Mining companies turn to AI: New opportunities after Bitcoin halving?

Authors: Nandin Wu, Leslie, TaxDAO

In January 2024, digital asset fund management company CoinShares pointed out that with the Bitcoin halving, more miners are expected to turn to energy-secure regions for artificial intelligence to pursue higher revenues. Among them, mining companies such as BitDigital (BTBT), Hive (HIVE), and Hut 8 (HUT) are already leveraging AI for profit-making activities. Meanwhile, TeraWulf (WULF) and Core Scientific (CORZ) are planning to expand into the AI field or have already initiated related activities. This article provides a brief overview of the initiatives of mining companies transitioning to 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. Bit Digital AI is a new business line that will provide specialized infrastructure to support generative artificial intelligence (AI) workflows.

Currently, BitDigital has initiated operations for Bit Digital AI. According to agreements with clients, Bit Digital will offer leasing services for a minimum of 1,024 GPUs and up to 4,096 GPUs.

Bit Digital also purchased 132 FusionOne HPC from xFusion Digital Technologies Co., Ltd. (xFusion) for approximately $35 million. The FusionOne HPC solution is an integrated HPC platform, with each configuration ordered by Bit Digital including NVIDIA HGX H100 8-GPUs, totaling 1,056 GPUs. These GPUs are scheduled for delivery to the company by the end of 2023 and will be deployed in Tier-3 data centers.

1.2 Hive

According to detailed reports, the AI team at HPC HIVE is currently collaborating with strategic partners across North America to advance open-source AI large language models (LLMs).

In addition, HIVE has acquired two new Nvidia GH200 Grace Hopper systems, designed to "handle the world's most complex generative AI workloads, covering large language models, recommendation systems, and vector databases."

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

1.3 Hut 8

Hut 8 claims that it currently has over 36,000 square feet of geographically diverse data center space and cloud capacity, connected to a grid powered by a large amount of renewable energy and zero-emission resources, fundamentally transforming traditional assets to create the first hybrid data center model serving traditional high-performance computing and emerging gaming, AI, and machine learning industries.

1.4 Core Scientific

Core Scientific, which has been operating mining since 2017, began diversifying its business in 2019. The company owns and hosts Nvidia DGX systems and GPUs for AI computing and has built and deployed specialized facilities for high-value computing applications at its data center campus in Dalton, Georgia. Meanwhile, Core Scientific is also collaborating with cloud service provider CoreWeave to provide infrastructure for use cases such as machine learning.

These integrated capabilities will support AI and high-performance computing workloads, with expected revenues reaching $100 million, although the company states that the total potential revenue is much higher, as they have significant infrastructure capable of supporting the most advanced GPU computing in the market.

1.5 Bitdeer

On November 10, 2023, Bitdeer entered into a partnership with American chip giant Nvidia, becoming the first Cloud Service Provider (CSP) partner in Asia to offer DGX H100 SuperPOD cloud services. Bitdeer will enjoy priority supply from Nvidia to provide GPU cloud services for AI model development and training. This announcement was made at a press conference at Nvidia's Singapore office, highlighting Bitdeer's emphasis on the "Nvidia Partner" title.

Founded in 2018, Bitdeer is one of the largest self-operated mining data center owners in the world, managing a computing power of 21.2 EH/s across six large data centers as of October 31, 2023.

Bitdeer's AI development roadmap includes infrastructure construction, cloud platforms, software support, and application APIs. Through its partnership with Nvidia, Bitdeer will continue to invest in infrastructure such as GPUs, DGX, and SuperPod, and launch services including cloud computing platforms, AI training and inference platforms, AI software tools, and application interfaces to provide comprehensive support for AI development.

2. Impact of Bitcoin Halving on Mining Companies' Strategic Adjustments

At 8:09 AM Beijing time on April 20, 2024, Bitcoin successfully completed its fourth halving. This presents new challenges for mining companies. First, the halving of computing power means that miners will receive fewer Bitcoins, directly affecting mining profitability. Miners will need to invest more resources and computing power to obtain the same amount of Bitcoin, which may lead to decreased profitability for some higher-cost miners, potentially driving them out of the market.

On the other hand, the halving of computing power will also impact the market supply and price of Bitcoin. With the mining rewards halved, the supply of Bitcoin will also decrease. Many believe this could drive up the price of Bitcoin.

Overall, the halving event not only affects miners' profitability and the competitive environment in the market but also impacts the market supply and price of Bitcoin, triggering market fluctuations and adjustments in investment strategies.

In summary, the impact of mining companies shifting their computing power to AI and cloud computing is multifaceted, primarily including the following aspects:

(1) Diversification of Revenue Sources and Risk Mitigation

Utilizing computing power in the AI field can help companies diversify their revenue sources. By providing computing power services to AI service providers, companies can achieve stable income from the AI sector, reducing dependence on Bitcoin price fluctuations.

At the same time, by operating in different fields, companies can achieve risk diversification. Currently, most mining companies' profits are strongly correlated with fluctuations in the crypto market, while the shift to AI and cloud computing can help mining companies secure a portion of stable revenue, mitigating risks associated with business and cash flow fluctuations during bear markets.

(2) Capturing Market Share in the AI Field

The market demand in the AI sector is broad and growing rapidly. By providing AI computing services, companies can attract a larger customer base, expand market share, and further enhance profitability. Meanwhile, as revenues plummet overnight, each miner's strategic response and how they adapt will likely determine who leads and who lags behind.

(3) Cost Considerations

Currently, the cryptocurrency market is significantly different from a few years ago, when most mining activities were dispersed around the world. In recent years, however, most mining activities have shifted to the United States, intensifying local electricity competition. The emerging AI industry is attracting substantial capital, making it more likely for miners transitioning to AI to obtain favorable electricity rates from utility companies.

(4) Enhancing Technical Reserves and Human Resource Development

Transitioning to the AI field requires more technical reserves and talent. Investment in AI can not only enhance a company's technical strength and competitiveness but also promote the transformation of the talent team, driving team building and business development.

On the other hand, the transition of mining companies to AI is not without challenges. Currently, the ASIC chips used in mainstream mining machines are specifically optimized for mining algorithms, and directly deploying mining machines in AI cloud computing may not yield ideal computing power. This means that mining companies cannot seamlessly integrate mining equipment into AI scenarios and still require long-term strategic planning. Additionally, since mining itself requires substantial computing power to achieve economies of scale, the increased mining difficulty brought about by the Bitcoin halving will further highlight the economies of scale, leading to a concentration of mining business among larger enterprises, while smaller and medium-sized miners will have a stronger motivation to seek transformation in the AI sector.

In conclusion, by entering the AI sector, mining companies can not only achieve business diversification but also enhance their ability to withstand the cyclical nature of the cryptocurrency market. However, the transition to this sector remains a long-term process.