Bitcoin Mining Dilemma: Should Miners Embrace AI for Growth or Stay True to Crypto?

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).

The Current Landscape of Bitcoin Mining

Bitcoin miners are in a precarious position, facing an existential dilemma in an era marked by dwindling profits. They must decide whether to pivot towards powering artificial intelligence (AI) and high-performance computing (HPC) or continue to focus on their traditional mining operations. This decision is becoming increasingly critical as the cryptocurrency market evolves.

Shifts in Market Dynamics: The Impact of Bitcoin Halving

In September 2023, bitcoin miners experienced a notable shift in equity returns. Major players like MARA Holdings (MARA), Riot Platforms (RIOT), and CleanSpark (CLSK) increased their market share of bitcoin mined compared to August. Their robust balance sheets and larger mining operations have enabled them to weather the storm brought on by the bitcoin halving in April, which cut mining rewards by 50%.

Investor Sentiment: A Shift Towards AI and HPC

The prevailing investor sentiment has not been favorable, as these mining stocks continued to underperform in September. Miners focusing on AI and HPC, such as Core Scientific (CORZ), TerraWulf (WULF), and IREN (IREN), saw their stocks outperform bitcoin itself, indicating a significant shift in market dynamics.

The New Era of Mining: AI and HPC as Revenue Streams

With the recent approval of spot bitcoin exchange-traded funds (ETFs) in the U.S., the appetite for traditional mining stocks has waned. Investors are now favoring miners that diversify their operations by hosting AI and HPC machines. These technologies require substantial power, which bitcoin miners are well-equipped to provide, making them attractive partners for companies looking to scale their AI operations rapidly.

Market Performance: Comparing Bitcoin Miners

In September 2023, publicly traded miners with larger market capitalizations saw stock gains ranging from 4% to 9%. In stark contrast, miners engaged in AI and HPC initiatives witnessed gains as high as 25%. During the same period, bitcoin’s price increased by approximately 7%, and the CoinDesk 20, a broad crypto market benchmark, climbed about 12%.

October Optimism: A Strong Start for Miners

As October unfolds, bitcoin miners are experiencing a surge in stock prices despite bitcoin trading relatively flat. Riot Platforms is up by 12%, while Cipher Mining has gained 8%. Historically, October has been a strong month for bitcoin, earning the nickname “Uptober.”

Mining Economics Post-Halving: Challenges Ahead

The mining landscape remains challenging following the halving. The Bitcoin network’s hashrate hit an all-time high of 693 exahashes per second (EH/s), with an average hashrate of 630 EH/s. This metric, which indicates mining competitiveness, reflects the increasing amount of computing power working on the network.

Bitcoin Difficulty: Measuring the Mining Challenge

September also marked a significant milestone as bitcoin difficulty reached an all-time high. This difficulty level measures how challenging it is to mine a new block, adjusting every 2,016 blocks based on network computational power. Despite the rising difficulty, the hash price, a key indicator of miners’ profitability, peaked at $48.0 PH/s, according to data from Glassnode, although it remains near all-time lows.

Individual Miner Performance: Highlights from September

Examining the monthly data for individual miners provides insight into their performances. MARA, the largest publicly traded miner with a market cap of $4.8 billion, reported a successful September. The company increased its energized hashrate by 5% to 36.9 EH/s, mining 705 BTC—a 5% increase from August and the highest monthly total since the April halving. MARA has also bolstered its BTC holdings to 26,842, making it the second-largest bitcoin stockpile among publicly traded companies, trailing only MicroStrategy.

Riot Platforms: A Competitive Edge in Mining

Riot Platforms, the third-largest miner by market cap, reported a remarkable 28% increase in mined bitcoin during September. The company has ramped up computing power across its facilities and anticipates reaching a hashrate of 36.3 EH/s by the fourth quarter of 2024, aiming for a staggering 56.6 EH/s by the second half of 2025. Currently, Riot holds 10,427 BTC on its balance sheet, showcasing its commitment to growth.

Conclusion: The Future of Bitcoin Mining

As bitcoin miners navigate the complexities of the market, the decision to focus on traditional mining versus branching into AI and HPC will be crucial. The evolving landscape presents both challenges and opportunities. Investors will need to keep a close eye on these developments to make informed decisions about their investments in the cryptocurrency space.

For those interested in further exploring cryptocurrencies and how to invest, check out our guides on How to Buy Bitcoin, How to Buy Cryptocurrency, and How to Buy Ethereum.

As the bitcoin mining industry continues to evolve, staying informed about market trends and technological advancements will be key to ensuring success in this dynamic environment.