Bitcoin miners are facing significant losses due to declining profitability. To survive, they will need to either switch to AI hosting or learn to manage their Bitcoin reserves as working capital, according to Wintermute.

Structural Crisis of the Business Model

For the first time in a four-year cycle, digital gold has not yielded double the profits that typically offset revenue declines following a halving. The peak gross margin coincided with levels previously seen at the bottom of a bear market.

Transaction fees are insufficient to cover costs, accounting for about 1% of total revenue for companies. Miners are also under pressure from persistently high energy costs.

Daily transaction fees for miners and the share of fees in their total income. Source: Wintermute.

Passive Storage as a Legacy of the HODL Era

Wintermute estimates that miners collectively control about 1% of the total Bitcoin supply. Analysts refer to this as a "legacy of the HODL era," noting that the full arsenal of treasury management remains largely untapped.

Traditionally, income-generating tools in the crypto market have revolved around staking and the DeFi sector. However, experts have proposed a broader toolkit for miners:

  • Monetizing market risk through derivatives;
  • Selling covered call options;
  • Cash-secured put options;
  • Passive placement in lending protocols for interest.

“Active balance management is the most underrated lever for miners. Those who turn Bitcoin from a passive reserve into a working asset will gain a structural advantage by the next halving,” Wintermute believes.

Artificial Intelligence

An alternative is artificial intelligence. Mining companies have spent years building energy infrastructure in regions with cheap electricity. As a result, they now possess a resource that is critically needed by the AI industry and cannot be quickly created from scratch.

The shift to leasing power for neural networks has already begun. In March, Core Scientific announced the sale of all its Bitcoin holdings and secured a $500 million loan from Morgan Stanley. Most of the proceeds will be used to retrofit data centers for AI needs.

Other players have taken similar steps, including Riot Platforms, MARA Holdings, Terawulf, Cango, and many others.

Wintermute emphasized that the shift towards artificial intelligence requires radical steps and significant capital, which may be unmanageable for many. Nonetheless, experts view this as a "healthy shake-up" that will ultimately make the industry more efficient.

In March, Matthew Sigel, head of digital assets at VanEck, stated that the pivot to AI makes mining company stocks more attractive.