Goodbye BTC, hello AI: Crypto mining companies turn to AI

Author: MacKenzie Sigalos, CNBC; Translation: Jinse Finance xiaozou

Abstract:

• Houston-based technology company Lancium and Denver-based Crusoe Energy Systems announced a multi-billion dollar partnership Thursday morning to build a 200-megawatt data center outside Abilene, Texas, designed to "meet the unique needs of AI companies."

• This is the first phase of a larger 1.2-gigawatt expansion.

• Lancium President Ali Fenn told CNBC that this will be one of the largest AI data center campuses in the world, further proving that the competition to support the development of artificial intelligence is becoming increasingly fierce, and Bitcoin is being left behind.

Right in the heart of West Texas, off Interstate 20, there is a town of 125,000 people called Abilene. Once a stop on cross-border cattle roads in the days of the American West, this tiny frontier village is stepping into the booming artificial intelligence industry.

On Thursday morning, Houston-based technology company Lancium and Denver-based Crusoe Energy Systems announced a multibillion-dollar partnership to build a 200-megawatt data center outside Abilene designed to "meet the unique needs of AI companies," such as providing advanced cloud computing services for applications such as medical research and aircraft design. It's the first phase of a larger 1.2-gigawatt expansion.

At full capacity, it will be one of the largest AI data center campuses in the world, Lancium President Ali Fenn told CNBC, further evidence that the race to support the development of artificial intelligence is growing and bitcoin is being left behind.

Chase Lochmiller, co-founder and CEO of Crusoe, said: "The data center field is rapidly developing to support modern AI workloads, which requires higher levels of high-density rack space, liquid cooling directly to chips, and unprecedented total energy requirements."

There are many synergies between Bitcoin mining and the AI ​​infrastructure business.

Mining companies have huge data centers with access to fiber optic lines and large amounts of electricity across the United States. They are exactly the type of facilities needed for compute-intensive AI operations, which means that their sites and technology are in high demand.

At the same time, mining companies need to diversify. In April of this year, the price of Bitcoin halved, an event that occurs approximately every four years, after which the business of generating new tokens has become less profitable. "Some operators are feeling the financial pressure of the recent block reward halving, which cut industry revenue in half, and are actively exploring exit strategies," JPMorgan Chase analysts wrote in a June report.

The booming AI industry requires more capacity, and at the same time, bitcoin miners are looking for new ways to generate returns on their huge investments, which in turn has led to various mergers, financings and partnerships.

Bitcoin Miners Turn to AI

In addition to Lancium and Crusoe, there are many miners looking to switch from bitcoin to artificial intelligence, and so far, the strategy seems to be working.

The total market value of 14 major U.S.-listed bitcoin miners reached a record high of $22.8 billion on June 15, an increase of $4.4 billion in just two weeks, according to a research report released by JPMorgan Chase on June 17.

It is estimated that about 27% of Bitcoin miner Bit Digital's revenue currently comes from the field of artificial intelligence. The company said in June that it had reached a deal with a customer to provide Nvidia GPUs to a data center in Iceland over three years, a deal that it expects to generate $92 million in revenue annually. The cost of the general-purpose processing units will be paid by liquidating some of its crypto assets.

Hut 8, based in Miami, said it raised $150 million in debt from private equity firm Coatue to help build its AI data center portfolio.

Hut 8 CEO Asher Genoot recently told CNBC that his company has “established several emerging AI vertical commercial agreements under the GPU-as-a-service model, including a customer agreement that provides fixed-fee infrastructure and revenue sharing.”

The pivot to AI has been particularly smooth for Core Scientific, which emerged from bankruptcy in January.

On Tuesday, B. Riley upgraded its stock rating to buy from neutral and raised its price target on the stock to $13 from 50 cents, citing the company’s recent partnership with CoreWeave. CoreWeave is a startup backed by Nvidia and one of Nvidia's main suppliers of technology for running AI models.

Last month, CoreWeave offered to acquire Core Scientific for $1.02 billion, shortly after the two companies announced an expansion of their existing partnership. Core Scientific rejected the acquisition offer, and the company is currently valued at about $2 billion.

Strengthening the Grid

For many years, Crusoe has become almost synonymous with the Bitcoin mining industry.

Crusoe's technology helps oil companies turn wasted energy into useful resources. With the help of Crusoe, many Bitcoin miners have installed machines near these energy sources in order to take advantage of this cheaper energy. For example, starting in 2021, Exxon Mobil began working with Crusoe on Bitcoin mining operations in North Dakota.

But Crusoe's Lochmiller told CNBC that AI infrastructure has actually been part of the company's vision since the company was founded six years ago.

“We are reimagining AI infrastructure from the ground up — from our energy solutions, to the design, engineering and construction of our purpose-built AI data centers, to our manufacturing capabilities for critical electrical data center infrastructure in partnership with Crusoe Industries, and ultimately to our purpose-built AI compute stack,” he said.

The AI ​​data center in Abilene, which is expected to be operational by 2025, is also planned to run primarily on renewable energy.

“Our power orchestration technology is designed to ensure that large AI data center campuses become an asset to the grid, not a liability,” Lancium’s Fenn told CNBC.

Lancium’s patented technology translates energy buyers’ needs into a dashboard that can be gradually adjusted up or down in as little as five seconds. This helps balance the grid’s inherently volatile energy sources, such as wind and solar.

“Lancium’s original vision was to bring large-scale loads to where there is the best abundant renewable energy to facilitate the energy transition,” Fenn said.

Back in 2018, Fenn said the only load that fits this scenario is bitcoin mining.

One of Bitcoin’s greatest features is that it is completely location-independent. Miners only need power and an internet connection, unlike other industries, which require proximity to their end users.

In some cases, the built-in benefits of cryptocurrency mining provide a large enough economic incentive to make it worthwhile to build the infrastructure needed to tap untapped power resources—especially in Texas, which is known as a renewable energy mecca for wind and solar power.

Bitcoin miners are also flexible consumers of electricity—essentially, they act like buyers who will use as much power as they can at any time of day and are happy to accept power outages with just a few seconds’ notice.

But Lancium’s strategy has since shifted to artificial intelligence.

“Traditional data centers were — and still are — optimized primarily for proximity to urban areas and users,” Fenn said. “That’s all changed now, and AI data centers are optimized for energy availability, cost, and clean green at scale. Our vision, campus, and technology are perfectly positioned to meet this larger, more expansive opportunity.”

Needham analysts estimate that the power capacity of large, publicly traded bitcoin miners is expected to more than double over the next one to two years, including plans to expand their mining and high-performance computing operations.

The Electric Power Research Institute estimates that data centers will account for 9% of the nation’s total electricity use by 2030, up from about 4% in 2023. Many see nuclear power as a solution to meet that demand.

TeraWulf uses nuclear energy to power its mining farms and is looking to move into machine learning. So far, the company has 2 megawatts of dedicated high-performance computing capacity, although it plans to shift its energy infrastructure toward AI and HPC.

OpenAI CEO Sam Altman told CNBC last year that he was a big believer in nuclear power's ability to meet the needs of AI workloads.

"I don't think there's a way to do it without using nuclear power," Altman said. "I mean, maybe we can do it with solar and storage. But from my personal perspective, I feel like nuclear power is the most likely and best way to do it."