The Bitcoin mining industry is facing unprecedented challenges as the ongoing crypto downturn sends shockwaves through the sector, leading many miners into the red. As reported by Bloomberg, companies are now cutting back on hardware investments in a bid to mitigate cash burn during these tough times. A significant indicator of miners’ struggles is the hash price, which has plummeted to its lowest level ever, reflecting a dramatic decline in earnings per unit of computing power.
Research from TheMinerMag reveals that the median cost to mine Bitcoin—including equipment expenses, energy consumption, and debt—has now surpassed the revenue generated from mining. This leaves a majority of public miners operating at a loss. As these challenges intensify, mining firms are resorting to slowing down machines to conserve power. “We have seen almost an 8% drop in network hashrate due to miners using firmware to underclock their machines,” said Ethan Vera, COO of Luxor Technology, highlighting the innovative adaptations miners are implementing to stretch their resources.
Miners Shift Revenue into AI Infrastructure
A critical pressure point looming on the horizon is the April 2024 halving event. This occurs approximately every four years and results in a significant reduction in Bitcoin rewards for miners verifying blocks, fundamentally reshaping their business mathematics. Consequently, many miners are adopting hybrid setups that incorporate artificial intelligence (AI) and high-performance computing into their operations. This strategy has positively impacted their stock performance earlier this year, even as core mining revenues declined.
Companies leveraging AI data centers have seen substantial profits to help fund the expansion of these facilities. For example, Core Scientific garnered approximately 21% of its third-quarter revenue from high-performance computing services, while Terawulf counted 14% from the same category. IREN Ltd., which experienced a remarkable increase in its stock value this year, reported that around 3% of its revenue stemmed from high-performance computing, as indicated by estimates from TheMinerMag.
Notably, break-even prices for 14 monitored miners surged by about 20%, escalating from a mean of $90,000 per Bitcoin in the third quarter. While Bitcoin prices average around $104,000 in the fourth quarter—down from $114,000 previously and sitting around $92,000 as of Wednesday—most miners are struggling to achieve profitability. “Investors focusing on these companies in recent months are primarily interested in the AI business, showing little regard for their Bitcoin mining operations,” pointed out Mike Colonnese, managing director of equity research at HC Wainwright & Co. He added that miners are contemplating transitioning from mining rigs to AI data centers in the coming years.
Companies Pull Back as Non-U.S. Miners Ramp Up Capacity
Public miners are increasingly dissociating their stock performance from Bitcoin price fluctuations, as more facilities initially dedicated to mining pivot towards supporting AI initiatives. Key players like Core Scientific, Terawulf, IREN, and Cipher Mining have established long-term contracts with major companies like Google and Microsoft to accommodate AI demand, which could potentially deliver billions in revenue.
According to Wolfie Zhao, an analyst at TheMinerMag, “There has been a fundamental shift in the Bitcoin mining landscape, with several major players withdrawing from the sector.” He highlighted Bitfarms Ltd.’s recent announcement about winding down mining operations in favor of developing new AI centers. Following this trend, other miners that once aimed for rapid expansion are now hesitant to publicize growth plans. As a result, private companies outside the U.S. increasingly account for a larger share of the global hashrate, while U.S.-listed operators are losing ground.
“Firms with smaller balance sheets and substantial debt are set to face the toughest challenges,” Ethan cautioned. “Q4 is likely to be grim for many miners, and the situation is even more troubling for GPU businesses, which have not yet generated revenue.” The mining boom witnessed in early 2021 transformed the sector into a multibillion-dollar industry as companies invested in specialized machinery, built vast data centers, and secured extensive power supplies nationwide. However, many of those same sites are now being repurposed for AI, with some requiring entirely new construction.
With over 95% of all Bitcoin expected to be mined by 2140—the point at which miners will rely solely on transaction fees for income—Wolfie cautioned, “There is only a limited amount of Bitcoin to be mined. Unless Bitcoin prices skyrocket, AI demand appears to be a more lucrative long-term bet, as it encompasses a substantially larger market.”
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