Bitcoin miners sink millions into AI businesses, seeking billions in return

AUSTIN
—
For
five
years,


bitcoin
miner


Core
Scientific
has
quietly
been
diversifying
out
of
mining
and
into
artificial
intelligence,
a
market
that
will
require
immense
amounts
of
power
to
handle
the
training
of
AI
models
and
the
massive
workloads
that
follow.

The
move
is
no
longer
a
secret.

On
Monday,
Core
Scientific
announced
a
12-year
deal
with
cloud
provider
CoreWeave
to
provide
infrastructure
for
use
cases
like
machine
learning.
Core
Scientific
said
the
agreement,
which
expands
upon
an
existing
partnership
between
the
two
companies,
will
add
revenue
of
more
than
$3.5
billion
over
the
course
of
the
contract.

CoreWeave,
backed
by


Nvidia,
rents
out
graphics
processing
units
(GPUs),
which
are
needed
for
training
and
running
AI
models.
CoreWeave
was
valued
at

$19
billion
in
a
funding
round
last
month.
Core
Scientific
will
deliver
about
200
megawatts
of
infrastructure
to
CoreWeave’s
operations.

Core
Scientific,
which
emerged
from
bankruptcy
in
January,
has
been
mining
a
mix
of
digital
assets
since
2017.
The
company
began
to
diversify
into
other
services
in
2019.

“The
best
way
to
think
about
bitcoin
mining
facilities
is
that
we
are
essentially
power
shells
to
the
data
center
industry,”
Core
Scientific
CEO
Adam
Sullivan
told
CNBC.

Sullivan
jumped
into
the
role
of
CEO
while
the
company
was
still
in
the
throes
of
bankruptcy,
which
resulted
from
the
collapse
of
bitcoin
in
2022.
Since
then,
the
former
investment
banker
has
settled
debts
with
angry
lenders
and
further
beefed
up
the
company’s
non-bitcoin
business
as
it
reentered
the
public
market.

Though
Core
is
up
more
than
40%
since
relisting
earlier
this
year,
its
market
capitalization
of
around
$865
million
is
significantly
lower
than

its
valuation
of
$4.3
billion
in
July
2021.

Demand
for
AI
compute
and
infrastructure
surged
after
OpenAI
unveiled
ChatGPT
in
Nov.
2022,
setting
off
a
rush
of
investment
in
AI
models
and
startups.
Meanwhile,
Core
Scientific
and
other
miners
like
Bit
Digital,
Hive,
Hut
8,
and
TeraWulf
have
been
looking
to
bolster
their
revenue
streams
after
the
so-called
bitcoin
halving
in
April
cut
rewards
paid
out
to
bitcoin
miners
by
50%.

Many
have
been
retrofitting
their
massive
facilities
to
meet
the
needs
of
the
market.

“Bitcoin
miners,
often
stationed
in
energy-secure
and
energy-intensive
data
centers,
find
these
facilities
ideal
for
AI
operations
as
well,”
said
James
Butterfill,
head
of
research
at
digital
asset
firm
CoinShares.

Butterfill
said
the
the
overlap
is
leading
to
a
competition
for
rack
space
between
bitcoin
mining
and
AI
activities.
While
AI
operations
require
up
to
20
times
the
capital
expenditure
of
bitcoin
mining,
they’re
more
profitable,
according
to
a
report
from
CoinShares.

“The
introduction
of
AI
activities
leads
to
increased
depreciation
and
amortization,
which
can
enhance
gross
profit
margins,”
Butterfill
said.

According
to
CoinShares,
Bit
Digital
derives
27%
of
its
revenue
from
AI.
Hut
8
generates
6%
of
sales
from
AI,
and
Hive,
which
has
data
centers
in
Canada
and
Sweden,
gets
4%
of
its
revenue
from
these
services.

Hut
8
said
in
its

first-quarter
earnings
report
that
it
had
purchased
its
first
batch
of
1,000
Nvidia
GPUs
and
secured
a
customer
agreement
with
a
venture-backed
AI
cloud
platform
as
part
of
its
expansion
into
new
technologies
offering
higher
returns.

“We
finalized
commercial
agreements
for
our
new
AI
vertical
under
a
GPU-as-a-service
model,
including
a
customer
agreement
which
provides
for
fixed
infrastructure
payments
plus
revenue
sharing,”
said
Hut
8
CEO
Asher
Genoot.

Genoot
added
that
the
company
expects
to
begin
generating
revenue
in
the
second
half
of
the
year
at
an
annual
rate
of
about
$20
million.

Bit
Digital
had
251
servers
actively
generating
revenue
from
its
first
AI
contract
as
of
the
end
of
April,
and
the
company
said
it
earned
about
$4.1
million
of
revenue
from
the
operation
that
month.

Iris
Energy
expects
to
generate
between
$14
million
and
$17
million
in
annual
revenue
from
its
AI
cloud
services.
Core
Scientific’s
expanded
arrangement
with
CoreWeave
is
expected
to
produce
annual
revenue
of
$290
million.

“While
we
intend
to
remain
one
of
the
largest
and
most
productive
bitcoin
miners,
we
expect
to
have
a
diversified
business
model
and
more
predictable
cash
flows,”
Sullivan
said.

Bitcoin’s
volatility
has
made
mining
a
challenging
business.

Though
bitcoin
is
currently
up
more
than
150%
in
the
past
year
to
around
$69,000,
the
bear
market
of
2022
sent
many
miners
into
bankruptcy
or
forced
them
to
shutter
altogether.

Pivoting
to
AI
isn’t
as
simple
as
repurposing
existing
infrastructure
and
machines,
because
high-performance
computing
(HPC)
data
center
requirements
are
different,
as
are
the
needs
of
the
data
network.

“Besides
transformers,
substations,
and
some
switch
gear
nearly
all
infrastructure
miners
currently
have
would
need
to
be
bulldozed
and
built
from
the
ground
up
to
accommodate
HPC,”
Needham
analysts
wrote
in
a
report
on
May
30.

The
rigs
used
to
mine
bitcoin
are
called
Application-Specific
Integrated
Circuits
(ASICs).
They’re
built
specifically
for
crypto
mining
and
can’t
be
used
to
do
other
things.

Needham
estimates
that
HPC
data
centers
run
at
$8
million
to
$10
million
per
megawatt
in
capex,
excluding
GPUs,
whereas
bitcoin
mining
sites
typically
operate
at
$300,000
to
$800,000
per
megawatt
in
capex,
not
including
ASICs.

Core’s
Sullivan
says
there’s
a
lot
of
synergy
between
the
two
businesses.

“One
of
the
most
exciting
parts
about
the
bitcoin
mining
business
is
we
have
access
to
large
amounts
of
power
across
the
United
States
with
access
to
fiber
lines,”
he
said.

Beyond
its
partnership
with
CoreWeave,
Core
Scientific
has
also
announced
that
over
the
next
three
to
four
years,
it’s
working
to
convert
500
megawatts
of
its
bitcoin
mining
infrastructure
across
the
country
to
HPC
data
centers.

Sullivan
said
the
retrofit
is
manageable
because
the
company
owns
and
controls
all
of
its
data
center
infrastructure.

“There
are
components
that
we
have
to
purchase
to
retrofit
for
HPC,
but
it
is
things
that
we
can
easily
acquire,”
he
said.

In
the
next
one
to
two
years,
Needham
analysts
estimate
that
large
publicly
traded
bitcoin
miners
are
expected
to
more
than
double
power
capacity,
including
both
their
mining
and
HPC
business
expansion
plans.

Clean
energy
is
a
popular
choice
because
it’s
the
cheapest
power
source
in
many
markets.
Miners
at
scale
compete
in
a
low-margin
industry,
where
their
only
variable
cost
is
typically
energy,
so
they’re
incentivized
to
migrate
to
the
world’s
cheapest
sources
of
power.
An

industry
report
estimates
the
bitcoin
network
is
54.5%
powered
by
sustainable
electricity.

The

Electric
Power
Research
Institute
estimates
that
data
centers
could
take
up
to
9%
of
the
country’s
total
electricity
consumption
by
2030,
up
from
around
4%
in
2023.
Tapping
into
nuclear
energy
is
seen
by
many
as
the
answer
to
meeting
that
demand.

TeraWulf
powers
its
mining
sites
with
nuclear
energy,
and
is
looking
to
get
into
machine
learning.
So
far,
the
firm
has
two
megawatts
dedicated
to
HPC
capacity,
though
it
has
plans
to
transition
its
energy
infrastructure
toward
AI
and
HPC.

OpenAI
CEO
Sam
Altman
told
CNBC

last
year
that
he’s
a
big
believer
in
nuclear
when
it
comes
to
serving
the
needs
of
AI
workloads.

“I
don’t
see
a
way
for
us
to
get
there
without
nuclear,”
Altman
said.
“I
mean,
maybe
we
could
get
there
just
with
solar
and
storage.
But
from
my
vantage
point,
I
feel
like
this
is
the
most
likely
and
the
best
way
to
get
there.”

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