Bitcoin network hits record level of power, but falling profits push miners to AI

It was a week of extremes for bitcoin enthusiasts.

On the plus side, the cryptocurrency rose 12% in the past seven days and the network hash rate hit an all-time high. Hash rate refers to the collective computing power of all miners in the bitcoin network, and the recent high suggests there have never been more miners online, actively securing the network.

At the same time, another key metric this week showed it’s increasingly difficult to make money in the mining business. Investment bank Jefferies wrote in a report that crypto mining was “significantly” less profitable in August. The average daily revenue per exahash, or income per miner, fell by 11.8% from the prior month, Jefferies said.

As bitcoin becomes more of an established, and even mainstream part of the economy, the days of easy money appear to be in the rearview mirror. Institutional capital has poured in since the SEC approved spot bitcoin exchange-traded funds in January, and the bitcoin network is more robust than ever, held together by a vast and decentralized network of miners securing transactions with the help of large banks of machines.

But more people — and their powerful machines — are vying for smaller rewards.

In April, the bitcoin code automatically cut new issuance of the world’s largest cryptocurrency in half, an event that occurs roughly every four years to create scarcity. The halving historically precedes a wave of bankruptcies among bitcoin mining firms, which are suddenly generating much less revenue with the same level of operating costs.

Bitcoin miners are getting hammered by Wall Street.

Marathon Digital is down nearly 30% in 2024, while Riot Platforms has fallen 53%. The price of bitcoin, meanwhile, is up about 44% this year.

Jefferies said North American publicly traded mining firms minted a smaller share of new bitcoin in August compared to July, falling to 19.9% of the total network. They’re still spending on equipment upgrades, meaning efficiency is improving but economics are getting worse.

Marathon CEO Fred Thiel told CNBC that, due to the upgrade cycle, machines are able to hash twice as much as previous models with the same energy use.

“No need to add sites or power, just upgrade systems,” Thiel said.

Riot CEO Jason Les is as bullish as ever on the future of bitcoin despite the challenging economic conditions. He said “bitcoin is the most sound money in the world,” and “low-cost mining is an efficient way to get exposure to it.”

Not all miners are feeling the pinch. Companies like Core Scientific, which emerged from bankruptcy in January, are finding ways to use their massive infrastructure to power artificial intelligence and high-performance computing (HPC).

Last month, Core announced an expanded deal worth $6.7 billion with CoreWeave, an Nvidia-backed startup that’s providing the chipmaker’s graphics processing units (GPUs) for running AI models. 

In a note this week, Bernstein singled out Core Scientific as the best-performing publicly traded bitcoin miner, noting that of the miners that have diversified into AI and HPC, Core is the “only one with a material co-location contract with a leading GPU Cloud provider.”

Core has more than doubled in value since its return to the stock market and now has a market cap of close to $3 billion.

“Our facilities were developed to be multi-use for not only just bitcoin mining, but also for the transition that we’re doing right now to high-performance computing,” Core CEO Adam Sullivan told CNBC.

Bernstein added that if Core executes all of its 700 megawatt capacity that it’s allocated to AI and HPC, it would make the company the third-largest data center company listed in the U.S.

“It’s really about the next three years in terms of where the opportunity set truly lies to capture a large portion of the data center market,” Sullivan said. “Every big data center company that exists carved out a niche, just so happens that the niche that bitcoin miners are carving out now are in the largest niche that has ever been found in the data center industry.”

— CNBC’s Talia Kaplan and Jordan Smith contributed to this report.

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