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Bitcoin Miners at a Crossroads: Gain Market Share or Go All-In on AI?

Oct 7, 2024
    Investors continue to pay a premium for miners diversifying into AI and HPC data centers, despite pure-play miners gaining market share.Marathon, Riot and CleanSpark all saw higher production numbers in September than August.Marathon produced more bitcoin in September than in any other month since the April halving.

As a seasoned crypto investor with a keen eye for market trends and a knack for spotting opportunities, I’ve witnessed my fair share of market fluctuations and shifts over the years. September was no exception to the rollercoaster ride that is the crypto market.

Disclosure: The author of this story owns shares of the following bitcoin miners: IREN (IREN), MARA Holdings (MARA), Cipher Mining (CIFR), Bitfarms (BITF), Riot Platforms (RIOT) and CleanSpark (CLSK).

In the current period where earnings are lean, Bitcoin miners confront an unusual type of survival dilemma: They could shift to supporting artificial intelligence (AI) or high-performance computing (HPC), potentially seeing a surge in their share value, or they can remain in their initial domain and maintain dominance, but possibly endure a stagnant stock market performance.

That was the tale of mining in September, anyway, in terms of equity returns.

As an analyst, I observed a significant growth in the share of mined bitcoins for three key players – MARA Holdings (MARA), Riot Platforms (RIOT), and CleanSpark (CLSK) – last month compared to August. These companies, boasting robust financial structures and expansive mining operations, are effectively managing the dip in mining profitability following the bitcoin halving in April.

Nevertheless, investors haven’t been paying higher prices for their stocks, as they consistently underperformed during the month of September. On the other hand, companies like Core Scientific (CORZ), TerraWulf (WULF) and IREN (IREN), which are focusing on AI and HPC computing, outperformed bitcoin in September.
Bitcoin Miners at a Crossroads: Gain Market Share or Go All-In on AI?

It’s not surprising that investor opinions have changed, given the Bitcoin halving in April, which lowered by half the reward for mining Bitcoin. This change has made mining more competitive and narrowed profit margins. Furthermore, the recent approval of U.S. spot bitcoin exchange-traded funds (ETFs) might be dampening investors’ interest in mining stocks.

Rather than compensating miners solely for Bitcoin production, investors are now incentivizing those who utilize portions of their data centers to accommodate AI– and HPC-related equipment. These advanced computing tasks, including AI and HPC, demand substantial power resources, a need that bitcoin miners have already addressed due to their energy-intensive mining operations. As a result, miners become an appealing option for AI and HPC companies seeking rapid expansion of their businesses.
Indeed, examining the share prices of publicly-traded mining companies in September, stocks from larger market cap miners increased by approximately 4% to 9%. Mining firms associated with AI and HPC experienced significant gains, reaching up to 25% for the month. Bitcoin’s value also rose by around 7%, while the CoinDesk 20, which represents a broad index of the crypto market, jumped by approximately 12%.

Miners such as Riot Blockchain and Cipher Mining have seen significant gains in October – a period often referred to as “Uptober” due to Bitcoin’s historical strength – even though Bitcoin itself has remained relatively stable. Riot Blockchain is up by 12% while Cipher Mining (CIFR) has climbed by 8%.

September’s takeaway

Mining economics are tough after the halving.

Over a seven-day span, the hashrate of the Bitcoin network peaked at an unprecedented level of 693 quadrillion hashes per second (EH/s), with an average hash rate holding steady around 630 EH/s. Hashrate serves as a gauge for mining competition, indicating the amount of processing power active on the network.

As an analyst, I observed that in September, the difficulty of mining a new Bitcoin block reached an unprecedented peak. This measure, which adjusts approximately every 2,016 blocks and is influenced by the network’s computational power, ensures that blocks are consistently mined every 10 minutes. Simultaneously, the hashprice – a metric indicating miner profitability – climbed to a one-month high of $48.0 PH/s, as reported by Glassnode, despite persisting near its all-time lows.

Bitcoin Miners at a Crossroads: Gain Market Share or Go All-In on AI?
As a crypto investor, I’ve been diving deep into the monthly data of individual miners, and it appears that MARA, with its impressive market cap of $4.8 billion and formerly known as Marathon Digital, had a thriving September. They boosted their energized hash rate by 5%, reaching an impressive 36.9 EH/s. Furthermore, they mined 705 BTC, a 5% jump from the previous month, marking their highest monthly yield since the halving in April. MARA also expanded its Bitcoin holdings to 26,842, making them the second-largest Bitcoin hoarders among publicly traded companies, only surpassed by MicroStrategy. Despite this, they continue to strive towards reaching a hash rate of 50 EH/s by the end of 2024.
Bitcoin Miners at a Crossroads: Gain Market Share or Go All-In on AI?

In September, Riot Platforms – the third-largest miner in terms of market value – boosted its mined bitcoin by a substantial 28%, thanks to enhancing its computing power throughout its operations. Anticipating a hashrate of 36.3 exahashes per second (EH/s) by the end of 2024 and 56.6 EH/s in the second half of 2025, Riot currently holds approximately 10,427 bitcoins on its books.

Hurricane Helene, selling BTC for land
    Among other trends that stood out during September include impact from Hurricane Helene. CleanSpark, the fourth-largest miner by market cap, was among that were affected. The company said it didn’t see any material losses to its infrastructures but had to shut down some operations due to the storm.With tough capital markets for bitcoin miners, the companies started to use creative means of raising funds to grow their operations. One, Cipher Mining, stood out in September by mining 155 BTC for the month and selling 923 bitcoin to buy a 300MW mining site, which will be used for HPC hosting. The miner now owns 1,512 BTC.

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2024-10-08 15:55