Empire Newsletter: Bitcoin miners turn to AI for a boost

Miners may not be as tied to bitcoin as they once were, but maybe that’s exactly what investors want

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Power grab

To paraphrase Tony Montana: In crypto mining, first you get the power, then you get the Antminers, then you get the bitcoin.

AI has flipped all of that on its head. Tech companies fueled with loads of cash — including OpenAI, Meta, Microsoft and Google — are competing to snatch up as much land and as many data centers as possible. 

If training AI models is a gold rush, juicy gigawatts are the shovels. So for bitcoin miners, as well as former Ethereum miners still sitting on stores of GPUs, the Scarface roadmap to success now goes: land, power, lucrative data center deals with Big Tech.

Core Scientific’s multibillion-dollar deal to service AI-centric cloud computing provider CoreWeave is the most obvious indicator of where things are going.

CoreWeave initially offered $1 billion to buy CORZ outright upon realization it was technically one of the largest data center operators in the US. Core Scientific is contracted for 1.2 gigawatts of power and has enough infrastructure to direct nearly half that toward high-performance computing use cases like AI. 

(For scale, Meta is working to add an additional 9.8 gigawatts of renewable power to US energy.)

Bitcoin miners followed the price of bitcoin right up until the purple band at the right end of the chart (halvings are marked by dotted lines)

Back in March, it was fairly obvious that markets were repricing mining stocks lower in anticipation for the halving two months later. 

The halving would immediately double the cost of BTC production, and overall, miners shed about 25% of their market capitalization in five weeks. All while bitcoin rallied 45% and hit new all-time highs.

That marked the first time miners had decoupled from bitcoin in any meaningful way since at least before the last halving, in 2020.

Now, two months after the halving, the market capitalization of bitcoin miners as a cohort are still trending the opposite. 

Core Scientific, TeraWulf and Hut 8 are trading in close correlation with NVDA these days — up. Valuations for other miners including Marathon, CleanSpark and Riot are trending sideways, while bitcoin has retraced. 

Bitcoin miners transforming into AI power providers could be the new norm, especially with such positive market reaction. 

There are lots of things that are unknown about the future of AI, however. And for what it’s worth, Bitcoin will be just fine. Publicly-listed miners currently control up to a quarter of Bitcoin’s total hash rate — computing power that’s dedicated to mining the chain. 

High hash rate makes it prohibitively expensive to cause chaos with a 51% attack. But even if all public miners were to switch off their rigs and pivot to only AI, effectively pulling off any hash rate attacks would be just as unrealistic.

What’s clear is that Bitcoin’s convergence with the AI industry has only made running large-scale mining operations in 2024 much more interesting from a shareholder perspective, and potentially, far less susceptible to BTC market cycles.

— David Canellis

Data Center

  • Bitcoin’s hash rate is down 20% since just before the halving, but still up from where it was at the start of the year.
  • User fees paid to bitcoin miners are set to reach $100 million this month, up from $64 million in May.
  • Runes and Ordinals activity is falling again, currently making up around 10% of all Bitcoin transactions, down from over half after the halving.
  • BTC is up 0.7% over the past day to $61,550. ETH has added 1.3% to $3,450.
  • GPU marketplace token AKT is leading the front page today, up nearly 19%, followed by AVAX and DOT with 7%.

Time is money

Miners may not be as tied to bitcoin as they once were, but maybe that’s exactly what investors want. 

Outside of the aforementioned Core Scientific-CoreWeave deal expansion, Hut 8 also announced funding to further venture into AI. 

Since the initial Core Scientific announcement, the market cap for 14 of the biggest bitcoin miners has increased by $4 billion, a 22% jump, JPMorgan analysts noted. 

The last time I talked about bitcoin miners and AI, we were fresh off of the Bitcoin halving. It was evident even then that miners and AI were far more tied than they had been previously, and that there was a serious opportunity for that particular intersection.

Even before the funding and partnerships came in, Benchmark analyst Mark Palmer could see the writing on the wall for who would be the most involved when it comes to AI. 

Core Scientific and Hut 8 were two of the companies he named as best positioned for the AI demand. 

But there’s also Iris Energy, which has caught the attention of JPMorgan. Analysts Reginald Smith and Charles Pearce noted last week that Iris is the “best positioned to take advantage of the HPC/AI opportunity as the company has excess power capacity and isn’t wedded to bitcoin mining.”

They have three reasons for this: It’s already running GPUs, it can build data centers on time (and already has), and it has enough power on-site. Unlike a company such as Riot, which has remained pretty focused on mining — and is engaged in a hostile takeover of Bitfarms.

Merely comparing the miners that have previous AI exposure versus the heavyweights (Riot and Marathon) shows how the AI play could boost the market cap of these companies. 

JPMorgan analysts compared the market caps of 14 miners, some of which are already engaged in the AI play

Anyway, AI and miners are a bit of a match made in heaven currently, for those who are seriously interested in quickly getting data centers off the ground. JPMorgan noted that the current timeline for a high-performance computing center is three to five years, but the increased demand for AI could stretch that even further. 

While retrofitting the miners facilities may not be the cheapest option, it could represent the most timely one. 

“Bitcoin mining facilities are much cheaper to build than HPC-grade data centers. As a result, it can be expensive, and time consuming, to retrofit a mining site to host GPUs,” JPMorgan wrote. 

“That said, time is money, and with access to power taking as long as five years, hyperscalers are willing to pay-up for access to energized facilities. Core Scientific estimates it costs between $5 million and $7 million to retrofit their bitcoin mining facilities into a HPC-grade data center, and does not plan to operate bitcoin mining and HPC compute in the same facility (i.e., building).”

If critics were worried about the energy use of bitcoin miners pre-AI, I can’t imagine they’re going to be thrilled about the energy use when some facilities are converted to data centers. 

Or maybe it’ll take some of the pressure off the miners that stay true to their original business model.

— Katherine Ross

The Works

  • Coinbase announced a partnership with Stripe, with the latter adding support for Base to its suite of crypto products.
  • VanEck filed a registration statement for a spot SOL ETF, becoming the first firm to file for a potential solana ETF in the US. 
  • A GSR report looked into the possibility of a solana ETF launching in the US. 
  • Bitcoin miner CleanSpark is acquiring GRIID for $155 million in an all-stock deal.
  • Point72 is shifting its strategy to AI, laying off its fintech investment team, Forbes reported.

The Riff

Q: Is AI coming for our jobs?

Crypto is an industry built on “this time will be different.” AI is grounded in much the same.

Social media and Big Tech started out great but soon warped our brains, turning us all into dopamine-addicted rats. Proponents reckon AI won’t follow that trajectory.

What’s increasingly likely is that AI will be everywhere, in everything, all around us, but it will still be kinda shitty, just like most other technology we use today. 

For sure, some jobs will be automated away. Hopefully, the dirty and dangerous jobs are the first ones to go.

My advice: Learn what AI can’t do well and figure out how to exist within that gap. When it closes for good, you’ll know it’s time to find something new.

— David Canellis

Maybe I’ll eat my words in 10 years, but right now I’m a skeptic. I think some jobs are unfortunately ripe for the picking for AI (ironically, it seems focused on the more creative fields… at least right now) but I don’t think the tech is there to pose a real threat.

Sure, if you want half-assed work, then AI might be your tech. Look at the way journalists are playing around with AI writing articles for example. 

But it lacks the ability to properly source, which — for those of you not heavily focused on the media environment — is incredibly important.

I think David’s right that we’ll see AI far more in our daily lives (ugh) and it might make aspects of our day-to-day existence better too, but most of our jobs are safe. For now at least.

— Katherine Ross


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