Now that the much-anticipated Bitcoin (BTC 0.94%) halving is in the books, all eyes are focused on the future price of Bitcoin. And they should be given the past historical track record of halving events leading to massive bull market rallies for Bitcoin.
But don't ignore what's happening with the Bitcoin miners. The halving has a significant impact on their business models given that it cuts their mining rewards in half. To make up that shortfall, they are going to have to explore new options, and one that everyone is talking about right now is artificial intelligence. So just how big is this AI opportunity for Bitcoin miners?
Companies shift from mining to AI
The shift from Bitcoin mining to AI computing might seem like a giant leap, but it's really not. Bitcoin miners already use a tremendous amount of computing power to solve the cryptographic puzzles required to mine Bitcoin. After the halving, they will attempt to shift some of that computing power to higher-margin AI computing.
Image source: Getty Images.
According to billionaire Mark Cuban, these miners really have no other choice. The halving will significantly reduce revenue per block, pushing miners to reconsider their business models as profits shrink. With the cost per Bitcoin effectively increasing -- due to operational expenses remaining constant while rewards drop -- miners might find current operations less viable. These financial pressures could drive miners to explore alternative business opportunities to maintain profitability.
And if they fail to adapt, they could go out of business. One way to adapt to the new reality is by making the move to AI computing.
Given that industry analysts have been talking about the potential impact of the halving on the Bitcoin mining industry for months now, it is perhaps no surprise that a growing number of smaller Bitcoin miners are already exploring the potential shift to AI. Three companies -- Hive Digital Technologies (HIVE -1.98%), Hut 8 Corp. (HUT -6.57%), and Bit Digital Inc. (BTBT -4.50%) -- already have AI computing operations up and running. And others, such as Terawulf Inc. (WULF -9.05%) and Core Scientific (NASDAQ: CORZ), are planning to add new AI computing capacity.
How realistic is a pivot into AI?
The only problem, of course, is that shifting from Bitcoin computing to AI computing involves more than just pressing a button or flipping a switch. There are some types of older Bitcoin computing equipment that simply can't be repurposed for AI, which requires high-end GPU computing power.
Moreover, some types of renewable energy used by Bitcoin miners aren't very suitable for AI computing with strict uptime requirements, so they might be forced to move operations elsewhere. And the barrier to entry is much higher for AI computing than it is for Bitcoin mining, especially when it comes to the overall infrastructure needed to provide high-end computing power to clients.
That's why, for now, we're not seeing much of an impact when it comes to Bitcoin miners and AI computing. Hive Digital underwent a much-touted "AI rebrand" last year but still only gets about 3% of its revenue from AI computing right now. In its most recent quarter, Hive Digital reported $30 million in overall revenue, with about $1 million coming from AI-related computing.
Keep your eye on the price of Bitcoin
The key variable moving forward is the price of Bitcoin. According to CoinShares, the break-even production cost for Bitcoin miners post-halving is $53,000 per coin. So if Bitcoin -- currently trading at around $57,000 -- ever drops below that level, then Bitcoin miners might have to abandon Bitcoin entirely and shift everything they've got into AI or other forms of high-performance computing.
But if the price of Bitcoin soars over the next year, as many analysts now expect, miners may be able to muddle through this part of the Bitcoin halving cycle without making major changes to their operations. So that's why the price of Bitcoin matters so much. It will fundamentally impact how miners respond to the potential market opportunity in AI.
Going forward, I'm adding a number of smaller, under-the-radar Bitcoin mining stocks to my watchlist. These include both Hive Digital Technologies and Hut 8, which appear to be at the forefront of the new AI computing trend. The next time they report earnings, I'll be taking a much closer look at their overall revenue mix as well as any changes they are making to their Bitcoin mining fleets.
But for now, I'm not ready to invest in Bitcoin miners at a time when the halving has the potential to lead to an industrywide shakeout.
