How AI Can Help Bitcoin Mining Companies Become More Profitable, Explains VanEck’s Matthew Sigel

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As an analyst with over two decades of experience in the financial markets, I find the intersection of artificial intelligence (AI) and Bitcoin mining to be a fascinating development. My career has taken me through various market cycles, from the dot-com boom to the 2008 financial crisis, and I’ve learned that those who can adapt and innovate often reap significant rewards.

On August 19th, Matthew Sigel, who leads Digital Assets Research at VanEck, was a guest on CNBC’s “Fast Money” program. During his appearance, he talked about the connection between artificial intelligence (AI) and Bitcoin mining, as well as exploring broader trends in the cryptocurrency market.

Bitcoin Miners vs. Bitcoin Performance

In 2024, Sigel noticed an intriguing discrepancy: Bitcoin’s growth was approximately 35% year-on-year, but mining companies such as Marathon Digital and Riot Platforms remained relatively unchanged. Historically, Bitcoin miners are considered high-risk investments with higher volatility and potential returns. However, this pattern did not hold true in 2024, causing confusion about the factors behind their underperformance.

AI’s Impact on Bitcoin Mining

As a crypto investor, I’ve come across an intriguing concept by Sigel: leveraging AI might revolutionize Bitcoin mining. He highlighted how some major Bitcoin miners have sealed billion-dollar revenue deals by transforming their energy resources for AI functions. Interestingly, Graphics Processing Units (GPUs), essential for AI, consume much more power compared to Central Processing Units (CPUs). Given that Bitcoin miners already possess the grid connections and energy infrastructure, switching over these facilities to handle AI tasks could be done with reduced upfront investment. This swift transition, potentially achievable within a year, offers a substantial time advantage over fresh projects that usually take around four years to get connected to the grid.

Financial Implications

Sigel made clear that numerous Bitcoin mining operations are facing financial strain, either heavily indebted or relying on issuing shares. Yet, by utilizing Artificial Intelligence (AI), these companies can reduce their overall capital costs and secure more long-term financing options. As per VanEck’s assessment, if Bitcoin miners were to redirect 20% of their electricity usage towards AI applications, there is a possibility that the value of their stocks could potentially double, all without any increases in Bitcoin mining earnings.

Bitcoin vs. Gold and Market Dynamics

As a crypto investor, I’ve been pondering about the contrast between Bitcoin and gold lately. Unlike gold, which has hit record highs, Bitcoin seems to be grappling with a pattern of lower peaks and troughs – a struggle that it hasn’t experienced before.

  1. Correlation with NASDAQ: Bitcoin’s correlation with the NASDAQ had reached a two-year high, suggesting that broader market conditions were influencing Bitcoin’s price.
  2. Forced Selling: Several large holders, including the German and U.S. governments, had been selling off significant amounts of Bitcoin. Additionally, creditors from bankruptcies like Mt. Gox and Genesis had recently been paid out, leading to more selling pressure.
  3. Seasonal Patterns: Historically, Bitcoin tends to struggle in the months following a halving event, which occurred in April 2024. However, as the market adjusts to the realities of fiscal policies leading up to the U.S. presidential election, Sigel expects Bitcoin to recover and perform strongly.

Connecting AI to Bitcoin Mining

As a crypto investor, I found Sigel’s insights into the correlation between AI and Bitcoin mining particularly intriguing. He drew parallels between data center businesses, key players in AI functions, and Bitcoin miners. Interestingly, data centers are valued much higher compared to Bitcoin mining operations – with data centers trading at around $30 million per megawatt of electrical capacity, while Bitcoin miners only trade at about $3 million per megawatt. Sigel saw a substantial arbitrage opportunity here: the difference in valuations suggests a potential goldmine for Bitcoin miners who could successfully transition into AI operations. Although such a shift wouldn’t be a walk in the park, it could yield massive benefits for those miners who manage to make the pivot.

Sigel pointed out that companies like Core Scientific, TeraWulf, and Iris Energy have already shown superior performance thanks to their bold steps into the field of Artificial Intelligence (AI). Furthermore, he brought up BTBT’s recent $700 million AI agreement, suggesting that as more Bitcoin mining companies announce similar deals, these stocks are expected to exceed expectations.

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2024-08-20 08:59