Texas Miners Leave Cryptocurrency for the Next Wave

Cattle graze at the Buffalo Gap Wind Power project in Taylor and Nolan counties, south of Abilene, Texas.

Robert Daemmrich | Corbis | Getty Images

Lancium President Ali Fenn told CNBC that at full capacity, this will be one of the largest AI data center campuses in the world, in the latest example of the race to advance AI — and leave bitcoin mining is lagging behind — it’s speeding up.

“Data centers are rapidly evolving to support modern AI workloads, requiring new levels of high-density rack space, direct-to-chip liquid cooling, and unprecedented overall power demands,” said Chase Lochmiller, co-founder and CEO of Crusoe.

There are many synergies between the bitcoin mining business and AI infrastructure.

Mining companies have large data centers with access to fiber lines and vast amounts of power across the U.S. These are exactly the types of facilities needed for compute-intensive AI operations, which means their sites and technology are in high demand.

Meanwhile, miners need to diversify. Following the bitcoin halving In April, an event that happens roughly once every four years, the business of generating new tokens has become much less profitable. Analysts at JPMorgan Chase wrote in a June report that “some operators are feeling the financial pinch from the recent block reward halving, which cut industry revenues in half, and are actively exploring exit strategies.”

With the burgeoning AI industry in need of capacity and bitcoin miners looking for new ways to generate returns on their large investments, mergers, financings and partnerships are rapidly materializing.

Lancium and Crusoe join a long list of miners looking to trade bitcoin via AI, and so far, the strategy appears to be working.

The combined market capitalization of the top 14 U.S.-listed bitcoin miners tracked by JPMorgan hit a record $22.8 billion on June 15 — adding $4.4 billion in just two weeks, according to a June 17 research note from the bank.

Bit Digital, a bitcoin miner that now derives about 27% of its revenue from AI, he said in June that it had struck a deal with a customer to supply Nvidia GPUs for three years at a data center in Iceland, in a deal expected to generate $92 million in annual revenue. It is paying for the GPUs, in part, by liquidating some of its cryptocurrency holdings.

Cabin 8based in Miami, said that raised $150 million in debt from private equity firm Coatue to help develop your data center portfolio for AI.

Asher Genoot, CEO of Hut 8 recently told CNBC that his company has “finalized commercial agreements for our new AI segment under a GPU-as-a-service model, including a customer agreement that provides for fixed infrastructure payments in addition to revenue sharing.”

The transition to AI has gone especially well for Scientific Centerthat came out of bankruptcy in January.

On Tuesday, B. Riley upgraded its stock from neutral to buy and raised its price target on the stock from $0.50 to $13, citing the company’s recent wave of deals with CoreWeave, one Nvidia-backed startup that is a major supplier of the chipmaker’s technology for running AI models.

Last month, CoreWeave offered to buy Core Scientific for $1.02 billion, not long after the pair announced an expansion of their existing partnership. Core Scientific rejected the offer. The company is currently worth about $2 billion.

For years, Crusoe’s work was practically synonymous with the bitcoin mining industry.

Crusoe’s technology helps oil companies turn wasted energy, or flare gas, into a useful resource. Many bitcoin miners, with Crusoe’s help, have set up machines adjacent to these sites to capitalize on this cheaper source of energy. Starting in 2021for example, ExxonMobil began working with Crusoe to mine bitcoin in North Dakota.

But Crusoe’s Lochmiller told CNBC that AI infrastructure has been part of the vision since the company’s founding six years ago.

“We are reinventing AI infrastructure from the ground up — from our energy solutions, to the design, engineering and construction of our purpose-built AI data centers, to our manufacturing capabilities with Crusoe Industries for essential electrical data center infrastructure, and finally to our purpose-built AI compute stack,” he said.

The Abilene facility, which is scheduled to open in 2025, also plans to use primarily renewable energy sources.

“Our power orchestration technology is positioned to ensure that mega-scale AI data center campuses can be assets to the grid, not liabilities,” Lancium’s Fenn told CNBC.

Lancium has patented a technology that allows it to turn energy buyers’ demand into a kind of dial that can be incrementally increased or decreased in just five seconds. This helps balance a power grid that has inherently volatile energy sources like wind and solar.

“Lancium’s original vision was to bring large-scale loads to locations with the best and most abundant renewable energy to facilitate the energy transition,” Fenn said.

In 2018, Fenn said the only payload that was suitable for this was bitcoin mining.

One of the greatest features of Bitcoin is that it is completely location-agnostic. Miners only need a power source and an internet connection, unlike other industries that need to be relatively close to their end users.

In some cases, the profits accrued from minting cryptocurrencies have provided enough of a financial incentive to make it worthwhile to build the infrastructure needed to harness previously untapped energy sources — especially in Texas, which is known as a mecca for renewable energy sources like wind and solar.

Bitcoin miners are also flexible consumers of electricity — essentially, they function as buyers who accept all the power they receive, no matter the time of day, and are equally willing to switch off in a few seconds.

But Lancium’s strategy has shifted to AI.

“Traditional data centers were – and still are – primarily optimized for proximity to urban areas and users,” said Fenn. “That’s all changed now, with AI data centers optimized for large-scale power availability, cost and ecology. Our vision, campuses and technology are perfectly positioned for this significantly larger and expanded opportunity.”

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Over the next one to two years, analysts at Needham estimate that large publicly traded bitcoin miners are expected to more than double their production capacity, including their plans to expand their mining and HPC businesses.

O Estimates from the Electric Power Research Institute that data centers could absorb up to 9% of the country’s total electricity consumption by 2030, up from around 4% in 2023. Harnessing nuclear energy is seen by many as the answer to meeting this demand.

TeraWulf powers its mining sites with nuclear energy and is looking to get into machine learning. So far, the company has two megawatts dedicated to HPC capacity, though it has plans to transition its power infrastructure to AI and HPC.

OpenAI CEO Sam Altman told CNBC last year that he is a big believer in nuclear power when it comes to meeting the needs of AI workloads.

“I don’t see a way we could get there without nuclear,” Altman said. “I mean, maybe we could get there with just solar and storage. But from my perspective, I feel like that’s the most likely and best way to get there.”

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