Miners Shift to AI: New Opportunities After Bitcoin Halving?

In January 2024, digital asset fund management company CoinShares pointed out that as Bitcoin halved, more miners were expected to shift to artificial intelligence (AI) in energy-secure regions to pursue higher income. Among them, mining companies such as BitDigital (BTBT), Hive (HIVE), and Hut 8 (HUT) have already been using AI for profit-making activities. Meanwhile, TeraWulf (WULF) and Core Scientific (CORZ) are planning to expand in the AI field or have already initiated related activities. This article provides a brief overview of mining companies' shift towards AI and cloud services.

1. Specific action strategies of different mining companies

1.1 BitDigital

On October 23, 2023, Bit Digital announced the launch of Bit Digital AI, a new business line that will provide professional infrastructure to support generative AI workflows.

Presently，Bit Digital has already started operating Bit Digital AI. According to the agreement with customers, Bit Digital will provide customers with GPU rental services ranging from a minimum of 1024 to a maximum of 4096.

Bit Digital also purchased 132 FusionOne HPC units from xFusion Digital Technologies Co., Ltd. (“xFusion”) for approximately $35 million. The FusionOne HPC solution is an integrated HPC platform, and each configuration ordered by Bit Digital includes 8 NVIDIA HGX H100 GPUs, for a total of 1056 GPUs. These GPUs were delivered to the company in late 2023 and will be deployed in Tier-3 data centers.

1.2 Hive

It is reported in detail that HPC HIVE's AI team is currently working with strategic partners across North America to push the frontier of open-source AI large language models (LLMs).

In addition to this, HIVE has acquired two new Nvidia GH200 Grace Hoppers, which are designed to "handle the world's most complex generative AI workloads, spanning large language models, recommender systems, and vector databases."

"In short, we have been building HIVE's GPU and AI business units to become the ultimate AI infrastructure choice and 'trump card' play," HIVE officially said. As a leader in the technology space, we believe we are undervalued as a company with efficient Bitcoin mining operations and a thriving GPU computing business unit. ”

1.3 Hut 8

With more than 36,000 square feet of geographically diverse data center space and cloud capacity, connected to a grid powered by a wealth of renewable energy and zero-emission resources, Hut 8 claims to be revolutionizing traditional assets to create the first hybrid data center model serving both traditional high-performance computing and the emerging gaming, artificial intelligence, and machine learning industries

1.4 Core Scientific

Core Scientific, which has been in the mining business since 2017, has diversified its business since 2019. The company, which owns and hosts Nvidia DGX systems and GPUs for AI computing, has built and deployed specialized facilities dedicated to high-value computing applications on its data center campus in Dalton, Georgia. At the same time, Core Scientific has partnered with cloud service provider CoreWeave to provide infrastructure for use cases such as machine learning.

These combined capabilities will support AI and high-performance computing workloads and are expected to reach $100 million in revenue, although the company says the total potential revenue is much higher because they have a huge infrastructure that can host the most advanced GPU computing on the market.

1.5 Bitdeer

On November 10, 2023, Bitdeer reached a cooperation agreement with American chip giant Nvidia, becoming the first Cloud Service Provider (CSP) partner in Asia to provide DGX H100 SuperPOD cloud services. Bitfawn will enjoy NVIDIA's right of first refusal to provide GPU cloud services for the development and training of AI models. The announcement, which was made at a press conference at Nvidia's Singapore office, shows how much Bitfawn values the title of "Nvidia Partner".

Founded in 2018, Bitfawn is one of the world's largest owners of self-operated mining data centers, with 6 large-scale data centers and 21.2 EH/s of managed computing power as of October 31, 2023.

Bitfawn's AI development roadmap includes infrastructure construction, cloud platform, software support, application API and other services. Through the cooperation with NVIDIA, Bitfawn will continue to invest in the construction of infrastructure such as GPU, DGX, and SuperPod, and launch services such as cloud computing platforms, AI training and inference platforms, AI software tools, and application programming interfaces to provide all-round support for AI development.

2. Impact of Bitcoin Halving on Mining Enterprise Strategic Adjustments

At 8:09 on April 20, 2024, Beijing time, Bitcoin successfully completed its fourth halving. This brings new challenges to mining enterprises. Firstly, the halving of computing power means that miners will receive fewer Bitcoins, which directly affects their profitability. Miners need to invest more resources and computing power to obtain the same number of Bitcoins, which may lead to a decline in the profitability of some costly miners and even their exit from the market.

On the other hand, the halving of computing power will also have an impact on the supply and price of Bitcoin in the market. Since the mining reward is halved, the supply of Bitcoin will also decrease. Many people believe that this may drive up the price of Bitcoin.

In summary, the halving event not only affects miners' profitability and market competitive environment, but also has an impact on the market supply and price of Bitcoin, leading to market fluctuations and adjustments in investment strategies.

Comprehensively, the shift of mining power to AI and cloud computing by companies has a multifaceted impact on the companies, including the following aspects:

(1) Diversification of income sources and risk diversification

Using computing power in the field of artificial intelligence can help companies diversify their income sources. By providing computing power services to AI service providers, companies can obtain stable income from the AI field and reduce their dependence on Bitcoin price fluctuations.

At the same time, by conducting business in different fields, companies can achieve risk diversification. At present, the profitability of most mining companies is strongly correlated with the volatility of the crypto market, and the shift to AI and cloud computing can help mining companies obtain some stable income and resist the risks caused by business and cash flow fluctuations in a bear market.

(2) Seize market share in the AI field

The market demand in the field of AI is broad and growing rapidly. By providing AI computing services, companies can attract more customers, expand market share, and further improve profitability. At the same time, with revenues falling across the board overnight, the strategic response of each miner, and how they adapt, is likely to determine who is ahead and who is behind.

(3) Cost considerations

The cryptocurrency market has changed significantly from a few years ago, when most mining activities were dispersed around the world, but in recent years, most mining activities have been shifted to the United States, which has intensified the electricity competition in the United States. The emerging AI industry is attracting a lot of capital, which makes it more likely for mining companies that have turned to AI to obtain favorable electricity prices from utility companies.

(4) Enhancing technical reserves and human resource development

Turning to the AI field requires more technical reserves and a talent team. Companies' investment in the AI field not only enhances their own technical strength and competitiveness, but also promotes the transformation of the company's talent team, drives team building, and facilitates business development.

On the other hand, mining companies' transition to AI is not always smooth. The ASIC chips used in the mainstream mining machines are specialized chips optimized for mining algorithms, and directly deploying mining machines to AI cloud computing cannot achieve the desired computing power. This means that mining companies cannot seamlessly integrate their mining equipment into the AI scenario, and still need long-term strategic deployment. Additionally, due to the fact that mining itself requires a large amount of computing power to achieve economies of scale, the increase in mining difficulty resulting from the halving of Bitcoin's block reward has further emphasized the scale effect, which will make mining operations increasingly concentrated among large enterprises. This will make the incentive for small and medium-sized mining companies to seek transformation in the AI race even stronger.

In summary, by entering the AI race, mining companies can not only diversify their businesses but also enhance their ability to withstand the cyclical nature of the cryptocurrency market. However, the transformation to this race is still a long-term process.