BTC halving and sharp drop in price: Is AI the chosen path for crypto mining companies to transform?

Author: Climber, Golden Finance

On July 5, as BTC fell below $54,000, many mining companies' mining machines have reached the shutdown price. F2Pool data shows that currently only five mining machine models can bring profits to their operators, which means that companies whose main business is crypto mining urgently need to find new business profit points.

Previously, due to factors such as the conversion of the consensus mechanism from POW to POS, the fourth halving of Bitcoin, and energy costs, the stocks of the top listed mining companies fell sharply before the halving, and some even declared bankruptcy. With the current decline in Bitcoin prices, it is even more difficult for mining business profits to cover costs. Bloomberg predicts that the entire cryptocurrency mining industry will lose about $10 billion after the halving.

Faced with the crisis, mining companies have begun to take the road of self-rescue. It is a routine operation to gather together for warmth, update mining machines, and improve computing power, but the most effective way at present is to transform into the AI ​​field. Compared with companies in other industries, the business paths of mining companies are highly overlapped with the artificial intelligence track, and they all have a strong demand for computing power, which happens to be the strength of crypto mining companies.

Core Scientific

In January 2024, Core Scientific's Chapter 11 reorganization plan was approved by the bankruptcy court. But the company's stock price fell more than 30% on the day of listing, closing at only $3.75.

In March, Core Scientific released its financial report showing that total revenue for fiscal 2023 was $502.4 million, a 22% decrease from the previous year.

But the company later decided to enter the AI ​​field and signed a multi-year contract with CoreWeave that month, with potential revenue exceeding $100 million. Under the terms of the contract, Core Scientific will provide up to 16 MW of capacity in its new data center in Austin, Texas, to host CoreWeave's infrastructure. Core Scientific is leasing a Tier 3 data center in Austin, formerly home to HP, to expand its hosting business to include HPC.

Soon after, Core Scientific announced a 12-year contract with CoreWeave, which is expected to generate an average annual revenue of approximately $290 million for Core Scientific, and the cumulative total revenue over the 12-year period will exceed $3.5 billion.

The shift to AI has also given Core Scientific confidence and a new life. Not only did it reject CoreWeave's proposal to acquire the mining company at $5.75 per share, but the company's market value has also achieved positive growth in the stock price increase.

As can be seen from the above figure, the stock price of Core Scientific was about $3 before the halving, and it has been rising all the way after the halving. It has now reached $10, an increase of nearly 300%. It is worth noting that Core Scientific's stock price doubled after it announced a 12-year contract with CoreWeave in June.

CoreWeave

Core Weave started out as a mining company, but now has a reputation as an "AI computing power scalper". The company was founded in 2017 and is a professional cloud provider with large-scale GPU computing resources, that is, thousands of Nvidia's AI "computing cards". Its customers include many AI giants such as OpenAI and Microsoft.

CoreWeave was originally a mining company that mainly mined Ethereum, and their means of production was GPU. By the end of 2018, more than 50,000 GPUs had been deployed, accounting for more than 1% of the Ethereum network computing power, becoming the largest Ethereum miner in North America.

Since then, considering the increasingly fierce competition in the crypto mining market and the huge impact of electricity prices, CoreWeave has begun to focus on purchasing enterprise-level GPU chipsets, building dedicated cloud infrastructure, and adjusting its business around Nvidia's chips since 2019.

At present, with the globalization of AI, CoreWeave has become a cloud computing service company relying on NVIDIA graphics cards, and has won major customers such as Microsoft and Google, entering the ranks of unicorns in one fell swoop, becoming one of the world's largest independent GPU cloud providers, providing services to customers in various industries such as VFX, artificial intelligence, games and medical care.

The transformation has brought huge commercial returns to CoreWeave, and it has also freed traditional mining companies from the constraints of the rise and fall of cryptocurrency prices.

In April 2023, CoreWeave completed a $221 million Series B financing. Just one month later, Magnetar Capital invested another $200 million, bringing the company's total Series B financing to $421 million.

In August of that year, CoreWeave completed a $2.3 billion debt financing led by Magnetar Capital and Blackstone, which also caused the company's valuation to soar directly to $8 billion.

This year, CoreWeave completed another $1.1 billion Series C financing, while another mining company, Core Scientific, announced a 12-year contract with CoreWeave, under which the former will provide the latter with about 200 megawatts of infrastructure. In addition, in June this year, CoreWeave announced that it would invest $2.2 billion in data centers in Europe by the end of 2025.

Currently, market rumors say that CoreWeave plans to IPO in 2025.

Hut 8 Corp

In the third quarter of last year, Hut 8 had a net loss of approximately 54 million Canadian dollars (approximately 40 million U.S. dollars), and its revenue fell 46% year-on-year. Since then, Hut 8 has changed its leadership, and the new CEO Asher Genoot said before the halving that the current task is to "make difficult decisions to divest, invest and grow assets."

To this end, Hut 8 began to make business adjustments and transformations at the end of last year, acquiring four Canadian power plants and a new Bitcoin mine, but more importantly, Hut 8 said it would actively seek more opportunities to invest in the "huge growth potential of artificial intelligence."

And just on July 4, Hut8 announced plans to start commercializing its AI business in the second half of 2024.

In its operational update in June this year, Hut8 Corp mentioned that the company managed a computing power of 17.8 EH/s, a managed power capacity of 762 megawatts, and a bitcoin production of 107 in June.

At the same time, the company plans to start commercializing its AI business in the second half of 2024 and predicts that annual revenue will reach approximately $20 million. CEO Asher Genoot said the company is actively optimizing existing assets and plans to upgrade its mining fleet to further improve the productivity and long-term operational efficiency of data centers.

Hut8's transformation into AI business also enabled it to obtain a strategic investment of US$150 million from Coatue in June this year, and the funds were used to support the construction of the next-generation AI infrastructure platform. It is expected that the transformation will be realized in the 1,100-megawatt energy project announced earlier in the near future.

In addition, Hut8's AI transformation also doubled its stock price after the halving.

As can be seen from the above figure, the price of Bitcoin before the halving on April 20 was about US$8. It has been rising since the halving and is now over US$16, doubling.

Marathon Digital Holdings

Marathon Digital Holdings is the largest listed Bitcoin mining company. According to Bitcointreasuries.net, Marathon holds more than 17,000 Bitcoins. The company's main business is self-operated Bitcoin mining. Its strategy is to (finance) purchase mining machines to deploy mining farms, pay the cash operating costs of production, and hold Bitcoin as a long-term investment.

However, unlike the above three mining companies, Marathon is more focused on updating mining machines and increasing production capacity under the pressure of halving.

In the past few months, Marathon has been continuously optimizing its mining machine products and expanding its computing power. It plans to reach 50 EH/s by the end of 2024, doubling its computing power from the beginning of the year. For example, Marathon Digital acquired Applied Digital's Bitcoin mining data center for $87.3 million, cooperated with NiceHash to launch customized firmware for Bitcoin ASIC miners optimized for the NiceHash mining platform, and launched mining products MARAFW firmware and MARA UCB 2100 control board, aiming to improve the efficiency and performance of Bitcoin miners.

In addition, Marathon is also trying other methods, including launching Bitcoin sidechains and related development platforms Anduro, and signing an agreement with Kenya to invest more than $80 million to develop the energy infrastructure of the African country.

In May this year, Marathon Digital released a financial report stating that in the first quarter of 2024, the company mined a total of 2,811 bitcoins, worth about $176 million at current prices. But this is mainly due to a 15% increase in its operating computing power, and the increase in profits is also due to the rise in Bitcoin prices.

But the above efforts have only kept its stock price up slightly, with its stock price rising from about $15 to $21 before and after the halving.

Conclusion

Practical results have proven that, for now, mining companies that embraced AI early have achieved rich returns, and some have even gotten rid of the shackles of the currency price. Mining companies that choose to stick to their existing product lines and production models still need to find a way out before the next Bitcoin halving cycle.

For mining companies that choose the AI ​​field, this may be the best choice, because mature mining infrastructure, personnel management experience, and power resources are enough to exempt them from the pain period of cross-field development.