Bitcoin Mining Operations are Pivoting to AI

Bitcoin mining is a tricky business.

It requires a careful combination of physical infrastructure, internet access, and, most importantly, electricity to power the operations. However, as the energy-intensive industry continues to grow – despite a sluggish performance after this year’s Bitcoin halving – there’s a new undercurrent emerging.

“Since the move is to turn watts into money, miners are asking whether they should transition energy assets to something other than BTC,” said Nick Hansen, CEO of Bitcoin mining company Luxor.

The other something is Artificial Intelligence (AI).

Hansen told The Defiant that the overarching theme that will dominate Bitcoin mining in coming years is the energy contracts underlying the industry. “The big validation for miners are the watts,” he explained, adding that the key question is “Who owns the watts?” and that many companies are now looking to the burgeoning AI sector.

Hansen claims that the transition is well underway, with more than 80% of the industry looking to AI. He thinks that “maybe 20% finds a path that makes sense to them” and highlighted that companies won’t likely make a complete pivot but keep both operations in place.

Bitcoin Mining vs AI Computing

The synergy between Bitcoin miners and AI is quite simple: AI companies need energy, and miners have plenty of it, according to a recent report from VanEck.

VanEck also projects that Bitcoin miners could add $13.9 billion in profits if they point their power facilities to the nascent technology.

To do so, they would need to tap into AI/HPC (Artificial Intelligence and High Powered Computing), which several companies are already doing. These include Iris Energy, BitDigital, Hive, Hut8, Terawulf, and Core Scientific – the latter constitutes the second-largest miner by hash rate, proof that even the largest companies are making the move.

Bitcoin miners are making between $0.15 to $0.20 per kilowatt hour, while for AI, they rake in $2 to $3, said Hansen.

That said, challenges abound.

AI has two major hurdles, according to Hansen. “Location, because AI computing needs to be close to major cities; otherwise, they will suffer from latency issues; and capital requirements,” he said.

While a 1 MW mining operation has an approximate cost of $1 million, for AI, the investment soars to $15 million. That’s also because the equipment for both is completely different, with Bitcoin mining leveraging ASICs (specialized hardware devices that only have the ability to mine BTC), while AI computing infrastructure uses special-purpose GPUs (with Nvidia’s H100 being the flagship model).

Pressures From The Bitcoin Halving

On April 19, Bitcoin lived through its fourth halving event.

Miners saw their rewards chopped in half, down to 3.25 BTC from 6.5 BTC for every new block mined. According to Colin Harper, former head of research for Luxor, this has been putting severe pressure on miners, who are going through “max pain.”

Harper highlighted that the drop in hash price – which quantifies how much a miner will earn depending on their hash rate – has been “brutal” for miners.

“Basically, mining margins have never been thinner, and miners who aren’t using next-gen machines are really sweating right now,” he said on a recent episode of The Mining Pod.

This is leading a whopping 25% of operations to capitulate, Hansen added, and also driving the Bitcoin-AI transition.

Who Owns The Watts?

Bitcoin mining pools are severely centralized, which makes rack space valuable in today’s landscape.

According to the Hashrate Index, the two top mining pools, Foundry (29%) and AntPool (28%), account for nearly 60% of the network’s total hash rate. F2Pool lands in third with 11%, and ViaBTC has 10%.

This means the top four mining operations account for 80% of the network’s entire hash rate. It’s important to note that each mining pool internally consists of hundreds or thousands of distributed miners that “point” their hash rate at a specific pool to increase the likelihood of finding a block and earning rewards.

All signs point to potential further centralization. According to Hansen, mining pools operate with extremely low margins, which means companies shouldn’t be opening them if that’s their only offering, he said.

Luxor, for example, extends its services to brokerage, derivatives of Bitcoin mining, and the LuxorOS that runs atop its operations.

The Bull Run Isn’t Far

In the past, Bitcoin bull runs were preceded by a period of vast bearishness post Bitcoin halvings.

And the current market cycle is exactly that, said Hansen. “We’re witnessing suffocation from miners similar to the Bitcoin 2020 halving, and if the past is anything to go by, we should kick off a bull run in the not-too-distant future,” he said.