Some miners have even started to broker large bitcoin transactions using their own mining pools.
Miners are set to see their block rewards reduced by half, but a series of fresh business lines may help make up some of the difference.
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Posted April 12, 2024 at 5:43 pm EST.
With bitcoin halving scheduled to occur at the end of next week, bitcoin mining operators have been steadily developing revenue diversification plays designed to offset pending losses from reduced block rewards.
The going has been good for miners as of late, with pools marking a record revenue high, booking about $2 billion in March. The halving, however, is set to reduce rewards for mining individual blocks from 6.35 bitcoins (BTC) to 3.125 BTC. Miners derive the majority of their revenue from block rewards.
But a series of fresh business lines may be poised to make up some of the discrepancy.
Read more: The 2024 Bitcoin Halving: What Miners Are Doing Differently Now Compared to 2020
Several areas miners — ranging from Hut8 to Hive Digital to Foundry — have explored include selling computing power to GPU-hungry AI companies, as well as forming logistics arms to help other mining companies set up and operate their own systems. Texas mining operators, including Riot Platforms, have also looked to sell their power back to the grid.
Miners in 2024 have squared off against “revenue volatility” according to a February Galaxy Digital Research report.
That uneasy environment, according to Galaxy analysts, has spurred miners to explore new investments to “ensure revenue predictability, stability, and to maintain investor confidence.”
Miners are also looking to expand their remit to broker institutional-scale bitcoin transactions. Taking a cut, miners facilitate transactions through their own mining pools, locking in large transfers at a specific time and price.
Read more: Bitcoin Halving: What Is It & How Is It Determined?
Marathon Digital (MARA) rolled out a product to process these types of transactions in February.
“It’s specifically for people who want to lock in their transactions ahead of time, so Marathon can guarantee them blockspace for a partial fee,” said Adam Richard, the vice president of capital formation at institutional crypto investment firm Two Prime. “It’s great for a single transaction that’s really important to happen at the same time every day, like a bitcoin ETF. You need to be sure you settle your [profit and loss] every single day, Monday to Friday. It’s important to get some priority blockspace. You don’t want that to fall out.”
Bitcoin Miners Follow AI Boom
Richard also said he’s increasingly seeing some miners, including Hut8, keying in on outsourcing their considerable compute power to third parties. Richard works with a number of bitcoin miners through Two Prime, which offers an investment strategy designed for them.
Known as high performance computing (HPC), the compute-sharing practice is not as simple as flipping a switch to turn a bitcoin mining rig into an AI-producing unit. The practice took off during last year’s AI boom, according to the Galaxy report, while bitcoin was still mired in a bearish pattern.
Read more: Bitcoin’s Fourth Halving Is Right Around the Corner. Is It Still a Good Time to Buy?
“The general scarcity of large power generation in primary and secondary markets in the US has provided further tailwinds for miners to transition to HPC,” the report said. “[But] the transition from bitcoin mining to HPC is a convoluted undertaking and the business models are fundamentally different.”
In another tactic, miners including Foundry have set up logistical arms, designed to assist third parties with the buying and selling of mining rigs, as well as repairs and eventual recycling.
More Conventional Tactics
Though AI bids — or other unconventional miner strategies — may not stand the test of time post-halving, companies are also battening down the hatches on their balance sheets in more conventional ways.
Some miners have been “selling [BTC] reserves, in an attempt to mitigate short-term financial strains,” according to a February Grayscale Investments research report. But bullish indicators, including continued BTC ETF inflows, have already built into the market a counterbalance to possible halving sell pressure, according to the report.
Ben Weiss, chief executive officer of bitcoin ATM specialist CoinFlip, which has researched the halving, said miner risk management has been on the rise.
That includes, according to Weiss, “geographic diversification” designed to hedge against the risk of a regulatory crackdown on the energy-intensive practice in certain jurisdictions.
On the whole, he said, miners have taken prudent risk management steps that may have been absent through the last halving.
“Now, look at crypto, and you have ATMs, you have ETFs, you have the infrastructure of the miners, of the ecosystem,” Weiss said. “And the infrastructure keeps getting more and more developed. The last cycle, people were asking if bitcoin was here to stay. It’s not a question of whether bitcoin and crypto are here to stay anymore.”
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