Why Soaring Bitcoin Mining Stocks May Signal a Bigger Shift to AI

Transcript

Hi everyone. I'm here with Unchained executive editor Steve Erlick. Steve, you wrote an article for the Bits and Bips newsletter on how Bitcoin mining stocks are soaring, but this may not actually pretend good news for the Bitcoin mining industry, particularly in the US. What did you find with your article? >> So, this was actually a fun one to write because Bitcoin mining stocks um and Bitcoin miners in general um they have a soft spot in my heart. I mean, they're sort of the unsung workhorces of the entire industry. Uh, Bitcoin doesn't exist if if there's no miners. Um, yet, uh, they continue to play second fiddle or have continued to play second fiddle to the ETF issuers, to the DATs, um, to strategy for for years and years and

years. Uh, because of just some very challenging economics that they face. Uh, hash rate continues to go up. They have to keep raising money to spend eight, nine, sometimes 10 figures to buy new miners every couple of years in order to sort of maintain par with this this uh computational arms race to to mine Bitcoin. But they've caught a big break. Um they are they are right now smack in the middle of um I guess the AI craze, the AI bubble, depending on how you want to see it. And in a world where right now um Sam Alman and and Larry Ellison and all the like are scouring the globe to try to find ways to increase um data center capacity to run

all these LLMs. Bitcoin miners are offer one of the few places or one of the few opportunities to have like turnkey facilities to immediately um increase scale. So I spoke with um I spoke with John Tadaro, a managing director at Needam company and investment bank about how sort of the equities analyst world is now rerating or completely changing the way that they're looking at Bitcoin mining stocks. And basically what he told me is that Bitcoin mining stocks now are not even thought to be or they're not being judged as mining stocks anymore. They are being rated as HPC high performance computing type stocks like these special

cloud providers that can support LLMs. And what we're seeing is a dramatic change in the fortunes of the stocks which have just been soaring over the last few months while Bitcoin kind of languishes goes down a little bit and that companies are are crashing. So this is a really important moment for for Bitcoin mining stocks and and for them uh I mean just for their shareholders. It's it's a very welcome change after a couple of years of having to sort of explain themselves a little bit. >> And actually I just I just realized something. So Bitcoin miners use AS6 and AS6 are computer chips that have been designed to specialize in a particular function. And I thought that Bitcoin mining companies had AS6 that were designed specifically for Bitcoin

mining. So is it something that can actually be easily adapted to doing AI type computing? >> Good question. Not not those machines. You're you're right. They they use AS6. I mean those are um that stands for application specific integrated circuits. Basically it's just a fancy word for a computer chip that can only do one thing. And in this case, they basically run the hashing algorithm that supports Bitcoin. So those machines can't really be repurposed for for anything else. Um some other proofof work algorithms that might use GPUs, those could be repurposed a little bit, but the Bitcoin ones can't. But what these companies really want, um they want the power capacity, they want the rack space, they want the infrastructure. Um they will help pay for bringing in um the Nvidia chips and

all the other actual hardware needed to make this happen. But factories and warehouses and fiber optic cables don't just spring up all of a sudden. And that's what these Bitcoin miners have in spades. And that's why they're um they're the bell of the ball right now. >> And how easy is it to switch from Bitcoin mining to this HPC or high performance computing type of work? >> It's it's not as easy. I mean, turnkey might be a little bit of of a hyperbolic term, but it's not as hard as you might think. Um there is investment that has to go into this uh because HPC computing is much more resource intensive than than even Bitcoin. I mean sometimes it can cost 20 times as much money to um create a HPC type facility as opposed to

Bitcoin mining one. But the trade-off is that unlike Bitcoin mining where you don't know how many blocks you're going to mine in a particular quarter, it's it's a rat race and and you never know what's going to happen. You can sign these 10 or 15year contracts um where you kind of have guaranteed revenue. I mean, you're seeing this with Core Scientific and and Cororeweave. Um, so these companies now know like they don't have to play a guessing game. They don't have to head. They know what's going to come as long as they meet their obligations. But the flip side of this means that once these Bitcoin miners make the decision to really turn into HBC and this point um um John Tadaro, who I spoke before the article told me that among all the major public Bitcoin miners, the marathons, the riots, the the Clean Sparks, Hotaches, Terolf,

Iris, etc., There's not a single one that's a pure play Bitcoin miner anymore. And there were even a few a couple months ago because of the long duration of these contracts. There is no basically those facilities will not be able to turn back to Bitcoin even if they wanted to for a decade, a decade and a half at least. And that means that this is a major sea change in how these companies are going to operate because um there is the risk. I mean we've all heard about the AI bubble. There's so much money, I mean, trillions of dollars potentially being raised to build infrastructure. And a lot of companies that are using AI haven't quite figured out how to implement them into their businesses across any industry profitably. I mean, even we're

experimenting with with certain AI research tools and stuff. Um, so there's a lot of checks being written. They're going to have to be cashed in the coming years. And if um for instance the AI bubble pops, some of these Bitcoin miners, they certainly could be left holding the bag and having these big infrastructure outlays that where they have to raise debt. They have to do other things to get the money and they may not be able they may struggle on the back end of some of these deals. That's that's the risk, but um but right now um there's tremendous opportunity for them. >> Okay. Yeah. And so um you know you said in your article that you feel like this could either send Bitcoin mining out of the US or just you know hurt the Bitcoin mining industry in the US but like why is this in the US in particular? Why

isn't this affecting the entire industry like even in other geographies? >> So it comes down to sort of the infrastructure that already exists in the US like we have these facilities. We have fiber optic fiber optic cable laid throughout the entire country. Um so it's much easier to turn those convert those facilities into HPC um HBC like cloud facilities than um because because sorry it's much easier to turn those things into HBC facilities than building it somewhere else around the world. Bitcoin mining in a way it's almost like water going through cracks or or a river that finds its way um alongside certain debris in a stream.

like Bitcoin mining is something that doesn't need necessarily the same types of of of resources. It needs still heavy ones, but um it doesn't need the same type of fiber optic cable and and all types of other things like this. So basically what Mr. Dara told me is that uh Bitcoin mining is going to continue to move elsewhere around the world where there's like cheap power sources but maybe not this very high-tech infrastructure that um that HBC computing really needs. So the implication for all this is that Bitcoin mining um which I think about 15 to 20% of the global hash rate exists in the US that might fall a little bit which is a little ironic given that uh President Trump back in July said uh maybe a little tongue and cheek that he wanted

all remaining Bitcoin to be mined in the United States and um his two eldest sons are um are involved in a Bitcoin mining company in the United States. Um but it certainly seems that the percentage the the US percentage of global hash rate could drop as Bitcoin mining um becomes a little bit more uh distributed around the globe and these facilities in the US which can be more easily converted into HBC. Um they they take that step because it just makes more financial sense for for companies to do that. And and basically like the big picture takeaways here are I mean one as I said before if the AI bubble bursts and these Bitcoin mining companies have taken on billions

of debt billions in debt or or have gotten over their skis a little bit that could lead to financial problems a few years down the line. But then um basically what's likely to happen is some sort of new equilibrium is going to be created between HPC um computing and and Bitcoin mining which is not necessarily a bad thing. And uh and I and I don't expect hash rate to go down at all. I mean, maybe Bitcoin mining becomes a little more concentrated or maybe becomes a little less concentrated. We'll have to see what that happens. We'll have to see how that all shakes out. But I mean, the the big miners, the um the bites, the the the micro BTS, I mean, they're going to keep pumping out more powerful machines. So, the hash rate is going to keep coming up. It just the actual mix of hashing

power is something to watch as the years go on. >> Okay. All right. Well, super interesting article. Well, thanks so much for sharing Steve. >> Yeah, thanks Laura.