Fiona Nanna, ForeMedia News

7 minutes read. Updated 12:57PM GMT Sun, 15 September, 2024

It was a week of extremes for Bitcoin enthusiasts, as the cryptocurrency world experienced significant highs and lows. Bitcoin, the largest cryptocurrency by market capitalization, surged by 12% over the past seven days. Meanwhile, the Bitcoin network hash rate reached an all-time high, signaling an unprecedented level of computing power behind the blockchain. Hash rate, a key indicator of the network’s strength, represents the collective power of all miners securing transactions and maintaining the system. This recent peak shows more miners than ever are participating, making the network more secure.

However, despite this increase in activity, profitability for Bitcoin miners has been dwindling. According to investment bank Jefferies, crypto mining profitability dropped sharply in August, with average daily revenue per exahash — a metric used to measure miner income — falling by 11.8% compared to the previous month. This decline in profitability points to the growing challenge in sustaining mining operations, as competition stiffens and rewards shrink.

A Shifting Landscape for Bitcoin Miners

The Bitcoin network has matured over time, becoming a more established and mainstream component of the global economy. Since the U.S. Securities and Exchange Commission (SEC) approved spot Bitcoin exchange-traded funds (ETFs) in January, institutional capital has flowed into the cryptocurrency space. This influx of investment has strengthened the network, making it more decentralized and secure. However, as more miners and their powerful machines compete for increasingly limited rewards, the days of easy profits appear to be over.

One of the most significant factors affecting Bitcoin mining profitability is the “halving” event that occurs every four years. In April 2024, the Bitcoin code automatically cut the issuance of new Bitcoin in half, reducing the supply of the cryptocurrency in the market. While this mechanism is designed to create scarcity and boost Bitcoin’s value, it also squeezes miners’ earnings, making it harder for mining firms to stay afloat. The halving typically triggers a wave of bankruptcies in the industry, with firms struggling to maintain profitability under the same operational costs.

Marathon Digital, one of the major publicly traded Bitcoin mining companies, has seen its stock fall nearly 30% this year, while Riot Platforms has taken an even bigger hit, down by 53%. These losses are in stark contrast to the 44% increase in Bitcoin’s value so far in 2024, underscoring the difficult economic conditions that miners face.

The Shift Toward Artificial Intelligence and High-Performance Computing

Despite these challenges, some Bitcoin miners are exploring alternative revenue streams. Core Scientific, a major player in the mining industry, emerged from bankruptcy in January and has pivoted toward artificial intelligence (AI) and high-performance computing (HPC). The company recently expanded a $6.7 billion deal with CoreWeave, an Nvidia-backed startup that provides graphics processing units (GPUs) to power AI models.

This shift toward AI has been a game-changer for Core Scientific, which now boasts a market cap of nearly $3 billion. In a report by Bernstein, Core Scientific was highlighted as the top-performing publicly traded Bitcoin miner, thanks to its diversification into AI and HPC. Core’s CEO, Adam Sullivan, explained that the company’s facilities were built to support both Bitcoin mining and high-performance computing, making the transition seamless.

“If Core Scientific executes all of its 700 megawatts of capacity for AI and HPC, it could become the third-largest data center company in the U.S.,” Sullivan said. The company’s move into AI and data centers represents a new frontier for Bitcoin miners looking to carve out a niche in the booming digital economy.

Challenges and Opportunities in the Data Center Market

The global data center industry is experiencing explosive growth, driven by the increasing demand for AI and cloud computing services. Bitcoin miners, with their vast infrastructure and computational power, are uniquely positioned to capitalize on this trend. As companies like Core Scientific prove, Bitcoin miners can successfully pivot to other industries, allowing them to weather the storm of diminishing cryptocurrency rewards.

“Over the next three years, the opportunity lies in capturing a significant share of the data center market,” Sullivan noted. “Every major data center company has carved out its niche, and Bitcoin miners are now finding theirs in the largest niche that has ever emerged — AI and HPC.”

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Bitcoin miners are pivoting to artificial intelligence as falling profits hit the industry despite Bitcoin’s 12% rise and record hash rate. Core Scientific leads the way in diversification.