Title: Mining Companies Shift Towards AI and Cloud Services Post Bitcoin Halving
Authors: TaxDAO-Nandin Wu, Leslie
In January 2024, CoinShares, a digital asset fund management company, predicted that more mining companies would turn to artificial intelligence (AI) in energy secure regions to pursue higher profits following the Bitcoin halving. BitDigital (BTBT), Hive (HIVE), and Hut 8 (HUT) are already utilizing AI for profitable activities. Additionally, TeraWulf (WULF) and Core Scientific (CORZ) are planning to expand or have already initiated activities in the AI field. This article provides a brief overview of the mining industry’s shift towards AI and cloud services.
1. Specific Strategies of Different Mining Companies
1.1 BitDigital
On October 23, 2023, BitDigital announced the launch of BitDigital AI, a new business line that offers professional infrastructure to support generative AI workflows. BitDigital has already commenced the operations of BitDigital AI. As per agreements with clients, the company will provide leasing services for a minimum of 1024 GPUs and a maximum of 4096 GPUs.
BitDigital also purchased 132 FusionOne HPCs from xFusion Digital Technologies Co., Ltd. for approximately $35 million. FusionOne HPC is an integrated HPC platform, and each configuration ordered by BitDigital includes NVIDIA HGX H100 8-GPUs, totaling 1056 GPUs. These GPUs will be delivered to the company by the end of 2023 and deployed in Tier-3 data centers.
1.2 Hive
According to reports, Hive’s AI team at HPC HIVE is currently collaborating with strategic partners across North America to advance open-source AI large language models (LLMs). Additionally, Hive has acquired two new Nvidia GH200 Grace Hopper devices designed to handle the most complex generative AI workloads, covering large language models, recommendation systems, and vector databases.
Hive officials stated, “In short, we have been building Hive’s GPU and AI business division to be the ultimate AI infrastructure choice and a ‘game-changer.’ As a leader in the tech space, we believe we have been undervalued as a company that has efficient Bitcoin mining operations and a thriving GPU computing business.”
1.3 Hut 8
Hut 8 claims to currently possess over 36,000 square feet of geographically diverse data center space and cloud capacity connected to a grid powered by renewable energy and zero-emission resources. It is revolutionizing traditional assets to create the first hybrid data center model, serving both traditional high-performance computing and emerging gaming, AI, and machine learning industries.
1.4 Core Scientific
Core Scientific, which has been operating mining businesses since 2017, diversified its operations from 2019 onwards. The company owns and hosts Nvidia DGX systems and GPUs for AI computing and has built and deployed dedicated facilities for high-value computing applications within its data center campus in Dalton, Georgia. Additionally, Core Scientific collaborates with cloud service provider CoreWeave to offer infrastructure for machine learning use cases.
These comprehensive capabilities will support AI and high-performance computing workloads, with expected revenues of $100 million. However, the company states that the total potential revenue is much higher due to its vast infrastructure capable of accommodating the most advanced GPU computing in the market.
1.5 Bitdeer
On November 10, 2023, Bitdeer partnered with chip giant Nvidia to become the first Cloud Service Provider (CSP) partner in Asia to offer DGX H100 SuperPOD cloud services. Bitdeer will have priority access to Nvidia’s supply chain to provide GPU cloud services for AI model development and training. This announcement, made at Nvidia’s Singapore office, highlights Bitdeer’s focus on its “Nvidia Partner” status.
Established in 2018, Bitdeer is one of the world’s largest self-operated mining data center owners, managing a hashrate of 21.2 EH/s as of October 31, 2023. Bitdeer’s AI development roadmap includes infrastructure construction, cloud platforms, software support, and application APIs, among other services. Through collaboration with Nvidia, Bitdeer will continue investing in infrastructure such as GPUs, DGX, and SuperPods, and launch 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 Company Strategies
On April 20, 2024, at 8:09 AM Beijing time, Bitcoin successfully completed its fourth halving, presenting new challenges for mining companies. Firstly, the halving of mining rewards means that miners receive fewer bitcoins, directly impacting their profitability. Miners need to invest more resources and computing power to obtain the same amount of bitcoins, which may reduce the profitability for high-cost miners or even force them to exit the market.
On the other hand, the halving also affects the market supply and price of Bitcoin. With reduced mining rewards, the supply of Bitcoin also decreases. Many believe that this could drive up the price of Bitcoin.
Overall, the halving event not only affects the profitability and competitive environment for miners but also has implications for the market supply and price of Bitcoin, prompting market changes and adjustments in investment strategies.
Considering the shift of mining companies towards AI and cloud computing, there are multiple impacts on these companies, including:
1. Diversification of Revenue Sources and Risk Mitigation
Using computing power for AI helps companies achieve revenue diversification. By providing computing power services to AI service providers, companies can generate stable income from the AI field, reducing dependency on Bitcoin price fluctuations.
Furthermore, conducting business in different sectors allows companies to mitigate risks. Currently, most mining companies’ profitability is strongly correlated with cryptocurrency market volatility. Shifting towards AI and cloud computing can help mining companies obtain a portion of stable income, mitigating risks caused by business and cash flow fluctuations during bear markets.
2. Seizing Market Share in the AI Field
The AI field has broad market demand and rapid growth. By offering AI computing services, companies can attract a larger customer base, expand their market share, and enhance profitability. Meanwhile, the strategic responses of each miner and their ability to adapt with a sudden drop in income overnight may determine who leads and who falls behind.
3. Cost Considerations
The cryptocurrency market has significantly changed in recent years. While mining activities were previously scattered worldwide, they have shifted to the United States in recent years, intensifying the competition for local power supply. The emerging AI industry is attracting significant capital, which provides mining companies shifting towards AI with opportunities to secure preferential electricity prices from utility companies.
4. Enhancing Technological Reserves and Human Resources Development
Transitioning to the AI field requires additional technological reserves and a skilled workforce. Companies’ investments in the AI field not only enhance their technical capabilities and competitiveness but also drive team transformation, facilitating team-building and business development.
However, the shift towards AI is not without challenges for mining companies. The ASIC chips used in mainstream mining machines are specifically optimized for mining algorithms, and deploying mining equipment directly in AI cloud computing may not yield desired computing power. This implies that mining companies cannot seamlessly integrate mining devices into AI scenarios, necessitating long-term strategic deployment. Additionally, the increased mining difficulty resulting from the Bitcoin halving highlights the importance of economies of scale, leading to concentration of mining businesses among major players. This intensifies the motivation for small and medium-sized mining companies to seek transformation in the AI field.
In conclusion, by entering the AI field, mining companies can achieve business diversification and enhance their ability to withstand cryptocurrency market cycles. However, the transition to this field remains a long-term process.
