Bitcoin Mining Makes a Comeback – Now Powered by AI!
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Bitcoin has experienced a notable uptick of 7% in the past five days. What does this imply? Simply put, Bitcoin mining is making a comeback (that is, until Bitcoin’s price dips by 5% over a comparable period, at which point it could be over once again).
In light of Bitcoin’s price resurgence, four of the five leading publicly traded mining companies—ranked by their total hashrate, representing the computational power dedicated to securing the Bitcoin network—have seen their stock prices soar by double digits.
The only exception among this group is Iris Energy Ltd (IREN), which has experienced a 15% decline following a report last week from Culper Research. The report revealed a short position on IREN, which Culper believes is unsuitable for diversifying into artificial intelligence (AI) or high-performance computing (HPC) owing to the limitations of its Childress, Texas site.
While AI and HPC may appear unrelated to Bitcoin mining, the shift towards these technologies has become a financial lifeline for miners. A case in point is Core Scientific’s (CORZ) recent AI initiative involving an agreement with CoreWeave, which propelled CORZ’s stock by an impressive 40%.
(Should Bitcoin’s value continue climbing, the alleged shortcomings of IREN’s sites for diverse revenue streams might become less relevant, allowing the company to refocus efforts on Bitcoin mining once again.)
Ultimately, the phrase “Bitcoin mining is making a comeback” essentially translates to “Bitcoin mining stocks are on the rise.” However, on a straightforward assessment of “are there more miners now?” the increase in known pool hashrate over the past five days has only been moderate, climbing from 663.618 exahashes per second to 668.659 Eh/s—not the expected 7% increase. (It’s worth noting that no definitive data exists for hashrate.) The fact that the hashrate does not react instantly or proportionally to Bitcoin’s price spikes works in favor of public mining companies.
However, a deeper investigation into the current narrative surrounding Bitcoin mining reveals that while companies remain dedicated to mining Bitcoin, they are increasingly discussing other endeavors that may seem only tangentially related.
The Intersection of AI and High-Performance Computing
In a recent piece, I highlighted that both AI and Bitcoin mining consume extensive energy. Furthermore, it appears that Bitcoin facilities can be efficiently adapted for AI endeavors (or HPC, if one prefers to sidestep the AI hype).
This adaptability is appealing to investors. As noted by CoinDesk’s Will Canny and Aoyon Ashraf, “Private equity (PE) firms are increasingly recognizing the potential of Bitcoin (BTC) miners, buoyed by the surging need for data centers capable of powering AI-related machinery.”
JPMorgan’s research echoes this sentiment and amusingly, it posits that IREN—labeled by Culper as “not ready for AI”—is actually best positioned to benefit from this trend of resource reallocation.
Will Foxley, co-founder of Blockspace Media and host of The Mining Pod, expressed doubt regarding claims that Bitcoin mining facilities can seamlessly pivot to support AI computing.
“Many of these Bitcoin miners are claiming they can support AI when, in reality, they may not be equipped to do so,” Foxley remarked.
Financial Engineering as a Service
I have previously argued that going public can be detrimental. One major reason is that it forces a company to prioritize short-term, quarterly earnings over long-term ambitions (such as sustainable growth over the next decade). Additionally, public disclosure of struggles can leave a company vulnerable to market pressures.
2022 was a difficult year for mining firms. Core Scientific (CORZ) even filed for bankruptcy. This occurred prior to the Bitcoin halving set for April 2024, which is expected to severely impact miners’ revenue forecasts. The environment was tough for miners, particularly as multiple public mining competitors were able to pinpoint exactly which firms were in trouble. Riot Platforms (RIOT) attempted to leverage this challenge by launching a hostile takeover bid for a smaller rival, Bitfarms (BITF). Since BITF is publicly traded, RIOT could bypass traditional communication channels and bought a significant stake in BITF directly. This strategy could have proven advantageous for RIOT, assuming their operations were indeed superior to BITF’s, though the takeover ultimately didn’t succeed.
Numerous financial strategies exist that can bolster shareholder returns (or conversely, severely impact them if unsuccessful; RIOT’s shares have dropped 25% this year). One tactic involves mutual agreements for acquisitions, demonstrated by CoreWeave’s intentions after striking their AI deal with Core Scientific. Although their bid was declined, it is telling that an AI company eyeing rapid expansion sought to acquire a Bitcoin mining firm, considering the latter possesses facilities that could be adapted for AI operations.
According to Foxley, “Many Bitcoin enterprises hold appealing power agreements. For a major data center operator like CoreWeave, investing billions to repurpose a Bitcoin mining site for an AI data center could make economic sense. While such an acquisition would be costly, the long-term advantages of the power contract could yield significant returns, particularly given the potential valuation multiples associated with being a public AI company.”
It’s likely that CoreWeave is not the only AI firm considering this strategy.
Diversifying into Other Cryptocurrencies
Traditionally, mining companies focused on Ether before Ethereum transitioned from proof-of-work to proof-of-stake, effectively narrowing their mining activities to Bitcoin.
This conventional view has shifted somewhat since Marathon Digital Holdings (MARA) disclosed its engagement in mining a relatively niche cryptocurrency known as Kaspa since September 2023. Kaspa, while largely obscure, is nonetheless mineable. Marathon capitalized on available resources and energy, identifying a profitable opportunity to diversify beyond Bitcoin mining.
“Through our Kaspa mining endeavors, we are establishing an additional revenue stream that is not solely dependent on Bitcoin, while aligning with our core strengths in digital asset technologies,” stated Adam Swick, Marathon’s Chief Growth Officer, in a recent announcement.
While the mining of Kaspa and potentially other lesser-known currencies may be seen as more of a novelty rather than a transformative industry trend, it underscores the broader reality that Bitcoin miners are seeking alternative revenue sources amid revenue strains and profit challenges.
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