The amalgamation of Bitcoin mining, Artificial Intelligence (AI), and High Performance Computing (HPC) represents a significant shift in the cryptocurrency landscape. Miners are increasingly embracing these new technologies to enhance their revenue streams. This transformation is not confined to the realm of science fiction; it is a rapidly evolving reality. AI has seamlessly integrated itself into our daily lives, reshaping how we interact with technology and streamlining various tasks for increased convenience and efficiency.
AI has become increasingly integral to our daily lives. Common tools such as virtual assistants and even social media algorithms utilize AI to offer convenience or analyze our interests and behaviors.
Bitcoin miners are also integrating AI technology to enhance operational efficiency and diversify revenue streams. They use AI for tasks like optimizing energy consumption, predicting equipment maintenance, and exploring AI-driven HPC for complex calculations. This enables them to adapt to the evolving cryptocurrency landscape and improve profitability.
Benefits of diversification into AI and HPC for Bitcoin Miners
Bitcoin miners are engaging in horizontal integration into the AI and HPC sector for a multitude of compelling reasons. Cryptocurrency mining, including Bitcoin, is inherently susceptible to market volatility, prompting miners to explore diversified revenue sources to mitigate risks and ensure a more stable income stream. Furthermore, miners are well-equipped with substantial GPU infrastructure, making it economically advantageous to repurpose these resources for AI and HPC applications.
The escalating demand for AI and HPC services across diverse industries presents miners with a promising market opportunity. Notably, AI and HPC services often yield more favorable profit margins compared to traditional cryptocurrency mining, underlining the attractiveness of this diversification. This strategic integration aligns seamlessly with the miners' existing technical proficiency and infrastructure, enabling a synergistic expansion into AI and HPC business segments.
Yet, skepticism looms prominently over Bitcoin miners' foray into this realm, with many, including some within the Bitcoin mining space, dismissing these developments as mere 'gimmicks.' The transition necessitates substantial investments, notably in the construction of a 'tier 3' data center, which can soar to a staggering $10 million per MW. This starkly contrasts with the relatively modest expenses associated with data centers for Bitcoin mining, currently ranging from $800,000 to $850,000 per MW. The substantial cost differential fuels the skepticism surrounding this shift.
However, for the successful, there is the potential to earn significant margins, far greater than currently achieved through Bitcoin mining, and with no correlation to the Bitcoin price.
Let’s consider four Bitcoin Miners that have already started to invest significant sums of money into these new technologies.
Hive Digital (HIVE)
Prominent players in the Bitcoin mining sector, such as Hive Digital, have been quick to recognize the transformative potential of AI. These miners are actively preparing for this evolution. In 2021, during the previous bull market, Hive Digital made substantial investments in high-end NVIDIA GPUs, a pivotal move that laid the foundation for this transition.
Hive Digital's strategic adaptation included joining the NVIDIA Partner Network Cloud Service Provider program in June 2021, entering into purchase agreements exceeding US$66 million in total value for NVIDIA GPUs. Initially intended for Ethereum mining, this endeavor yielded highly profitable margins of over 90%.
However, as the cryptocurrency landscape continued to evolve, Hive Digital had to pivot its strategy. Following the Ethereum Merge in September 2022, the company sought alternative revenue streams for its extensive inventory of 38,000 NVIDIA GPUs. Initial exploration of other cryptocurrency mining options revealed substantially lower revenue and margin potential.
In response, Hive Digital embarked on an exploration of AI and HPC services. It dedicated a portion of its GPU arsenal, approximately 1% of the total available GPUs, for testing in powerful SuperMicro servers within Tier 3 data centers. Preliminary results showed promise, with revenues during the testing phase suggesting a run rate of $1 million, bolstered by favorable margins attributed to reduced power costs.
Looking ahead, Hive Digital aims to expand its active GPU count to 4,800 by year-end, potentially achieving an annual run rate approaching $15 million. Upon full utilization of its GPU inventory, the company envisions the possibility of generating a remarkable $100 million in annual revenue, facilitated by customer acquisitions.
Hut 8 (HUT)
Hut 8 is another key player redirecting its GPU infrastructure toward HPC, including AI workloads. The acquisition of a cloud and colocation data center business in January 2022 enabled Hut 8 to cater to AI clients, potentially recovering investments made in GPUs originally purchased for cryptocurrency mining. By purchasing the data center business from TeraGo Inc. the company generated approximately $16.9 million last year, accounting for about 11 percent of its overall revenue. This provided Hut 8 with a presence in five data centers across British Columbia and Ontario, providing a range of services, including colocation, public and private cloud, and managed services, serving various industries, including finance, gaming, technology, and AI.
On June 14, 2023, Hut 8 announced it had entered into an agreement with Interior Health, a reputable health authority serving southern British Columbia. This partnership extends secure and dependable colocation services from Hut 8's flagship Kelowna data center to support Interior Health's operations until 2028.
Josh Rayner, VP of High Performance Computing at Hut 8, expressed their commitment to expanding services into the health sector and their honor at being Interior Health's chosen high-performance computing infrastructure provider.
Iris Energy (IREN)
Iris Energy has made a notable entrance into AI by procuring 248 NVIDIA AI H100 GPUs, a strategic move costing $10 million. While concrete contracts are yet to be established, Iris Energy's expertise in building Tier 2-4 data center facilities, coupled with abundant sustainable and 100% renewable energy resources, positions the company favorably in the burgeoning field of sustainable computing.
Additionally, Iris Energy has forged a partnership with WEKA, a data platform software provider specializing in performance-intensive workloads. This collaboration equips Iris Energy with advanced GPU cloud and colocation capabilities in their next-generation data centers, facilitated by WEKA's innovative storage and data management solutions.
Bit Digital (BTBT)
Bit Digital initiated its Bit Digital AI operations on October 23, 2023, by offering GPU-accelerated workload support through a binding term sheet with a customer. This flexible agreement allows for various GPU rentals, with specifics to be finalized in the master service agreement.
Bit Digital is also in the process of acquiring 132 FusionOne HPC systems from xFusion Digital Technologies for an approximate total cost of $35 million. These integrated HPC platforms, featuring 1,056 GPUs in total, will be deployed in a Tier-3 data center, and with specifications about to be agreed, the specific location will be disclosed shortly. Funding for this acquisition will be derived from a combination of cash reserves, digital assets, potential equity issuance, and equipment financing.
Furthermore, Bit Digital has entered into a binding term sheet to supply cloud-based GPU resources to a customer focused on AI application development, including proprietary large-language models. The contract's value hinges on GPU numbers and contract duration, with revenue estimates ranging from $23 million to $27 million for a minimum of 1,024 GPUs. In the event that the finalized contract surpasses this minimum requirement, Bit Digital is poised to procure additional GPUs, with delivery expected in fiscal Q1 2024. Revenue generation is set to commence in January 2024, with this initiative projected to yield significantly higher profit margins than Bit Digital's existing operations.
This move into the AI and HPC industry has not impacted the company’s strategy to grow their Bitcoin operational hash rate with they are looking to increase to 3.5 EH/s by year end 2023 and with the recent update from Bitmain showcasing the new Antminer S21, a mining machine that will help to improve the overall average efficiency as the halving approaches.
Summary
In summation, the convergence of Bitcoin mining and AI and HPC underscores a transformative shift in the cryptocurrency industry. Innovative miners, like Hive Digital, are at the forefront of this evolution, diversifying their revenue streams and solidifying the symbiotic relationship between cutting-edge technology and blockchain-based enterprises.
Hut 8, having benefited from the purchase of five data centers and a significant number of clients, have added a significant health authority with a five year contract.
Iris Energy have made a significant investment, build high quality facilities and have partnered with a specialist data platform software provider, but have yet to announce any customers.
Bit Digital, the latest Bitcoin miner to arrive in this growth sector, has already contracts and Tier 3 sites ‘locked-in’ for the next 3 years which should go a long way in recovering their investment. The potential expansion could be significant if the additional GPUs are sourced with a potential $250 million over the next 3 years.
These miners have provided, through numerous releases of updates and SEC filings, a significant amount of opportunity in the AI and HPC space, the proof of which will be clearly highlighted in their respective future earnings releases.
