Block reward miners that ‘pivoted’ from mining BTC to serving as artificial intelligence (AI) data centers are discovering that they may have simply jumped from the frying pan into the fire.
Shares in prominent BTC miners took a tumble on March 26 following reports that Microsoft (NASDAQ: MSFT) was canceling data center leases across the United States and Europe. The cancellations were reportedly spurred by a decision not to support incremental training workloads at OpenAI, the Sam Altman-led outfit in which Microsoft holds a 49% stake.
Earlier this month, Microsoft reduced its commitments with ‘AI hyperscaler’ CoreWeave after the latter reportedly failed to meet certain timelines for delivery on its promises. CoreWeave has a multi-billion-dollar data center deal with miner Core Scientific (NASDAQ: CORZ), and Microsoft’s U.S./EU pullback apparently contributed to Wednesday’s 11% fall in Core Scientific’s share price.
Other miners who have done the AI pivot suffered roughly similar declines, including Hive Digital (TSXV: HIVE), Hut 8 (NASDAQ: HUT), Iris Energy (NASDAQ: IREN), and more.
However, some analysts suggested the Microsoft news was ‘priced in,’ and thus, the declines were more indicative of BTC’s inability to reclaim the fiat price heights it enjoyed in the immediate aftermath of Donald Trump’s election as U.S. president for a second time.
As of Thursday afternoon, the average cost—the full cost, including the omnipresent need to replace older, noncompetitive mining rigs with newer, more powerful ones—stood at $85,200, about $2,000 below the current value of a BTC token. The mining network difficulty is only slightly below its record high, although network hashrate is also ticking up.
The BTC mempool of backlogged transactions awaiting confirmation was nearing 50,000 earlier this week, which pushed the cost of an individual transaction back up over $2.00. BTC’s artificially constrained bandwidth and its sole function as a speculative instrument mean fee revenue continues to account for low-single-digit percentage of miner revenue.
Burning earnings
The grim economics of mining were on full display in some miners’ Q4FY 2024 earnings reports. A trio of new reports offer further insights into how miners are faring.
Canaan Inc. (NASDAQ: CAN) reported revenue of $88.8 million in the last three months of 2024, compared with just $49.1 million in the same period the year before. The bulk of this revenue was due to Canaan’s mining rig hardware business, but direct mining revenue was $15.3 million, more than tripling its mining revenue in Q423.
However, Q4’s mining costs were $14.9 million, leaving a profit margin of just $400,000. For the year as a whole, mining revenue was $44 million, while mining costs were $51.6 million. Overall, Canaan posted a gross loss of $6.4 million in Q4 and a loss of $84.3 million for the full year.
Bitfarms (NASDAQ: BITF) generated revenue of $56.2 million in Q4, a 21% year-on-year improvement. But the cost of revenue rose 23% to $54.8 million and operating expenses shot up 35%, resulting in an operating loss of $16.4 million. Fortunately, a $9.7 million income tax recovery allowed Bitfarms to post a net income of nearly $5.4 million.
The Bitmain-affiliated BitFuFu (NASDAQ: FUFU) fared far better, posting FY24 revenue of $463.3 million, nearly two-thirds higher than 2023’s result. Net income enjoyed an even greater gain, rising 414% from 2023 to $54 million last year, although it’s worth noting that the company padded that stat via the sale of $31.3 million worth of its BTC tokens last year.
The bulk ($271 million, +52.2%) of BitFuFu’s mining revenue comes from its cloud-mining solutions, which now boasts nearly 592,000 registered users, while self-mining revenue was up 57.2% to $157.5 million.
Pakistan rolls out welcome mat
Miners’ success or failure appears increasingly tied to their ability to access dirt-cheap energy. President Trump promised last year to make America the global BTC mining capital in large part via loosening environmental restrictions and firing up new coal-burning plants. But ‘Murica isn’t the only country looking to lure miners with promises of cheap energy.
On March 22, Pakistani media outlet Dawn reported that the government was mulling ‘special electricity tariffs to attract crypto mining and blockchain-based data centers.’ The state was reportedly consulting with ‘stakeholders’ about providing cheap power to ‘emerging industries’ without the need for additional subsidies.
Pakistan generates far more electrical power than it consumes, in part due to its sluggish economy and the price the utility needs to charge to break even. Nearly half its electricity comes from ‘zero-carbon’ sources, with nuclear and hydro accounting for the two largest slices of this pie.
Bilal Bin Saqib, chief executive of the recently established Pakistan Crypto Council (PCC), is reportedly keen on “turning the country’s liabilities into assets.” However, much work lies ahead, including crafting overall digital asset regulations that encompass not only mining but all aspects of blockchain technology.
Africa calling
Miners’ global search for cheap energy has taken them to some pretty remote areas. The BBC recently profiled Gridless, a miner which has operations in the northwest corner of Zambia, 14 hours from the nearest major city, feeding off a local hydroelectric plant powered by the Zambezi river.
Gridless co-founder Philip Walton told the Beeb that his company “recognized that in order to get better mining economics we needed to partner with the power company here and give them a revenue share.” The Zengamina plant is so remote that it’s not connected to the national grid—its entire output goes to the local population, who could never utilize all the power the plant can produce.
Gridless now accounts for 30% of the plant’s revenue, but this party is coming to a close. The power plant has struck an expansion deal that includes connecting to the main grid, to which it will channel its excess energy, effectively cutting Gridless out of the loop.
Walton claims to be nonplussed, pointing out that Gridless has six such operations in three African countries. Gridless has a long-term goal of raising “tens of millions of dollars” to build its own hydroelectric plant in the region, although there’s no timeline for when this mining utopia might be achieved.
In Russia, BTC mines you
Miners soaking up surplus electricity is one thing, but as numerous jurisdictions have belatedly realized, mining can wreak havoc on local grids. Russia’s efforts to stamp out mining operations in underserved rural areas—at least during winter months when consumer demand is highest—has reportedly reduced Siberia’s energy consumption by 300Mw since January.
But necessity is the mother of invention, according to a March 24 report by state-owned news agency Tass. The Ministry of Internal Affairs has issued a warning to Russians with ‘smart home systems’ to be on the lookout for excess energy consumption due to hackers compromising internet-connected devices to power rogue mining operations.
Internet of Things (IoT) devices like ‘smart’ thermostats, toothbrushes, routers, and security cameras with dodgy password protection can be compromised and linked into botnets that either mine crypto or carry out distributed denial of service (DDoS) attacks.
The ministry urged consumers to reset the default passwords that were pre-installed on their devices and to regularly check that the devices are running the latest versions of their operating software.
America: F*ck, yeah!
Miners may be getting love from Trump, but that doesn’t mean they aren’t aware that members of the public, with even a passing understanding of blockchain technology, understand that BTC uses a ridiculous amount of energy to accomplish something that benefits a tiny sliver of society. And if that energy comes from burning fossil fuels, the industry’s image problems get even worse.
The Singapore-based Bitdeer (NASDAQ: BTDR) recently introduced two new mining rigs, one air-cooled and one hydro-cooled. But a new made-in-‘Murica option is now on the table, thanks to Auradine, Inc.’s new Teraflux AH3880, “the first U.S.-engineered hydro-cooled Bitcoin miner” that the company claims can go toe-to-toe with the Chinese rigs that dominate the mining sector.
Auradine could have a bright future if Trump’s obsession with import tariffs continues on its current path. Bitmain rigs were held up for months by U.S. Customs and Border Protection (CBP) in the dying days of the Biden administration for still-unclear reasons but are now reportedly being delivered to their U.S. mining customers.
Auradine has the financial support of MARA (NASDAQ: MARA), which has a seat on Auradine’s board. MARA’s CEO Fred Thiel has Trump’s ear, thanks to significant campaign contributions and fawning tributes such as imprinting images of Donald’s face on the BTC blockchain. Thiel needs to whisper something about godless Chinese communists taking America’s Bitcoin, and Auradine should be sitting pretty.
So, there you have it. BTC’s future relies on hopium, primitive nationalism, and the endless pursuit of greater fools to take these utility-free digital casino chips off their hands at a greater price than they were purchased. Abandon all hope, ye who mine here.
Watch: Untangling Bitcoin mining at the CoinGeek Weekly Livestream
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