bitcoin mining stocks are now underperforming spot BTC by about 3%.
Halving mining revenues
The Bitcoin network’s halving is largely to blame. Every four years, the number of BTC mined per “block” — a bundle of transaction data stored on the blockchain — is reduced by half. The April event reduced mining rewards from 6.25 BTC to 3.125 BTC per block.
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Halvings are hardcoded into Bitcoin’s core protocol. They are essential to Bitcoin’s deflationary tokenomics, which caps total supply at 21 million BTC. But they are tough on miners, who sustain the network by processing transactions and updating the blockchain.
In the second quarter of 2024, miners produced 28% fewer BTC on average, according to an August research note by JP Morgan, which covers five publicly traded BTC miners. Gross profits tumbled to 44% from 58% the quarter prior, even as miners poured approximately $1.2 billion into mining infrastructure.
Simple synergies
Meanwhile, demand for computational power from AI is surging. That’s providing miners — which are often armed with captive power supplies and expansive data centers — with a multibillion dollar opportunity.
“The synergy is simple: AI companies need energy, and bitcoin miners have it,” according to an Aug. 16 report by Matthew Sigel, fund manager VanEck’s head of digital assets research.
“[E]xisting bitcoin miners are uniquely equipped to support AI [and high-performance computing (HPC)] immediately,” Sigel said. He added that some BTC miners can repurpose to serve AI in less than a year, compared to upwards of four years for greenfield AI data center developments.
For BTC miners, the potential upside is hard to overstate. Nick Hansen, CEO of mining firm Luxor, reportedly said miners could earn $2 to $3 from AI per kilowatt hour (kwH) of energy expended, compared to $0.15 to $0.20 from BTC mining.
Hut 8 Corp., another BTC miner, estimates $1.30 per kwH. That’s more conservative, but still enough to justify a $37.6 billion contribution to BTC miners' collective market capitalization (or “net present value”, to be precise) by 2027, VanEck said.
Leading the pack
Not all BTC miners are equally well positioned. Some — such as Core Scientific, Hive Digital Technologies (HIVE) and Hut 8 (HUT) — are ahead of the pack.
Core Scientific has already secured contracts to provide some 200 megaWatts (mW) of energy to AI hyperscaler CoreWeave, with options to boost capacity further. Investors have taken notice. It’s stock is up more than 200% in 2024, according to Morningstar.
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Hive has been pivoting to AI since 2023. It’s starting to pay off. The miner reported $2.6 million in sales from its HPC business, contributing to a 36% overall uptick from the prior quarter. Equally striking is the more than 80% utilization rate for Hive’s HPC infrastructure, indicating strong demand.
Meanwhile, Hut 8 secured $150 million from private equity firm Coatue to invest in servicing AI. They already generate more than 1100 mW of power and plan to nearly double that figure, according to VanEck.
Unlike Core Scientific, Hive and Hut have been market laggards in 2024, returning -0.21% and -3.94%, respectively. (As always, make sure to do your own research before investing in any stocks — or you’ll lose money).
Bitdeer Technologies Group (BTDR) and Iris are the biggest potential movers in AI by the sheer scale of the miners’ power capacity. They are targeting roughly 2500 mW apiece — enough to contribute about $6.5 billion to the miners’ respective market valuations if they embrace AI, VanEck said.
This isn’t about abandoning Bitcoin mining. In fact, VanEck’s bullish valuation estimates only assume a 20% change in revenue mix.
Meanwhile, plenty of analysts expect BTC to hit new record highs — a boon for the mining business. Bitdeer has been investing in next-generating Bitcoin mining equipment and reported a big Q2 jump in gross profits from mining revenue.
The key is that Bitcoin mining is about more than just BTC. It’s about infrastructure — which is always in demand, regardless of crypto spot prices. The miners who understand that will win.
Alex O’Donnell is a senior writer for Cointelegraph. He previously founded DeFi developer Umami Labs and worked for seven years as a financial journalist at Reuters, where he covered M&A and IPOs. He is also the crypto growth lead at startup accelerator Expert Dojo.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
