Bitcoin miners upgrade power centers and get into AI to brace for slashed revenue post halving
AUSTIN, TEXAS — Adam Sullivan left investment banking to mine bitcoin at an awkward time. It was May 2023, bitcoin was trading at around $21,000, U.S. regulators were in the thick of cracking down on the sector writ large, and Core Scientific, the company he had agreed to take over, was battling angry lenders in a Texas bankruptcy court over tens of millions of dollars in outstanding debt.
But Sullivan knew that, with a lifeline, he could get the business to a much better place. That’s because the halving was on the way, and with it would likely come a big rally in bitcoin.
Late Friday night, the bitcoin code automatically cut new issuance of the world’s largest cryptocurrency in half. It happens roughly every four years, and in addition to helping to stave off inflation, it historically precedes a major run-up in the price of bitcoin.
The technical event is relatively simple: Bitcoin miners get paid in bitcoin to validate transactions, and after 210,000 blocks of transactions are computed and added to the main chain, the reward given to the miners securing bitcoin is ‘halved.’
There are more than a dozen publicly traded miners on the network and thousands of smaller, private ones around the globe, constantly racing to process transactions and get paid in new bitcoin. Because the event leads to a cut to rewards paid to miners directly, they’ll be the first ones to feel the impact of the halving.
The price of bitcoin has touched new all-time highs after each “halving” event.
CNBC
Typically, when the halving cuts supply, it’s led to huge rallies for bitcoin.
In fact, the previous (and only) three halvings in the chain’s history have come before every bull run, in which the coin has touched new all-time highs and a surge of investors have entered the market for the first time.
That rapid price increase has helped many miners stave off the worst since it tends to offset the impact of having the block prize cut in half.
“As a company that was already in the process of scaling our infrastructure during the previous halving, we know the toll that halvings can take on a company if it is not adequately prepared,” Core’s Sullivan told CNBC.
The aggregate market cap of the 14 U.S.-listed bitcoin miners tracked by JPMorgan analysts, which accounts for around 21% of the global Bitcoin network, declined 28% over the first half of April to $14.2 billion, reaching year-to-date lows. Bitdeer was the best-performing stock over the period, down around 20%, versus Stronghold Digital, which was 46% lower.
Some have billed the 2024 bitcoin halving as a seminal moment for the mining sector. Depending on how much prep work miners have done, it could easily make or break them.
“Being prepared for a halving means evaluating all of your power strategies, all of your software capabilities, all of your operations,” continued Sullivan.
Others are less concerned given recent price moves in bitcoin.
In a research note from Needham on Apr. 16, analysts said they expect the halving to only have a modest impact to miners’ estimated EBITDA margins, despite the 50% reduction in revenue, since the price of bitcoin has been trading in the range of $60,000 to $70,000.
“We expect geopolitical tensions and interest rate policy to be the biggest near-term drivers of crypto price action,” Needham analysts wrote, adding that at a bitcoin price above $60,000, the halving is “derisked for nearly all public miners.”
The bank did, however, single out their preference for low-cost bitcoin producers like Riot Platforms, Bitdeer, and Cipher Mining. Meanwhile, if bitcoin prices fall, Needham says the most outsized native impact will be felt by higher cost producers that are also levered to higher bitcoin prices via large treasury holdings.
Analysts from JPMorgan echoed a similar sentiment, writing in an Apr. 16 research note that they think “recent weakness offers an attractive entry point” for investors and that they are “especially bullish” on Riot, which they believe offers attractive relative valuations.
Power supply for Whinstone’s bitcoin mine in Rockdale, Texas.
Years spent bracing for the halving
Miners have had years to prepare for the halving, including seeking lower power costs and upgrading their fleets to more efficient machines.
“Bitcoin’s halving happens like clockwork every four years,” said Haris Basit, chief strategy officer of Bitdeer Technologies Group. “It’s a known variable that is a benchmark for us to remain focused on operational excellence.”
To that end, the Singapore-headquartered mining firm has invested in new data centers, but its core strategy has been to increase vertical integration through research and development. 25% of its staff is focused on R&D efforts, which Basit says have “led to new innovations and revenue pathways, such as our recently announced 4nm mining rigs and AI Cloud offerings.”
Analysts at Cantor Fitzgerald recently named Bitdeer as having one of the industry’s lowest “all-in” cost-per-coin.
Greg Beard, the CEO and Chairman of Stronghold Digital Mining, tells CNBC that miners whose only lever is more efficient machines will be at a disadvantage.
“Miners who own their low-cost power are better positioned,” said Beard. “Operational costs will be lower, allowing them to be more flexible with their capital.”
Core’s Sullivan agrees, noting that bitcoin mining data centers in the future will work hand-in-glove with power generators and grid operators to serve as a virtual battery for grid operators – allowing them to increase base load, curtail bitcoin data centers when they need to, and avoid peak generation loads, which he says are dirty and expensive.
“We own and operate our infrastructure, giving us greater control over operational and strategic decisions, such as the potential to expand into high-performance computing hosting,” said Sullivan.
Core Scientific, which launched in 2017 and now manages seven mining sites in five U.S. states, also owns the full technology stack. The company has been looking to diversify its revenue streams beyond purely bitcoin. Sullivan says that existing data centers offer reconfiguration opportunities to accommodate new types of high-value compute.
“Certain data centers are located in close proximity to major metropolitan areas, making them candidates for low-latency, high-value compute applications,” said Core’s CEO.
Bitdeer’s bitcoin mine in Rockdale, Texas.
Riot Platforms CEO Jason Les told CNBC that preparation for the halving came down to the company’s long-standing focus on achieving a low cost of power, strong balance sheet, and significant scale of operations. Les says that’s what has positioned the firm to both withstand the halving with positive margins and be well positioned for upside on the other side of it.
“Our new Corsicana Facility was energized just this week, and we will be significantly scaling up our hash rate with next-generation equipment at that new site over the remainder of the year,” said Les. “As a result, we are positioned to mine more bitcoin per day at the end of the year than we do today, despite the halving.”
Marathon Digital, which has seen its stock rise more than 70% in the last year, took a different approach to scaling the business than its rivals. CEO Fred Thiel tells CNBC that the company grew quickly using an asset-light approach, where Capex was spent on mining rigs rather than infrastructure.
“In December, we owned less than 5% of the sites where we were hosting our miners,” said Thiel. “Today we now own 53% of our total 1.1 gigawatts of capacity, having purchased it at less than the build and replacement cost.”
Owning sites lowers Marathon’s cost to mine by up to 20% on a marginal cost basis. Thiel also noted that by the end of 2024, Marathon expects to further improve efficiency by 10% to 15% as they deploy the next generation rigs across their new sites.
That boost to efficiency isn’t just about new gear, however. The firm is deploying its own custom firmware, which allows it to operate even more efficiently.
Marathon, along with other mining firms, has begun diversifying its business model into ancillary operations beyond purely bitcoin mining, as well.
Thiel says the company recently launched an energy harvesting division, where they are compensated for converting stranded methane and bio-mass into energy, which they then sell heat back into an industrial or commercial process. The service essentially subsidizes and lowers Marathon’s cost to mine significantly. The company expects this new business line to generate a significant portion of its revenues by the halving in 2028.
Diversifying revenue
The April 2024 bitcoin halving looks a lot different than the three that came before it.
For years, increased competition resulting from new miners coming online has been cutting into profits, because more miners means more people are sharing the same pool of rewards.
In a research note from JPMorgan on Apr. 16, analysts note that the network hashrate, a proxy for industry competition and mining difficulty, was up 4% in April from the month before. Stronghold’s Beard says the halving is a headwind dwarfed by the global hashrate increasing nearly five-fold from the last one in May 2020.
“Mining is a tough industry especially because there are a lot of nation states that have extra power power and they’re dedicating it to mining,” said Nic Carter of Castle Island Ventures. “It’s a free market, anybody can enter into it as long as they have the basics.”
U.S. spot bitcoin exchange-traded funds have also significantly shifted the pricing dynamics. In years past, the price of bitcoin didn’t surge until after the halving. But in the wake of record flows into these spot bitcoin funds, the world’s largest cryptocurrency touched a fresh all-time-high above $73,000 in March.
“The recently approved bitcoin ETFs have proven to be huge pipelines of capital into bitcoin and that universe of ETFs continues to grow with the recent approvals in Hong Kong as well,” said Riot’s Les. “We think the price action we’ve seen in bitcoin year-to-date reflect that and has us very optimistic on what bitcoin mining economics can look like in the months and years post-halving.”
Blackrock’s ETF reached $17 billion in net assets within a few months of launching. Beard of Stronghold tells CNBC that if Blackrock added even just a billion dollars more of bitcoin in April to its ETF, it would single handedly create demand for more coins than the mining industry will supply post halving.
What is also different this time around is that the block reward is no longer the primary form of miner revenue. Recent programming innovations in bitcoin have given way to a burgeoning ecosystem of projects building on top of bitcoin’s blockchain, which has translated to greater transaction fee revenue for miners.
There is a limit to how large the blocks can go but the value of those blocks is about to increase significantly, according to Bill Barhydt, who is the CEO and founder of Abra. From Barhydt’s vantage point, he supports miners with a mix of services, including their auto liquidations, so he has access to a lot of macro data across the sector.
“The math is simple,” begins Barhydt. “Bitcoin blocks are fixed in size and the demand for data within those blocks is going to increase significantly for several reasons, including more retail wallet holders moving their bitcoin into and out of storage, new uses cases like Ordinals (NFTs for bitcoin) and DeFi on bitcoin, institutional settlement requirements for exchange traded products in the U.S., Hong Kong, Europe, etc., lightning settlement transactions, and more.”
At the current rate of adoption, Barhydt believes that transaction fees in this cycle would likely peak within 24 months at 10 times their cost during the previous cycle peak, due to a combination of a higher price for bitcoin itself, combined with higher demand for the space inside each block.
Castle Island’s Carter isn’t so sure that fee-based revenue can completely make up for lost income post-halving.
“It’s not entirely clear that fees are fully offsetting the lost revenue, and in fact, I don’t expect that to happen” said Carter.
Fees tend to be really cyclical. They rise sharply during periods of congestion, and they fall back to near zero during other normal periods. Carter cautions that miners will see spikes in fees, but there is not yet an enduring, strong, and robust fee market most of the time.
Swapping ASICs for AI
In the last year, there has been a surge in demand for AI compute and infrastructure that can support the massive workloads required to power these novel machine learning applications. In a new report, digital asset fund manager CoinShares says it expects to see more miners shift toward artificial intelligence in energy-secure locations because of the potential for higher revenues.
Already, mining firms like BitDigital, Hive, Hut 8, Terawfulf, and Core Scientific all have either current AI operations or AI growth plans.
“This trend suggests that bitcoin mining may increasingly move to stranded energy sites while investment in AI grows at more stable locations,” write analysts at CoinShares.
But pivoting from bitcoin mining to AI isn’t as simple as re-purposing existing infrastructure and machines. The data center requirements are different, as are the data network needs.
“AI presents several challenges, notably the need for distinct and considerably more costly infrastructure, which establishes barriers to entry for smaller, less capitalized entities,” continues the report. “Additionally, the necessity for a different skill set among employees leads to increased costs as companies hire more AI-skilled talent.”
The rigs used to mine bitcoin are called ASICs, short for Application-Specific Integrated Circuits. The “Specific” in that acronym means that it can’t be used to do other things, like supporting the underlying infrastructure for AI.
“If you’re a bitcoin miner, your machines can’t be repurposed,” explains Carter. “You have to buy net new machines in order to do it and the data center requirements are different for AI versus bitcoin mining.”
Sullivan says that Core Scientific, which has been mining a mix of digital assets since 2017, began to diversify into other services in 2019.
“The company has owned and hosted Nvidia DGX systems and GPUs for AI computing, having built and deployed a specialized facility specifically for high-value compute applications at our Dalton, Georgia data center campus,” he said.
Core Scientific has also partnered with CoreWeave, a cloud provider which provides infrastructure for use cases like machine learning.
Sullivan says the combined capabilities will support both AI and High Performance Compute workloads, resulting in an estimated revenue of $100 million, though he says the total potential revenue is much higher given their significant infrastructure footprint that can be fitted to host some of the most advanced GPU compute coming to market.
“Bitcoin mining is an early example of high-value compute, attracting significant capital and a number of companies scaling their operations to support the Bitcoin network,” said Sullivan.
But Sullivan thinks few operators will be able to make the transition to AI.
Sullivan continued, “Bitcoin mining sites can only be repurposed if they meet the attributes that are required for HPC. Many existing sites across North America do not meet these needs.”
Huge swathes of cash are flowing from Japan to European tech startups as risk-averse investors favor a more mature entrepreneurial ecosystem, helping to scale the continent’s booming deep tech cluster.
While the European startup and venture capital ecosystem has long operated in the shadow of Silicon Valley, it has become fertile ground for Japanese corporates, whose domestic market is younger.
Japanese investors or venture capital funds who themselves have Japanese investors, known as limited partners, participated in European financing rounds worth more than 33 billion euros ($38 billion) since 2019 when a trade deal between the European Union and Japan came into force, according to research from venture capital fund NordicNinja and data platform Dealroom.
For the five years leading up to the EU-Japan Economic Partnership Agreement, investment totaled 5.3 billion euros.
In Europe at that time, “there was no Japanese capital other than Softbank,” Tomosaku Sohara, co-founder and managing Partner of Japan-Europe VC NordicNinja, told CNBC. NordicNinja, which has 250 million euros of assets under management, is a joint venture between Japan’s JBIC IG Partners and private equity firm BaltCap.
“Softbank was pretty active already at that moment, because they had acquired Finnish gaming company Supercell,” Sohara said, noting that the acquisition injected life into Finland’s startup ecosystem.
Now, Mitsubishi, Sanden, Yamato Holdings, and Marunouchi Innovation Partners are among those directly backing European tech, per the report, while Japan-linked venture capital firms such as NordicNinja, Byfounders, and Toyota‘s Woven Capital cut checks to startups on the continent.
There are over two times more VC-backed startups in Europe than in Japan, per capita, and 4.3 times more unicorns, per the report.
The shadow of Silicon Valley
Japan’s appetite for investing was always there, Sohara said. Its multinationals — like many — headed stateside to set up corporate venture capital arms in early 2000, in search of a slice of the action at the time when some of today’s largest companies were just being thought up in dorm rooms.
“Nobody wanted to look at Europe at that moment, but I think that after a couple of years they realized, ‘Hey, maybe the U.S. culture is totally different from the Japanese culture,’ and they began thinking, ‘Hey, maybe we need to look at another region like Europe,'” Sohara said, adding that the profile of entrepreneurs in Europe, many of whom came from large corporates at the time, was more aligned with Japan. That’s in contrast to the young founders coming from Stanford or university research and development departments, he said.
“They have experience at the corporates and also they have a mindset of entrepreneurship. Japan, unfortunately, is lacking the entrepreneurship mindset,” Sohara added, referring to Europe’s founders, many of whom came from Nokia and Skype.
The pull for founders
Japanese-linked investors have a penchant for one sector in particular: deep tech, which refers to companies building on top of scientific or engineering innovation. Deep tech and artificial intelligence accounted for 70% of deals made by such investors in Europe in 2024, echoing trends in the broader startup ecosystem as the AI, energy, and defense industries boom.
The top-funded companies with Japanese participation include the U.K.’s autonomous vehicle startup Wayve, which raised $1.05 billion in an investment round in May 2024, British quantum computing firm Quantinuum, which secured 273 million euros in January 2024, and Spanish quantum firm Multiverse Computing, which saw investors cut it a check of 189 million euros in June 2025. The rounds were backed by Softbank, Mitsui and Toshiba, respectively.
Such companies, however, typically need a lot of growth capital and industrial experience to scale successfully — two elements that Europe famously lacks.
“Investment appetite is way stronger than [in] any strategics I’ve seen here in Germany or in Europe,”
Sarah Fleischer
co-founder and CEO, Tozero
“Japanese firms — and they’re old, most of them that we’re talking about, right — they’re just sitting on a pile of money. They’ve been saving money throughout the last century, and now they’re starting to spend it, to try to grow as a large corporate and increase their footprint outside of Japan,” said Sarah Fleischer, co-founder and CEO of Germany-based battery materials recycling startup Tozero.
“You see that investment appetite is way stronger than [in] any strategics I’ve seen here in Germany or in Europe,” she added. Tozero has raised 14.5 million euros to date and counts NordicNinja, Honda and JJC among its investors.
It’s not just about the check. Japanese corporates and industrials have robust manufacturing and automotive know-how, Fleischer and Sohara noted respectively, meaning they are well positioned to plug Europe’s knowledge gaps when it comes to scaling large manufacturing projects.
Fleischer added that Japanese firms have long shored up their critical minerals supply chain and long-established trading firms, meaning they know how to secure essential components needed for the energy transition. For Tozero, this is an added plus, Fleischer said, given it’s in the business of recovering such materials from spent batteries.
In the age of political uncertainty amid choppy U.S.-China relations, Japan also acts as a good bridge to the Asian markets, Fleischer said.
A slower pace and lower risk appetite
Back in Japan, the number of entrepreneurs is “still very limited,” Sohara said, as the older generation and “great talents” wanted to work for “a Toyota and Honda or Sony,” he added, but the younger generation’s mindset is beginning to change.
Europe has also become the home to ambitious would-be founders searching for a tech ecosystem to build their companies in, Sohara said.
However, as collaboration between Europe and Japan scales, language remains a barrier as fluency in English is not widespread in Japan, he added.
For Fleischer, this also poses challenges. “There’s so much miscommunication and local translation that could ruin a partnership instantly. And there’s also some sort of cultural aspect as well, one needs to probably be aware of,” she said, adding that she recently spent weeks in Japan getting to know her investors face-to-face, “because that’s still the sentiment” there.
Decision-making can therefore be slower, the founder said, due to thorough research and preparation. “They just do their homework,” Fleischer said, noting that Japanese partners were hands-on in helping the company understand “how to build our next future commercial plant, potentially starting from Japan and then going worldwide.”
Indeed, “without the support from NN [NordicNinja] it would have been much more difficult to build the right relationships,” said Aaike van Vugt, co-founder and CEO of Dutch nanotechnology engineering firm VSParticle.
That’s in contrast to perhaps the most well-known Japanese player: Softbank. Softbank is “totally different” from traditional Japanese investor cultures, given it is driven by founder Masayoshi Son’s decisions rather than operating on a consensus basis, like most Japanese business, Sohara added.
The venture firm, known for its lofty bets on WeWork and, more recently, chip company Arm, poured huge sums of cash into tech startups amid the 2021 venture capital tech boom, which saw at least one Japanese-linked investor involved in deals worth 11.2 billion euros, per the report. Softbank stood out during this period; it was involved in 22% of deals with Japanese-linked participation in 2021.
Interest ticking up
Looking forward, Sohara and Fleischer expect greater collaboration between Europe and Japan. However, Japanese investors are expected to participate in rounds worth 3 billion euros in 2025, per the Dealroom and NordicNinja report, representing a dip from last year.
As many eyes turn to the Middle East for investment, Fleischer said that interest in Japan appears to be ticking up. Anecdotally, “people reach out to me for intros, which is fun, to meet Japanese corporate LPs,” she said, noting that this is a new development for her but that it may simply be because she has such investors now.
“I think it’s also politically driven as well in Japan, by the government, to position themselves more geopolitically smartly and make sure that the corporates or the industries grow in certain ecosystems, strengthening their positioning as a country,” she said.
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