Bitcoin Miners, Now AI Compute Leaders, Face Profitability Concerns

Bitcoin miners are coming off their “most challenging quarter” since the April 2024 bitcoin event known as “the halving.” More pain is likely ahead as computing revenue falls to five-year lows, CoinShares wrote in a report released Wednesday. A number of major bitcoin miners are shifting their core business to artificial intelligence and high-performance computing, which will develop further this year.

James Butterfill, head of research at CoinShares, noted that the price of bitcoin in Q4 sharply corrected from record highs, tumbling nearly 31% to around $86,000 in December. As bitcoin’s price fell, the average cost to produce one bitcoin among publicly listed miners — including energy and facility costs, interest rate on debt, etc. — rose to $79,995 in Q4.

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Meanwhile, hash prices, a measure of revenue per unit of computational power, fell to $36 to $38 pentahashes per second a day (/PH/s/day). That is “near or at break-even” for many miners running midgeneration or older-generation mining rigs. Butterfill estimates that 15% to 20% of the global mining fleet is losing money, based on the mining rig model, electricity prices and the current hash price of roughly $30/PH/s/day.

At levels of $30 to $35/PH/s/day, midgeneration hardware miners need access to power at under 5 cents per kilowatt-hour (kWh) to remain cash profitable, Butterfill wrote. But latest-generation mining fleets retain “meaningful margin” at typical electricity rates.

Butterfill noted this pain led to capitulation among bitcoin miners, with many selling their holdings. Publicly traded bitcoin miners collectively reduced their treasuries by over 15,000 bitcoin from peak levels. Coinshares expects “further capitulation” among higher-cost operators in the first half of the year unless bitcoin’s price recovers “materially.”

“Current mining economics do not incentivize a broad hardware refresh cycle,” Butterfill wrote. He said the hash price would first have to fall further to drive enough older-generation capacity and operators offline. That would result in lower mining difficulty and hashrate (overall computing power) levels for the bitcoin network, which could provide an entry point for new miners or incentivize upgrading operations.

A hashprice recover to $40/PH/s/day would require a bitcoin price rally toward $100,000 by the end of the year that outpaces hashrate growth, according to CoinShares.

AI Pivot In Force

Meanwhile, the divergence between pure-play miners and AI-pivoting infrastructure companies continue to widen. CoinShares noted that over $70 billion in cumulative AI/HPC contracts have been announced across the mining sector.

Butterfill said TeraWulf (WULF), Core Scientific (CORZ), Cipher Digital (CIFR) and Hut 8 (HUT) are “effectively becoming data center operators that happen to mine bitcoin.”

Based on the various company announcements, Butterfill estimates listed miners could derive up to 70% of their revenues from AI by the end of the year, up from around 30% today. Although many of the deals involve building new data centers, there will still likely be some cannibalization or shutting down of existing mining facilities. He expects the share of bitcoin mining revenues for these operators will see a “significant decline” throughout 2026 as AI capacity ramps up.

However, the AI pivot hasn’t been uniform, CoinShares added. Some miners like Iren (IREN) and Bitfarms (BITF) are repositioning as HPC providers, using bitcoin mining as a bridge to AI infrastructure. CleanSpark (CLSK) and others continue to prioritize mining near-term as a way to monetize recently-developed capacity and gradually build out AI exposure.

Butterfill added that there are questions around the durability of the AI shift. “While current economics strongly favor AI, mining remains highly sensitive to bitcoin price,” he wrote. “Should mining profitability recover meaningfully, some operators may reassess the allocation of capital between the two activities. In a sense, the current trend may be less a permanent transition and more a function of relative returns.”

Bitcoin Miner Stocks

Bitcoin miners have been mixed to start the year, though a few are forming positive setups.

HUT 8 has rebounded above its 10-week line and is poised to break a downtrend. Shares are consolidating below a January high of 66.07.

IREN stock is trading very tightly between its narrowing 10-week and 40-week moving averages. A break above either moving average would be significant.

TeraWulf is holding support at its 10-week line, and is looking to break out above a 17.05 entry.

However, with the market in a pullback, and IBD’s Stock Market Exposure Guide showing a 0% to 20% exposure range, investors should be building watchlists rather than jumping into new stock purchases.

You can follow Harrison Miller for more stock news and updates on X/Twitter @IBD_Harrison.

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