4 months ago
In today’s issue, Ben Harper from Luxor Technology provides an update connected what’s happening with bitcoin mining this year.
Then, Colin Harper from Blockspace Media answers questions connected the taxable of mining and AI successful Ask and Expert.
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Bitcoin Mining Has Changed — It’s No Longer Just About the Price
The bitcoin mining concern thesis utilized to beryllium elemental — miners thrived erstwhile bitcoin’s terms soared, and erstwhile it fell, they suffered. But successful 2024, that equation changed. Bitcoin ETFs, hashrate markets and AI person fundamentally reshaped the industry, reducing miners' dependence connected bitcoin’s price. Here’s wherefore mining is nary longer conscionable a stake connected bitcoin, and what this means for investors. 2024: The Year Bitcoin Mining Diverged From Bitcoin’s Price
In 2023, Bitcoin mining stocks behaved similar a high-beta proxy for Bitcoin, amplifying its moves — soaring higher erstwhile bitcoin rallied and crashing harder erstwhile it fell. But successful 2024, this signifier broke down. Despite bitcoin reaching caller all-time highs, mining stocks failed to reclaim their erstwhile peaks.
The array beneath illustrates the shifting correlation betwixt Hashrate Index’s Crypto Mining Index and bitcoin’s price, comparing play prices and returns earlier and during 2024:
Source: Hashrate Index, June 2020 - December 2024
The takeaway is clear: Bitcoin mining stocks are nary longer conscionable a straightforward stake connected bitcoin’s price. This divergence stems from 4 cardinal trends shaping the sector:
1. Institutional Bitcoin Adoption: The Advent of Spot ETFs
The motorboat of spot bitcoin ETFs successful January 2024 reshaped organization concern successful bitcoin. With ETFs amassing implicit 1.3 cardinal BTC and surpassing $100 cardinal successful assets nether management, the entreaty of mining stocks arsenic a bitcoin proxy faded. Instead of utilizing miners arsenic an indirect exposure, superior flowed straight into Bitcoin via ETFs, fundamentally shifting marketplace dynamics.
2. The Halving and Its Aftermath: A Squeeze connected Miner Economics
Bitcoin’s 4th halving successful April 2024 chopped the artifact subsidy from 6.25 BTC to 3.125 BTC per block, slashing miners’ superior gross root successful half. Historically, post-halving bitcoin terms surges person helped offset little rewards, but this time, miners faced further headwinds:
Record-high web difficulty. Rising contention reduced idiosyncratic miner rewards.
Falling transaction fees. Lower request for blockspace diminished a important secondary gross stream.
Hashprice collapse. Despite bitcoin’s rally, hashprice, an all-in measurement of mining gross per portion of computation (i.e., hashrate), plummeted 75%.
While bitcoin’s terms soared 120% passim the year, miners struggled to support profitability, starring to consolidation and strategical pivots wrong the industry.
Source: Hashrate Index
3. The Rise of Hashrate Derivatives: A Game-Changer for Miners
One of the astir important fiscal developments successful bitcoin mining successful 2024 was the accelerated enlargement of the hashrate derivatives market. This emerging marketplace allowed miners to hedge aboriginal gross streams and trim vulnerability to bitcoin terms volatility, fundamentally changing however they negociate risk.
Traditionally, mining revenues were astatine the mercy of bitcoin’s regular terms swings, making it hard for operators to forecast currency flows oregon unafraid financing. However, with the emergence of hashrate guardant markets, miners could merchantability aboriginal hashrate accumulation astatine a fixed price, locking successful gross months successful advance. This fiscal instrumentality functions likewise to commodity futures successful the vigor sector, wherever energy producers pre-sell powerfulness contracts to stabilize income.
In 2024, these once-nascent markets saw explosive growth. Over-the-counter (OTC) volumes surged much than 500% year-over-year connected Luxor’s hashrate guardant market, with declaration durations extending up to 12 months. Meanwhile, regulated speech trading took a large measurement guardant with Bitnomial launching hashrate futures, making it the archetypal regulated speech to connection a bitcoin mining derivative product.
The maturation of hashrate guardant markets signals a caller epoch successful mining concern — 1 wherever miners person greater power implicit their gross streams, amended entree to capital, and improved resilience against bitcoin terms volatility.
4. Bitcoin Mining Meets AI & HPC: A Convergence of Industries
With mining profits nether pressure, galore firms are pivoting to AI and high-performance computing (HPC) to diversify revenue. Bitcoin mining infrastructure shares cardinal similarities with AI information centers — some necessitate immense powerfulness and cooling capacity. However, the displacement isn’t easy: AI infrastructure is much costly per megawatt (millions vs. hundreds of thousands for bitcoin mining), requiring important superior investment.
Some miners are embracing hybrid models, allocating immoderate of their computing powerfulness to AI workloads portion maintaining bitcoin mining operations. Firms similar HIVE Digital Technologies, Hut 8, Core Scientific, and Bit Digital person already made the leap, securing lucrative AI contracts to turn and stabilize their currency flows.
Final Thoughts
Bitcoin mining successful 2025 is nary longer conscionable astir bitcoin’s price. Institutional capital, hashrate derivatives and AI-driven diversification are reshaping the industry, giving miners caller tools to negociate hazard and optimize revenue. At the aforesaid time, post-halving pressures, rising contention and infrastructure costs person made ratio and adaptability much captious than ever.
For investors and advisors, knowing these shifts is essential. Mining stocks nary longer determination successful lockstep with bitcoin, and caller fiscal instruments are changing however miners operate. As the manufacture continues to mature, those who admit these structural changes volition beryllium amended positioned to navigate the opportunities ahead.
- Ben Harper, director, Luxor Technology
Ask an Expert
Are bitcoin miners really superior astir breaking into the AI market?
Absolutely. Since 2022, bitcoin miners person been progressively exploring AI and high-performance compute (HPC) concern lines. Some of the earliest movers successful this displacement were Hut 8, Hive, IREN, Core Scientific and Bit Digital. More recently, Riot enactment its 600 MW enlargement astatine Corsicana connected intermission to measure the tract for AI load, Cipher received a $50 million concern from SoftBank for its ain AI project, and Lancium and Crusoe Energy are gathering a multi-gigawatt field for AI arsenic portion of Project Stargate.
How volition bitcoin miners tackle their AI transitions? Is determination a one-size-fits-all approach?
AI/HPC strategies alteration from miner to miner. Hut 8 and Bit Digital, for example, person opted to get existing information halfway businesses alternatively than physique their ain information centers from scratch oregon retrofit existing infrastructure. Core Scientific, connected the different hand, is converting the monolithic powerfulness assets and infrastructure it has connected manus for AI/HPC load successful its concern with CoreWeave (Riot could travel a akin model should it determine to person portions of its Corsicana field into an AI information center). And others, similar Hive and IREN, person purchased GPUs to run AI/HPC unreality services wrong their existing facilities. Each of these strategies person tradeoffs (the Hut 8 and Bit Digital exemplary are debased risk, debased reward, portion Core Scientific’s attack is precocious risk, precocious reward), and we volition person a amended thought of which attack is the astir palmy implicit the adjacent fewer years.
With beardown marketplace request for AI, volition bitcoin miners inactive excavation bitcoin?
For now, plentifulness of bitcoin miners — including MARA, Cleanspark and Bitfarms — are inactive focusing connected bitcoin mining alternatively of chasing the AI/HPC aureate rabbit. Even if bitcoin miners person parts of their infrastructure into AI/HPC load, they volition apt inactive excavation bitcoin, adjacent if they trim their absorption connected this pursuit. Ultimately, bitcoin mining and AI/HPC are much complementary than competitive, arsenic miners tin usage bitcoin mining to monetize vigor that they person already paid for erstwhile AI/HPC request is low.
- Colin Harper, editor-in-chief, Blockspace Media
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