The evolution of Bitcoin mining has undergone a significant transformation, driven by a combination of technological advances, economic factors, and environmental concerns. Initially, Bitcoin mining was a relatively simple process, but it has evolved into a highly specialized industry. Today, Bitcoin miners are exploring new frontiers, particularly in High-Performance Computing (HPC) and Artificial Intelligence (AI) data business models, seeking to leverage their advanced infrastructure for broader applications. This shift is poised to have a profound impact on both the mining industry and the broader tech landscape.
One of the primary drivers behind Bitcoin miners’ transition towards HPC and AI is the diminishing or unpredictable profitability of traditional mining operations. The Bitcoin mining landscape is characterized by intense competition and increasing difficulty levels, necessitating significant investments in specialized hardware and energy. Additionally, fluctuations in Bitcoin prices add a layer of financial uncertainty, making mining a less predictable source of income.
Bitcoin miners possess a critical asset: powerful, energy-efficient computing infrastructure. This hardware, designed to solve complex cryptographic puzzles, is equally adept at handling computationally intensive tasks required in HPC and AI. By redirecting their resources towards these sectors, miners can diversify their revenue streams and maximize the return on their infrastructure investments.
Economic Benefits
The move towards HPC and AI business models also offers potential benefits. Traditional Bitcoin mining is notorious for its high energy consumption, whereas the equivalency use in terms of HPC and AI applications is significantly less and therefore less of a cost, with profit margins for some of the providers, like Core Scientific, potentially reaching 80%, by year 3.
Challenges and Future Outlook
While the transition to HPC and AI presents numerous opportunities, it is not without challenges. Miners will need to navigate the technical complexities of these fields, including developing the necessary software and expertise to compete effectively. Additionally, the market for HPC and AI services is highly competitive, requiring miners to establish strong value propositions to attract clients.
HPC and AI Case Studies
It’s worth considering a few recent examples of where Bitcoin miners have started to embrace the this new technology:
- Bit Digital (BTBT)
In October 2023, Bit Digital became the first Bitcoin Miner to announce a significant deal in this sector, with the launch of Bit Digital AI, a new business line that will provide specialized infrastructure to support generative AI workstreams. What started at $35 million, will grow significantly to $92 million per year in annualized revenues from August 2024. In Q1 2024 the company received $8 million in revenues associated with Bit Digital AI, achieving a gross margin of 61%.
2. Core Scientific (CORZ)
Having only emerged from Chapter 11 in January 2024, the largest news story in the Bitcoin mining space this year was the announcement by Core Scientific (CORZ) on June 3, 2024, for a 200 MW HPC hosting contract with CoreWeave. This deal, subsequently increased to 270 MW, has an initial duration of 12 years , with the opportunity for two, 5-year extensions.
The value of the contract is $4.7 billion and is expected to deliver net profits of approximately $3.78 billion, representing 71%. The company has a target to allocate 500 MW of its total 1200 MW to HPC and AI services.
3. Hut 8 Corp. (HUT)
On June 24, 2024, Hut 8 announced a $150 million investment from Coatue Management through a convertible note agreement, to fund development of the company’s next generation energy and AI infrastructure platform.
Stock Performance
The table below highlights the share price movement for the North American Bitcoin miners since June 3, 2024, the date which Core Scientific formally announced their contract with CoreWeave. It also appears this was a point at which Wall Street analysts started to take significant interest in the space, due largely, to the predictability of revenues and profits achievable.
For any normal share listed on a main stock index in the US or Canada, a share price increase of 7% over a period of six weeks would be a more than acceptable rate of return. The table, as it stands, is certainly weighted towards miners proactively allocating infrastructure and power towards HPC and AI, rather than those miners currently focusing on a ‘pure play’ Bitcoin mining model.
TeraWulf (WULF) is advancing its AI/HPC projects at Lake Mariner with ongoing construction of a 2 MW digital infrastructure pilot. Additionally, a 20 MW colocation project, supporting 16 MW of critical IT load with liquid cooling, is targeted for completion in Q4 2024. The share price has risen by an exceptional 173% in the last 7 weeks.
Soluna Holdings (SLNH), who recently launched their Soluna Cloud and have secured NVIDIA GPUs for Generative AI through agreements with its Strategic OEM Partner, are expected to generate $38-80 million over the next three years. The company also closed a $12.5 million credit facility to fund GPU contracts and startup costs and as of June 11, 2024, enterprise customers and Generative AI labs have had access to the initial batch of NVIDIA GPUs. Their share price has increased by 168% in the same period.
Hut 8 Corp and Core Scientific also witnessed their share prices increase by 119% and 113%, respectively. In fact, every Bitcoin mining company that has highlighted their interest in diverting power towards HPC and AI, has witnessed their share price increase by a minimum of 40%. This was actually achieved during a period that saw the Bitcoin price drop over 3%, over the same time-frame.
In terms of the miners who have yet to formally acknowledge a strategy, and dedicate power/infrastructure into the HPC and AI, only Cipher Mining has seen any significant performance increasing by 70%.
The larger pure play Bitcoin miners such as Marathon Digital (MARA), Riot Platforms (RIOT), Bitfarms (BITF) and CleanSpark (CLSK) have risen only 26%, 25%, 20% and 14%, respectively. However, should the price of Bitcoin rise significantly over the next 12-18 months, then the emphasis will surely start to re-focus on the Bitcoin mining business.
Summary
The movement of Bitcoin miners towards HPC and AI data business models represents a significant evolution in the industry. This strategic pivot not only offers a pathway to enhanced profitability and diversification but also positions miners at the forefront of technological innovation. By harnessing their sophisticated infrastructure for broader applications, Bitcoin miners can contribute to advancements in science, technology, and industry, heralding a new era of computational excellence.
Industry analysts are now paying significant attention, as witnessed by the numbers attending the recent Core Scientific investor day, held at their Denton facility on June 12, 2024. Out of a total of nearly 50 questions, only 2 to 3 questions were related to Bitcoin mining, with the majority clearly focused on HPC and AI business services.
