Bitcoin miners face an "identity crisis" as some focus on AI and acquisitions

Author: André Beganski, Decrypt; Compiler: Baishui, Golden Finance

At the Bitcoin 2024 conference in Nashville late last week, bitcoin mining companies took stock of each other as the period after the halving continues to put pressure on companies' established business models.

While some public companies see industry-wide hurdles as an opportunity to expand their operations or launch hostile takeovers, others are seeking to get ahead by diversifying their revenues through innovations such as artificial intelligence computing and chip manufacturing.

At the annual conference, one corner was filled with companies that make money through a large number of power-hungry machines that constantly perform complex calculations in the race to verify bitcoin transactions. The reward for this effort was cut in half in April during the halving, a once-in-four-year event that slows the rate at which bitcoin's supply gradually expands.

“Bitcoin miners have to go through this identity crisis in the first few months after the halving. There’s an adverse effect of halving the block reward,” said Ryan Rasmussen, head of research at Bitwise Asset Management.

Rasmussen explained that he expects to see consolidation in the bitcoin mining industry over the next 18 months as certain well-capitalized miners look to swallow up competitors.For example, Colorado-based Riot Platforms announced on Tuesday that it had acquired Block Mining, following its hostile takeover of another company, Bitfarms, last month.

Broker Benchmark named technology-focused bitcoin miner Bitdeer as a potential acquisition target in a research note this week. Benchmark noted that among its competitors, Bitdeer has “ample existing and planned power capacity,” which makes it particularly attractive.

Bitdeer Chief Strategy Officer Haris Basit noted that the likelihood of a hostile takeover is low, citing a capital structure that makes it difficult for a competitor to gain control. However, he acknowledged that acquisitions are a way for a company’s management team to try to add value to an existing company, and that value ultimately depends on just a few metrics.

“A lot of things happen because management doesn’t add value in other ways,” Basit said of acquisitions. “If you think about a bitcoin mining company, there are limits to what management can do: You have to get operational excellence, low-cost capital, and that’s it.”

Bitdeer’s global power capacity currently stands at 2.5 gigawatts, enough to power 250 million LED light bulbs, according to the U.S. Office of Energy Efficiency and Renewable Energy. Meanwhile, Bitdeer’s current power utilization rate is 36%. Basit said some of that capacity could potentially go to artificial intelligence (AI) and high-performance computing (HPC) companies for revenue.

“We are still in the evaluation phase,” he said. “We have hired expert consultants who have built a lot of data centers [...] and they are reviewing each of our sites and evaluating whether they are suitable for use as AI or HPC data centers.”

Bitdeers’ AI plans are somewhat similar to those of Core Scientific, which signed a 12-year HPC hosting contract with cloud infrastructure company CoreWeave in late June. Meanwhile, Core Scientific’s stock price has more than tripled from around $3 in May to more than $10 as of Friday’s close.

Bitdeer is also moving into the ASIC industry, producing chips specifically for bitcoin mining. Not only is this a way for Bitdeer to further diversify its revenue, but Basit said that this area of ​​the bitcoin mining industry is dominated by Bitmain’s Antminer.

While some bitcoin miners are interested in acquiring competitors, Marathon Digital is interested in acquiring the assets it mines. The company said Thursday it will no longer sell bitcoin and announced it had bought $100 million worth of BTC to replenish its balance sheet.

Jayson Browder, Marathon’s senior vice president of government affairs, said in an interview that the company is currently looking inward and focusing on its own operations rather than evaluating competitors. The company’s bitcoin reserves stand at 20,000 bitcoins, valued at more than $1.3 billion.

“We are the second-largest bitcoin holder in the world,” he said. “I think that demonstrates our commitment to the asset and our confidence in its long-term growth.”