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Author: Ekko An, Ryan Yoon, Source: Tiger Research, Compiler: Shaw Bitcoin Vision
Key takeaways
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Unstable revenue and rising costs of Bitcoin mining have made crypto miners’ core businesses unstable.
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As a result, crypto miners have pivoted to utilize existing mining farms and lease data center space to large technology companies.
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This move reduces fierce competition and makes the industry more robust.
1. Business risks faced by crypto mining companies
We have previously analyzed the financial risks posed by falling Bitcoin prices to Digital Asset Treasury (DAT) reserve companies.However, DAT is not alone in facing pressure.Bitcoin mining companies that directly operate mining operations also face huge risks.
The vulnerability of mining companies stems from their simplistic business models.Income depends almost entirely on Bitcoin prices, which are inherently unpredictable.In contrast, costs tend to rise over time.
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Income is unpredictable: The company’s revenue depends entirely on the Bitcoin market price.
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Rising structural costs: Mining difficulty continues to increase, electricity prices rise, and hardware needs to be replaced regularly.
This structure is particularly problematic during Bitcoin price declines.Revenues dropped immediately, while costs continued to rise.Mining companies are caught in a double bind.
Regulatory risks add another layer of uncertainty.The state of New York in the United States has proposed a proposal to increase the excise tax on mining companies.Most large crypto mining companies are currently located in relatively light-regulated areas such as Texas, so the short-term impact will be limited.Still, the risks posed by broader regulatory pressure cannot be ignored.
Against this backdrop, mining companies face a fundamental question: Can this business model remain viable in the long term?
2. Structural fragility of crypto mining companies
As of today, the average cost to mine one Bitcoin is approximately $74,600, up nearly 30% from a year ago.When factors such as depreciation and equity incentives are taken into account, the total production cost per Bitcoin rises to approximately $130,000.
Bitcoin is currently trading at about $90,000, which means mining companies suffer a paper loss of about $46,000 for every bitcoin mined.The gap highlights the growing disconnect between operating costs and market prices.
As time passes, the situation becomes more fragile.Compared with 2022, mining difficulty will increase significantly in 2025, while energy regulations in many regions are also increasingly tightened.These factors reduce cost predictability and make mining operations less structurally stable.
3. Turn to artificial intelligence data center leasing
As competition in the field of artificial intelligence intensifies, demand for data centers from large technology companies has also risen sharply.However, building new data centers takes years.In an AI competition measured on a monthly or quarterly basis, waiting is unacceptable.
Mining companies have discovered the opportunities presented by this gap in the market.They currently operate facilities equipped with high-performance computing hardware, large-scale power supplies, and advanced cooling systems.While these facilities cannot be completely transformed overnight, their specifications are closely aligned with the needs of large tech companies.This allows them to transform into AI data centers relatively quickly.
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High performance GPU: Crypto mining companies operate huge clusters of GPUs that can be repurposed for artificial intelligence computing.NVIDIA GPUs are a common example.By adapting the facilities, these assets can support new revenue streams in addition to mining.
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power infrastructure: Mining companies have gained hundreds of megawatts of power grid access.In highly regulated electricity markets, access on this scale is scarce and difficult to replicate, even if the funding is available.
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cooling system: The experience accumulated from ASIC mining machine operations can be well applied to the management of high-heat AI servers such as H100 and H200.In fact, many mining farms can be transformed into AI data centers within six to twelve months.
Core Scientific is a typical example.The company faced the risk of bankruptcy in 2022, but successfully transformed and entered the field of artificial intelligence data center operations.Currently, the company operates approximately 200 MW of data center capacity, with plans to gradually expand to 500 MW.This transformation from a troubled mining company to a data center rental business illustrates how the utilization of alternative infrastructure can help enterprises stabilize their development.
Other mining companies are following a similar model.IREN and TeraWulf are also expanding beyond their core mining operations.While they haven’t fully transformed into data center rental companies, they are developing complementary business models beyond Bitcoin mining.
These moves reflect a broader trend.As mining profitability declines, crypto miners are seeking business models more suitable for the era of artificial intelligence.This shift was driven less by growth ambition than by desperation.
4. Diversification strategy of crypto mining companies
The shift of crypto mining companies from unprofitable mining operations to artificial intelligence data center operations is not a temporary trend, but reflects a rational survival strategy aimed at reallocating capital to more efficient uses.
This shift should not be seen as a negative development.Instead, it helps mining companies build more stable cash flows.With more stable revenue, companies can continue to hold Bitcoin without being forced to sell at low prices.
The alternative is far less so.Companies with persistently negative cash flows are at risk of bankruptcy and are often forced to sell Bitcoin at unfavorable prices.In contrast, data center revenue gives mining companies the flexibility to hold or sell Bitcoin, allowing for strategic transactions.This is better for the company and the market as a whole.
Not all companies focus on pure data center leasing.Some companies, such as Bitmine and Cathedra Bitcoin, are expanding beyond mining into DAT-style business models.
Taken together, these changes indicate that the cryptocurrency mining industry is maturing.Less competitive players exit the market or transform, thereby reducing mining pressure.At the same time, leading companies are developing from a simple mining business to a diversified DAT business.
In effect, weaker links are being weeded out and the overall market structure is becoming more resilient.
