AI and Bitcoin mining, are an attractive combo for investors. Investing in Bitcoin mining stocks would yield great returns thanks to the amalgamation with the artificial intelligence industry.
In Short
- They are two industries that can share equipment and facilities.
- Several Bitcoin mining companies have shares in the stock markets.
The Bitcoin mining industry, coupled with the transformations generated by artificial intelligence (AI), may prove to be an attractive combo for investors. Trader and analyst Alexander J. Poulos believes that the coming together of the two industries can “boost revenues for miners” of cryptocurrencies.
Among the reasons that could favor mining is the Bitcoin halving that occurred last April. Since then, each new block yielded 3.125 BTC instead of 6.25 BTC, halving the inflow of new circulant into the market. For Poulos, the halving is notable because the reduction in block rewards generates a chain reaction in which miners must upgrade their equipment or face the risk of obsolescence, as block rewards do not cover the cost of energy.
“We don’t see revenue and earnings increasing as miners face a difficult situation post-halving,” the Poulos report says. Poulos argues that Bitcoin mining can benefit from AI. “Some may postulate that this is going too far, but I can assure you it is not,” he notes.
Miners are looking for cheap power sources in remote locations to set up their data centers. Electricity in cities is expensive, so it doesn’t suit them to mine there. For example, a powerful Bitcoin mining machine operating from a house would lose money due to the high cost of electricity.
What does this have to do with artificial intelligence (AI)?
According to Poulos, data centers for AI need a lot of power just like Bitcoin mining centers. Having that in common, AI companies could partner with Bitcoin miners to use their existing facilities. That is, using all the infrastructure, networks, manpower, and cooling of Bitcoin mines to reconvert them with AI servers. This could bring benefits for both industries.
The first of those benefits is that AI companies save money by not having to build their own data centers, and the second is that Bitcoin miners get a new source of revenue and can cut losses. This was recognized by Teras Kulyk, CEO of Sunnyside Digital, who commented at an event that for a Bitcoin miner, those are good opportunities to attract more customers to data centers and thus earn additional revenue.
One example is the deal announced last June, by HUT8 (HUT), a company focused on BTC mining, with Coatue, an AI-related company. The partnership is for building a next-generation AI infrastructure platform. “This investment will accelerate the growth of our data center portfolio and provide access to Coatue’s extensive network of companies and relationships in energy, data centers, and AI,” HUT8 said. Against this backdrop, Poulos believes the “optimal setup” is to invest in shares of mining-related companies.
AI deals signed by some of the smaller-cap mining companies have come out of nowhere, while the largest player by market cap, Marathon Digital (MARA), is down for the year as the potential for AI seems to have sidelined them.
Alexander J. Poulos, trader, and analyst.
In contrast, trader and financial analyst, Mandela Amoussou, sees an attractive entry point in that MARA shares are down. The company shows strong financial performance, including an 184% increase in net income during the first quarter of 2024. It was also the mining company least affected by halving monthly Bitcoin production, adding to technological developments.
Risks to consider
In his analysis, Poulos mentions that with the recent drop in the price of BTC due to redemptions from bankrupt exchange Mt. Gox, there is no guarantee that miners will continue to perform well. In addition, U.S. spot Bitcoin ETFs are coming off a sluggish performance last week. “A nasty pullback could occur at any time, inflicting psychological pain and potential losses,” he warns.
AI development may also run into hurdles and there is little guarantee that more accommodation agreements will be signed. If this does not happen, it could have a significant and difficult-to-predict adverse effect on the industry.