Many Bitcoin miners are struggling to turn a profit this market cycle due to diminishing returns, so they may need to switch to AI hosting or put their resources to work to generate profits, says market maker Wintermute.
Wintermute said in a blog post post on Thursday that Bitcoin (BTC) miners have spent years building large-scale energy infrastructure in low-cost energy markets and are now “sitting on exactly what the AI industry needs most urgently and cannot easily replicate.”
It said bitcoin mining is a “structurally rigid business model” and while the pivot to artificial intelligence is compelling, it is also a “drastic and capital-intensive move.”
The report comes as mining giant MARA Holdings becomes the latest to look at artificial intelligence, filing with the SEC on March 3 its intention to sell part of its BTC to transition to the technology. Meanwhile, listed miners have sold over 15,000 Bitcoins since October.
Miners clinging to Bitcoin is a ‘legacy of the HODL era’
Wintermute said that Bitcoin miners collectively hold close to 1% of the total BTC supply, which he believes is “a legacy of the HODL era,” and that “the full suite of treasury management tools remains largely untapped.”
Generating profits from cryptocurrencies has traditionally been constrained to staking and DeFi, but Wintermute said miners can reap profits through dynamic management, such as monetizing market risk through derivatives structures, cash-backed calls and puts.
Passive management options include deploying BTC in lending protocols to earn interest.
“We believe that active balance sheet management is the most underutilized lever available to miners and deserves much greater strategic attention,” Wintermute said. “Miners who treat their BTC holdings as a current asset rather than a passive reserve will provide a structural advantage during the next halving.”
Related: Mining companies delve into artificial intelligence, HPC, as MARA can sell Bitcoin
Wintermute said that for the first time in the four-year market cycle, Bitcoin failed to deliver the double price recovery needed to offset revenue reductions caused by the halving, and gross margins peaked at levels that previously represented minimal bear markets.
Additionally, the gap was not filled by the transaction fees market, which is “episodic” and not structural in nature. At the same time, energy costs continue to reduce margins.
The company noted that data suggests this tightening is different from previous cycles in 2018 and 2022, describing it as a “healthy shift” that fits into Bitcoin’s design and will, as a result, make the mining industry “more efficient.”
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