Bitcoin Mining Is So Back (Except It’s AI Now)

Bitcoin is up 7% in the last five days. Do you know what that means? Bitcoin mining is back (until the price of bitcoin drops 5% again in a five-day period, and then it will do so again).

Along with the rise in Bitcoin’s price, the stock prices of four of the five largest publicly traded miners (as measured by total hash rate or the processing power spent securing the Bitcoin network) increased by double-digit percentage points.

Stock prices of four of the five major publicly traded miners rose by double-digit percentage points. (TradingView)

The fifth-largest of the five, Iris Energy Ltd (IREN), fell 15% after a report last week from Culper Research in which the firm disclosed a short position in IREN. Culper’s reason for the bearish bet: Iris’ Childress, Texas site is not suitable for artificial intelligence (AI) or high-performance computing (HPC), the researchers say.

AI and HPC may seem unrelated to bitcoin mining, but such diversification has become a way for bitcoin miners to make money, as evidenced by Core Scientific’s (CORZ) 200-megawatt (MW) AI deal with CoreWeave last month, which saw CORZ’s stock price jump 40%.

(Perhaps if the price of bitcoin continues to rise, the unsuitability of IREN’s sites for revenue-generating activities other than bitcoin mining may disappear as the company shifts its resources back to bitcoin mining.)

In any case, what “bitcoin mining is back” really means is “bitcoin mining stocks are back,” because on a pure “are there more miners now?” basis, known pool hashrate has only increased slightly over the last five days (from 663,618 exahashes per second to 668,659 Eh/s), not by 7% as one might expect. (Note: there is no “perfect” data point for hashrate.) Of course, it’s good for public companies that hashrate doesn’t respond immediately and proportionally to bitcoin’s price increase.

But then if you look at the narrative around Bitcoin mining and what the mining companies say in interviews or public filings, you see that while they are still focused on Bitcoin mining, they are making a lot of noise about seemingly unrelated or superficially related things.

Artificial Intelligence or High Performance Computing

Here’s a striking headline: Private Equity Giants Surround Bitcoin Miners at AI Allure

And another: Core Scientific Upgraded to Buy from Neutral to Reflect HPC Expansion: B Riley

And one more, good things come in threes: Bitcoin Mining Sector Attracts Increased Investor Interest Following Fundamental Scientific Agreement: JPMorgan

Last week, I mentioned that both AI and Bitcoin use a lot of energy, and not only that, it also makes it very easy for Bitcoin mining rigs to be repurposed for the next big thing: AI (or HPC, if you want to avoid the anti-AI backlash).

The story continues

Investors love this adaptability. “Private equity (PE) firms are finally seeing value in bitcoin (BTC) miners thanks to the growing demand for data centers that can power artificial intelligence (AI) machines,” write CoinDesk’s Will Canny and Aoyon Ashraf.

JPMorgan’s research suggests the same thing, and the funny thing is that the investment bank’s research says that IREN (the company Culper thinks is “not AI ready”) is in the best position to take advantage of this resource shifting trend.

Will Foxley, co-founder of Blockspace Media and host of The Mining Pod, has expressed skepticism about claims that Bitcoin mining rigs are amenable to transitioning to supporting AI computing.

“Most Bitcoin miners are just talking about how they can work with AI when in reality they can’t,” Foxley told CoinDesk.

Financial engineering service

I’ve argued before that going public is stupid. One reason is that it forces a company to shift to a short-term, quarterly profit-focused mindset when the focus should be on long-term goals (like growing forever or being around for the next decade). It also lets everyone know if a company is struggling, which can make it vulnerable.

Mining companies have struggled in 2022. Core Scientific (CORZ) even declared bankruptcy. And all this was before the Bitcoin halving in April 2024 would deeply dent miners’ revenue expectations. It’s been tough for miners in general, and with so many publicly traded mining companies, competitors have been able to pinpoint exactly who’s struggling. Riot Platforms (RIOT) has tried to capitalize on this situation, offering to take over a smaller mining company, Bitfarms (BITF). Since BITF is publicly traded, RIOT didn’t have to call BITF leadership and ask nicely. Instead, RIOT bought a large number of BITF shares in a hostile takeover attempt. This might have worked out well if RIOT was right in assuming that its operation was better and more efficient than BITF’s, but we’ll never know, as the takeover attempt ultimately failed.

There are other financial tricks that can boost shareholder returns (or sink them if they fail; RIOT’s stock is down 25% this year). One example is getting acquired by mutual consent, as Coreweave tried to do after it struck its AI deal with Core Scientific. The offer was rejected, but it makes sense for an AI company with growth ambitions to look at a bitcoin mining company and think, “Wait a minute, we need to scale up our operations quickly before the AI ​​ship passes us by, and bitcoin miners have warehouses that we can repurpose for our use, so we should buy them.”

“I think some of these bitcoin companies are sitting on attractive power contracts, and if you’re a big data center hyperscaler like Coreweave, what good is a couple of billions of dollars to level a bitcoin mining site and build a new AI data center?” Foxley said. “Of course the acquisition will be expensive, but you’re betting that the longevity of the power contract will pay you back based on both the multiple of being a public AI company and the revenue of just being an AI company.”

Coreweave can’t be the only AI company thinking about this.

Mining of other coins

Mining companies were mining ether before Ethereum switched from proof of work to proof of stake, so now these companies only mine bitcoin.

At least that’s what many thought until Marathon (MARA) announced that it had been mining a relatively obscure cryptocurrency called Kaspa since September 2023. Kaspa is, by most measures, a completely random cryptocurrency that can be mined just fine. Marathon had access to space and electricity, it looked profitable, and so the company did it because profitable activity is good.

“By mining Kaspa, we are able to create a revenue stream that is diversified from Bitcoin and directly linked to our core capabilities in digital asset computation,” Marathon’s chief growth officer Adam Swick said in a statement.

I think mining Kaspa and potentially other cryptocurrencies is more of a novelty than a tangible industry change, as I doubt another proof-of-work cryptocurrency will ever come to the fore.

But Marathon’s move further highlights a broader point: Bitcoin miners are struggling with revenue and profitability, and they’re looking elsewhere than Bitcoin mining to make up the difference.

Note: The opinions expressed in this column are those of the author and do not reflect the opinions of CoinDesk, Inc. or its owners and affiliates.