A recent report by investment firm VanEck has highlighted an interesting synergy between two booming technology sectors: Bitcoin mining and artificial intelligence (AI). According to the study, Bitcoin mining companies, thanks to their infrastructure and expertise in energy management, are able to leverage their power to achieve the desired results.are well positioned to become key service providers for AI companies. Matthew Sigel, head of digital asset research at VanEck, explains that “AI companies need power, and Bitcoin miners have it.” The growing demand for computing power to train AI models has also led to a shortage of specialized data centers. Bitcoin miners, for their part, They have facilities already built and optimized for energy consumptionallowing them to adapt to the needs of AI. Publicly listed U.S. Bitcoin mining companies control a record percentage of the global Bitcoin hash rate, and their collective market capitalization hit a year-to-date high last July, as seen in the chart below from the MarketVector Digital Asset Equity Index.
MarketVector Digital Asset Equity Index. Source: Marketvector This financial indicator measures the performance of companies in the digital asset sector, and has shown that the shares of these companies “have increased by 2.8% as of August 12, although they have underperformed the price of bitcoin (BTC) by 3,000 basis points,” the report notes.
What does Bitcoin mining provide to AI?
However, Many investors still don't understand the significant exposure Bitcoin miners now have to AISigel explains. More and more companies and organizations need these data centers to develop and use AI technologies. This has created a huge demand. Because of this high demand, power has become a very valuable resource. It’s like there’s an auction for electricity, and whoever pays the most gets it. Power-hungry companies, such as Bitcoin miners and data centers, must pay more for it. This is called a “premium.” However, existing Bitcoin miners, by drawing large loads and collaborating with power grids on balancing programs, are in a unique position to support AI, the report says. Suitable Bitcoin mining sites can power GPUs for AI in less than a year, compared to the more than four years needed for open-field AI data center developments to come online. VanEck estimates that Bitcoin miners are trading at an average of about $4.5 million per megawatt (MW) of installed capacity, while some data centers exceed $30 million per MW. If these mining sites are adequately equipped with power, bandwidth, and cooling systems, “they are ideal for capturing the value of AI cloud services,” the company highlights. It is important to remember that Bitcoin mining requires equipment with great processing power, specific hardware and software, electric power, Internet, and cooling systems capable of handling high consumption. These technological requirements provide Bitcoin mining companies with a series of tools that could offer AI developers a solution to their lack of infrastructure. The structural shortage in AI today, combined with the surplus resources of companies dedicated to Bitcoin mining, can connect both industries, allowing Bitcoin miners to benefit from the current limitations of AI and get another source of income.
Industrial Bitcoin mining farm – Source: Lightfield Studios – stock.adobe.com.
Companies that have expanded into AI
Early adopters of AI, such as Core Scientific (CORZ), are already reaping the benefits. On June 3, it signed a 12-year deal with AI hyperscaler CoreWeave, which is expected to generate more than $3.5 billion in cumulative revenue for providing 200 MW of power. Despite filing for bankruptcy in late 2022 and restructuring its liabilities, Core Scientific was relisted on the Nasdaq stock exchange on January 24 of this year and could soon become one of the largest data center operators in the United States following the partnership with CoreWeave, Sigel suggests.
Matthew Sigel, Head of Digital Asset Research at VanEck. Source: VanEck. A similar partnership was entered into by HUT8 (HUT), a BTC mining-focused company, with Coatue, an AI-related company, last June. The alliance is for the construction of a next-generation AI infrastructure platform. “We believe this partnership will allow us to unlock significant opportunities and connectivity to a broader space as we enter this next phase of growth,” commented Asher Genoot, CEO of HUT8. VanEck believes that Investors must understand the potential of the opportunity that AI represents for Bitcoin miners. Their analysis examined the capital requirements and potential revenue if publicly traded Bitcoin miners were to dedicate varying percentages of their power capacity to serving AI customers. With revenue estimated at $1.30 per kWh, and after applying an 80% utilization rate, an annualized revenue of approximately $9.11 million per MW is projected.
Bitcoin miners typically have bad balance sheets, either from too much debt, too much equity issuance, too much executive compensation, or some combination of the three, according to Matthew Sigel, head of digital asset research at VanEck.
However, the market for AI offers the possibility of obtaining financing for your capital expensespotentially reducing the cost of closing their next energy deal. If AI were to understand 20% of these miners' energy capacity by 2027, and if they were able to finance the necessary investment, Additional annual earnings could exceed an average of $13.9 billion per year for 13 years, Sigel notes.
The challenges that Bitcoin mining could face
However, a major challenge is that only a small percentage of existing Bitcoin mining centers It has the necessary proximity to major cities and critical infrastructure to serve AI. Additionally, Bitcoin miners entering this market could face lower margins while they develop the necessary operational experience, recognition and trust, the report warns.
“While the AI mining trend is nascent, it represents a significant merging of two high-growth technology sectors, creating a fascinating game-theory dynamic. As some miners go offline to run GPUs, Bitcoin’s difficulty algorithm will automatically adjust, allowing the remaining miners to grab a slightly larger market share,” said Matthew Sigel, head of digital asset research at VanEck.
VanEck believes that the MarketVector Digital Asset Equity Index miners They should be able to easily double their market cap by 2028even if there is no growth in Bitcoin profits. As reported by BitcoinDynamic, this merger of the cryptocurrency industry and the development of AI could add up to $20 trillion to global GDP by 2030according to Juan Leon, senior cryptocurrency research analyst at Bitwise. In addition, Alexander J. Poulos, a trader and analyst, believes that the “optimal setup” in this scenario is to invest in shares of mining-related companies. AI development may also encounter obstacles if more hosting agreements are not signed. If this does not happen, it may have a significant and difficult-to-predict adverse effect on the industry, Poulos added.