Through entering the AI track, mining companies can not only achieve business diversification but also enhance their ability to withstand the cyclical nature of the cryptocurrency market.
Authors: Nandin Wu, Leslie, TaxDAO
In January 2024, digital asset management company CoinShares pointed out that with the Bitcoin halving, it is expected that more miners will turn to artificial intelligence in regions with energy security to pursue higher income. BitDigital (BTBT), Hive (HIVE), and Hut 8 (HUT) have already been using artificial intelligence for profit-making activities. Meanwhile, TeraWulf (WULF) and Core Scientific (CORZ) are planning to expand or have already engaged in related activities in the AI field. This article provides a brief overview of the measures taken by mining companies to shift towards artificial intelligence and cloud services.
1. Specific Action Strategies of Different Mining Companies
1.1 BitDigital
On October 23, 2023, Bit Digital announced the launch of Bit Digital AI. Bit Digital AI is a new business line that will provide professional infrastructure to support generative artificial intelligence (AI) workflows.
Currently, BitDigital has launched the operation of Bit Digital AI. According to agreements with clients, BitDigital will provide leasing services for a minimum of 1024 GPUs and a maximum of 4096 GPUs.
BitDigital also purchased 132 FusionOne HPC from xFusion Digital Technologies Co., Ltd. (xFusion) for approximately $35 million. The FusionOne HPC solution is an integrated HPC platform, and each configuration ordered by BitDigital includes NVIDIA HGX H100 8-GPUs, totaling 1056 GPUs. These GPUs were delivered to the company at the end of 2023 and will be deployed in Tier-3 data centers.
1.2 Hive
According to detailed reports, HPC HIVE's AI team is currently collaborating with strategic partners across North America to advance open-source large language models (LLMs).
In addition, HIVE has acquired two new Nvidia GH200 Grace Hopper, which are designed to "handle the world's 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 department to become the ultimate AI infrastructure choice and 'ace' gameplay. As a leader in the technology field, we believe that we, as a company with efficient Bitcoin mining operations and a thriving GPU computing business department, are undervalued."
1.3 Hut 8
Hut 8 claims to currently have over 36,000 square feet of geographically diverse data center space and cloud capacity, connected to a grid powered by a large amount of renewable energy and zero-emission resources, completely changing traditional assets to create the first hybrid data center model, serving traditional high-performance computing and emerging gaming, artificial intelligence, and machine learning industries.
1.4 Core Scientific
Core Scientific, which has been operating mining businesses since 2017, has diversified its business since 2019. The company owns and hosts Nvidia DGX systems and GPUs for artificial intelligence computing and has built and deployed specialized facilities for high-value computing applications within the data center campus in Dalton, Georgia. Meanwhile, Core Scientific has also partnered with cloud service provider CoreWeave to provide infrastructure for use cases such as machine learning.
These comprehensive capabilities will support artificial intelligence and high-performance computing workloads, with expected revenues reaching $100 million, although the company states that the total potential revenue is much higher, as they have a huge infrastructure that can support the most advanced GPU computing in the market.
1.5 Bitdeer
On November 10, 2023, Bitdeer reached a cooperation agreement with the US 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 supply rights from Nvidia to provide GPU cloud services for AI model development and training. This announcement was made at a press conference at Nvidia's Singapore office, demonstrating Bitdeer's emphasis on the title of "Nvidia partner."
Established in 2018, Bitdeer is one of the world's largest self-operated mining data center owners, with 6 large data centers and a managed computing power 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. Through cooperation with Nvidia, Bitdeer will continue to invest in infrastructure such as GPUs, DGX, SuperPod, 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's Strategic Adjustments
At 8:09 on April 20, 2024, Beijing time, Bitcoin successfully completed its fourth halving. This has brought new challenges to mining companies. Firstly, the halving of computing power means that miners will receive fewer bitcoins, directly affecting the profitability of mining. Miners will need to invest more resources and computing power to obtain the same amount of bitcoins, which may lead to a decrease in profitability for some high-cost miners, or even their exit from the market.
On the other hand, the halving of computing power will also have an impact on the market supply and price of Bitcoin. Due to the halving of mining rewards, the supply of Bitcoin will also decrease. Many believe that this may drive up the price of Bitcoin.
Overall, the halving event not only affects the profitability and market competitive environment of miners but also has an impact on the market supply and price of Bitcoin, leading to market changes and investment strategy adjustments.
In summary, the impact of mining companies shifting their computing power to AI and cloud computing is multifaceted, mainly including the following aspects:
(1) Diversification of Income Sources and Risk Mitigation
Using computing power in the field of artificial intelligence can help companies diversify their sources of income. By providing computing power services to AI service providers, companies can obtain stable income from the AI field, reducing dependence on fluctuations in Bitcoin prices.
At the same time, by conducting business in different fields, companies can achieve risk diversification. Currently, the profitability of most mining companies is strongly correlated with the volatility of the cryptocurrency market, and the shift towards AI and cloud computing can help mining companies obtain a portion of stable income, mitigating the risks brought about by business and cash flow fluctuations in bear markets.
(2) Seizing Market Share in the AI Field
The market demand in the AI field is extensive and growing rapidly. By providing AI computing services, companies can attract a wider customer base, expand market share, and further enhance profitability. Meanwhile, with overnight comprehensive income decline, the strategic response of each miner and how they adapt is likely to determine who leads and who falls behind.
(3) Cost Considerations
Currently, the cryptocurrency market is significantly different from a few years ago. In the past, most mining activities were dispersed around the world, but in recent years, most mining activities have shifted to the United States, intensifying the competition for local electricity. The emerging artificial intelligence industry is attracting a large amount of capital, making it more likely for mining companies shifting to AI to obtain preferential electricity prices from public utility companies.
(4) Enhancing Technological Reserves and Human Resource Development
Shifting to the AI field requires more technological reserves and a talented workforce. The company's investment in the AI field can not only enhance its own technological strength and competitiveness but also promote the transformation of the company's talent team, driving team building and business development.
On the other hand, the transition of mining companies to AI is not without challenges. Currently, the ASIC chips used in mainstream mining machines are specifically optimized for mining algorithms, and deploying mining machines directly in AI cloud computing cannot achieve the desired computing power. This means that mining companies cannot seamlessly integrate mining equipment into AI scenarios and still require long-term strategic deployment. Additionally, as mining itself requires a large amount of computing power to achieve economies of scale, the increase in mining difficulty brought about by Bitcoin halving will make the economies of scale more prominent, leading to a concentration of mining businesses towards leading enterprises, and the motivation for small and medium-sized mining companies to seek transformation in the AI track will become stronger.
In conclusion, through entering the AI track, mining companies can not only achieve business diversification but also enhance their ability to withstand the cyclical nature of the cryptocurrency market. However, the transition to this track is still a long-term process.
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