Bitcoin Miners Positioned for Strategic Advantage in AI Data Center Projects: Bernstein Report

Bitcoin Miners Positioned for Strategic Advantage in AI Data Center Projects: Bernstein Report

Bitcoin miners are emerging as key players in the development of artificial intelligence (AI) data centers, leveraging their significant power supplies and operational expertise. According to a recent report by broker Bernstein, AI-related deals, including Core Scientific’s 12-year contract with CoreWeave and Coatue Management’s $150 million investment in Hut 8, are driving growth in this sector.

Bernstein has initiated coverage of Iris Energy and Core Scientific, giving both an outperform rating. Iris Energy has a price target of $26, while Core Scientific is set at $17. As of early trading, Iris Energy was valued at $13.40, and Core Scientific at $9.79.

Bitcoin Miners’ Power Capacity as a Strategic Asset

Bitcoin miners control substantial power supplies, currently accessing around 6 gigawatts (GW) with a pipeline projected to reach up to 12 GW by 2027. This substantial power capacity allows miners to hold a strategic position in the “large load power interconnect queue,” enabling potential AI partners to save time in securing energy resources.

Bernstein analysts emphasize that Bitcoin data centers are well-suited for AI applications due to their high power density racks, robust cooling infrastructure, and strong operational capabilities. They predict that by the end of 2027, approximately 20% of Bitcoin miners’ power capacity will be redirected towards AI.

Furthermore, the five largest Bitcoin miners in the United States are expected to continue consolidating their scale, potentially accounting for about 25% of the global Bitcoin hashrate. This consolidation places them in an advantageous position to explore AI opportunities in the medium term. The hashrate, a measure of industry competition and mining difficulty, is a crucial factor in this context.

Bernstein remains bullish on Bitcoin, forecasting the cryptocurrency to reach $200,000 by 2025, $500,000 by 2029, and over $1 million by 2033.

Bitcoin Miners Face Challenges Amid Market Volatility

Despite the positive outlook, Bitcoin miners are currently navigating a critical phase known as “capitulation” due to diminishing profits amid recent market sell-offs. Capitulation occurs when miners scale back operations or sell off mined Bitcoin and reserves to sustain their activities, earn yield, or hedge against Bitcoin exposure.

A significant indicator of capitulation is the decline in Bitcoin’s hashrate, which represents the total computational power securing the network. The hashrate has dropped by 7.7%, reaching a four-month low of 576 EH/s after hitting a record high on April 27. This decline mirrors conditions seen after the FTX collapse in December 2022, suggesting a potential market bottom.

Additionally, miners have been underpaid during this period, as evidenced by the miner profit/loss sustainability indicator. Daily revenues have plummeted by 63% since the halving, with total daily revenues dropping from $79 million on March 6 to $29 million currently. Revenue from transaction fees now accounts for only 3.2% of the total daily revenues, the lowest share since April 8.

Conclusion

Bitcoin miners are strategically positioned to become significant partners in AI data center projects due to their substantial power supplies and operational capabilities. Despite facing challenges from market volatility and reduced profits, the long-term outlook remains positive, with Bernstein forecasting substantial growth for Bitcoin and its miners. As the industry continues to evolve, Bitcoin miners are set to play a crucial role in the expanding AI landscape.

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