Transformations in Bitcoin Mining Amidst New Challenges
Jackson Hole, Wyoming — Bitcoin miners have traditionally operated within the cyclical patterns of the four-year halving events. However, industry leaders at the recent SALT conference in Jackson Hole have indicated that the landscape is shifting. Factors such as the emergence of exchange-traded funds (ETFs), increasing energy demands, and the potential impact of artificial intelligence (AI) are prompting miners to adapt or risk obsolescence. “Our discussions have evolved from hash rate to monetizing megawatts,” noted Matt Schultz, CEO of Cleanspark, highlighting this significant transition.
The Evolving Business Model of Mining
Historically, mining companies heavily relied on the profitability from bitcoin mining itself, closely tied to the bitcoin halving cycle, which halves miners’ rewards every four years. This led to a scramble for cost reduction and scaling strategies for survival. However, these executives argue that this cycle no longer dictates the industry’s future. Schultz remarked, “The four-year cycle has effectively transformed with bitcoin’s emergence as a strategic asset, especially in light of the ETF developments and growing adoption.” He pointed out that recent ETF activity has dramatically increased bitcoin consumption, surpassing the new supply generated this year.
Cleanspark is now focusing on broader opportunities, operating 800 megawatts of energy infrastructure with plans for an additional 1.2 gigawatts. “Our rapid deployment of electricity has allowed us to explore monetizing power in ways beyond just bitcoin mining,” Schultz explained, noting the flexibility afforded by their numerous operational sites.
Challenges in the Mining Business Landscape
Schultz’s observations reflect a broader recognition of the seismic shifts within the industry. Patrick Fleury, CFO of Terawulf, candidly addressed the financial pressures miners face, emphasizing the harsh realities of the mining business. He simplified the economics, stating that mining a single bitcoin costs around $60,000 when electricity is priced at five cents per kilowatt hour, with energy costs consuming a significant portion of revenue. After accounting for additional operational expenses, profit margins become quite narrow. Fleury argued that achieving profitability hinges on securing power at ultra-low costs.
He further pointed out that the network’s relentless expansion, driven by hardware manufacturers like Bitmain, exacerbates the situation. Bitmain continues to produce mining equipment regardless of market demand, utilizing its connections with chip manufacturers like TSMC. This allows them to deploy machines in regions with low electricity costs, which increases the overall network difficulty and complicates profitability for other miners.
Despite these challenges, Terawulf is making strategic moves, recently striking a $6.7 billion lease-backed agreement with Google to repurpose mining infrastructure into data center operations. “Infrastructure doesn’t adapt quickly,” Fleury remarked, underscoring the lengthy processes involved in such transitions. He expressed pride in collaborating with partners to create innovative solutions, noting that Google’s backing enables Terawulf to secure financing at favorable rates.
Maintaining Profitability Through Strategic Focus
Kent Draper, chief commercial officer at IREN, adopted a more reserved yet confident approach. He asserted that his company remains profitable in bitcoin mining, primarily due to a strategic focus on low-cost power. “Being a low-cost producer is crucial to our success,” Draper stated, emphasizing operational control and location advantages. IREN is currently operating at 50 exahash, projecting an annual revenue run rate of roughly one billion dollars based on current bitcoin prices. After accounting for electricity expenses, the company boasts a gross margin of 75% and maintains a solid EBITDA margin of approximately 65%.
However, even IREN is temporarily halting its mining expansion, driven by emerging opportunities in the AI sector. “Our decision is based on the current AI landscape and the potential for diversifying our revenue streams, not because we see bitcoin mining as unattractive,” Draper clarified. IREN is exploring co-location and cloud services, which require different capital investments and offer faster payback periods compared to traditional mining operations.
Agility and Adaptation in a Competitive Market
For Marathon Digital’s CFO Salman Khan, adaptability is key to survival. Drawing parallels to the oil industry, he noted the cyclical nature of commodity markets, where some emerge prosperous while others face bankruptcy. Marathon maintains bitcoin on its balance sheet, which Khan believes serves as a valuable hedge against price fluctuations. Recently, Marathon has also acquired a majority stake in Exaion, focusing on edge computing solutions. “We favor sovereign compute, which enhances data control for users,” Khan explained, highlighting the potential for recurring revenue streams and the integration of software solutions.
Energy as the Central Theme
Despite differing perspectives, one underlying theme persists among industry leaders: the importance of energy. Whether utilized for bitcoin mining, powering AI, or managing electrical grids, energy has emerged as the focal point of discussions. “We strategically manage our energy consumption to cut costs,” Schultz stated, noting that CleanSpark has successfully negotiated contracts for significant energy resources across the country.
Bitcoin Remains a Core Focus
Although there is a growing interest in AI, the speakers emphasized that bitcoin continues to play a central role in their operations. When questioned about the attractiveness of mining companies to investors, they highlighted key factors such as scalability, cost-effectiveness, and resilience in the face of market volatility. Fleury emphasized Terawulf’s power capacity as a significant cash flow generator, while Khan pointed out the discrepancy between Marathon’s bitcoin holdings and market valuation. Draper showcased IREN’s operational efficiency and competitive positioning, indicating the company’s strong performance relative to other public miners.
While the future may involve cloud services and edge computing, Schultz argued that bitcoin could evolve into a foundational component of energy systems, suggesting that its future role may transcend speculation to become integral in balancing energy networks.
