Bitcoin miners’ AI pivot pays off, but mining could revive with one twist

The pivot from bitcoin BTC$64,677.79 mining into artificial intelligence and high-performance computing (AI/HPC) looks to have been one of the decade’s better capital allocation decisions.

While the shift has been underway for several years, the payback has become particularly clear during a bear market that has seen the price of the largest cryptocurrency slump 45% in eight months and eaten into miners’ profit margins.

At heart, the two industries require much the same set of skills: the ability to secure cheap energy deals to power massive computing warehouses and to source and maintain the most efficient equipment while reducing downtime.

With the hyperbolic growth in demand for AI and the simultaneous drop in demand for bitcoin, the divergence between companies that secured HPC contracts and those that remained focused solely on bitcoin mining is apparent in their stock market performance.

Among the early adopters, TerraWulf (WULF), IREN (IREN) and Cipher Digital (CIFR) have more than doubled over the past year. MARA Holdings (MARA), a laggard in the pivot towards AI, fell 40% over the same period.

MARA’s performance reflects the slide in hashprice, the expected daily revenue generated by a unit of bitcoin mining power. In July last year, the hashprice was $63 for each petahash per second (PH/s) of power. It’s now around $31.80 per PH/s.

Not surprisingly, an increasing number of miners are finding it unprofitable to continue production and are turning off their machines, a process known as capitulation. As a result, the Bitcoin network’s hashrate — a measure of mining power — has dropped to 900 exahash per second (EH/s) from 1.14 zettahash per second (ZH/s), or about 21%.

This is already one of the longest capitulation cycles on record, and it may not be over.

In the meantime, the market has repriced companies that have secured AI and HPC contracts.

According to CoinShares’ first-quarter mining report, miners with HPC contracts trade at 12.3 times their enterprise value. That compares with the 5.9 times commanded by pure-play bitcoin miners.

The report also estimated that the industry had secured a cumulative $70 billion in AI and HPC contracts by the end of that quarter.

As the year progressed, miners have announced a growing number of contracts at increasingly large valuations. Just a week ago, for example, Riot Platforms (RIOT) signed a 20-year lease with Anthropic valued at $9.1 billion. Riot’s shares have climbed from around $3 to $20 over the past four years, highlighting how dramatically the market has repriced miners with exposure to AI infrastructure.

The underlying lesson is that the greatest value was never in producing or holding bitcoin. It was in controlling access to scarce power and infrastructure, experience that can be redirected to other rapidly growing, profitable, compute-heavy applications, especially those, like AI, that require stable, long-term contracts and can therefore generate stable, long-term revenue flows.

There is still a bull case for bitcoin mining, however, which centers on bitcoin returning to last October’s record highs. CoinShares estimates that a recovery to $126,000 could lift the hashprice back to around $59 per PH/s, substantially improving mining economics and potentially restoring the appeal of pure-play miners.