Bitcoin (BTC) miners are being courted by private equity giants for AI opportunities

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Private equity (PE) firms are finally seeing value in Bitcoin (BTC) miners, thanks to growing demand for data centers that can power artificial intelligence (AI) machines.

It's no secret that Bitcoin miners require a huge amount of energy. In fact, was hotly debated With the rapid rise of the AI ​​field, the thirst for power among AI-related companies is not far behind. Already in use Energy demand is comparable to that of a small country and could grow. This surge is creating problems for the AI ​​industry: Investors are pouring money into the sector, but companies don't have ready access to the infrastructure to meet growing computing demands.

That’s why bitcoin miners and their data centers are becoming an attractive option for investors, Adam Sullivan, CEO of Core Scientific (CORZ), one of the largest mining companies, told CoinDesk in an exclusive interview.

“Private equity is clearly going after the data center space right now. Even private equity firms that haven't necessarily done data centers before are evaluating the space,” Sullivan said. These private equity firms are finally seeing value in bitcoin miners because they can help AI companies house their machines in existing mining infrastructure or partner with mining companies to build data centers faster than they could build them from scratch.

“One of the biggest limitations is [for data centers] “The challenge right now is finding a site that has 100+ megawatts of power and has high voltage substation transformers in place. Those sites are hard to find, but that happens to be the benchmark for finding bitcoin mining sites for the last four years,” Sullivan said.

Core Scientific recently completed a 12-year, 200 megawatt (MW) transaction To meet AI-related computing needs, the company also has the option to further expand capacity through a partnership with cloud computing company CoreWeave.

Sullivan said that since news of the deal broke, Core Scientific has received multiple approaches from top private equity firms offering to fund further AI-related collaborations. reassessment The deal renewed investor interest in the bitcoin mining sector. JP Morgan went a step further, saying the deal validates the mining sector's commitment to high performance computing (HPC) and could herald a new era of mergers and acquisitions for miners.

One of the main reasons why private equity is now interested in the mining sector is the recent Bitcoin halving, which halved Bitcoin's reward and made miners more competitive. Many miners are struggling to keep their operations profitable, with some considering selling their companies or repurposing their data centers to host HCP and AI-related computing machines to diversify their revenue streams.

“The halving has also attracted the attention of private equity firms, who see the event as an opportunity to consolidate smaller players and incorporate existing infrastructure into their own,” the firm said in a July 2 note, adding that some mining stocks, such as Hut8 (HUT) and BitFarms (BITF), have “performed extremely well” since the halving.

But the amount of capital required to build or repurpose data center clusters to accommodate AI computing isn't cheap. In such a competitive market, doing so has become prohibitively expensive for some miners, and private equity is now seeing an opportunity to help these miners by providing them with capital and other expertise, CoreScientific's CEO said.

“Many of these bitcoin mining companies are currently struggling to build bitcoin mining facilities, and these private equity firms are looking at the potential profits and exploring ways to capture economic value from these potential conversions. [from mining to HCP]”In many cases, these PE firms can provide significant assistance to less-qualified mining companies, including helping them acquire new partners and introducing them to new potential clients,” Sullivan added.

Another reason PE firms are now turning their attention to the mining sector after ignoring it for years is that previously, “values ​​were too volatile for their return profile,” Sullivan added. Longer-term HPC deals, like the 12-year deal Core Scientific closed, “are much more viable and investable for PE firms.”

Private equity's business model is to own and sell – buying a business or asset, tweaking or completely changing the business model, and then selling the company to maximize profits. Does this mean the end of Bitcoin miners?

The answer, according to Sullivan, is not that simple.

Firstly, this will be part of a broader shift in the mining business. The upcoming halving will make the industry even more competitive and drive demand for lower cost mining sites. This is what will attract the most interest from HCPs and PE firms.

Secondly, not all mining sites currently in use can be converted into data centers. Due to various factors, some sites may not be suitable for HPC conversion. He added that these sites will remain mining sites as long as it is economically feasible for them to remain in the mining business.

But before miners can expect the next halving, they must weather this year's. The crowded mining industry is currently feeling the squeeze on profit margins, which has resulted in a flurry of acquisitions and new deal negotiations among miners.

In fact, Core Scientific Rejected On the same day that it signed the 200MW deal, Core Scientific received a $5.75 per share takeover offer from CoreWeave, which it rejected as significantly undervaluing the company. Asked about the status of the deal, Sullivan said both companies are currently focused on organic growth opportunities. At the same time, Core Scientific is actively developing new sites and is in talks with new potential customers.

Still, unsurprisingly, the CEO of the publicly traded mining company said that if a potential acquirer is willing to pay what shareholders and the board consider to be full value for the company, the company should consider the offer.Despite the outright rejection of the offer, Sullivan believes M&A in the mining industry is just getting started.

The recent wave of M&A has seen a hostile takeover battle between Riot Platforms (RIOT) and Bitfarms, CleanSpark's (CLSK) acquisition of GRIID (GRDI), and Hut 8's AI-related fundraising, and this is just the beginning.

“I think we're still in the early stages of M&A over the next 12 months,” Sullivan said.

“Given infrastructure constraints, I think a lot of companies are going to be pretty motivated to sell their operations to other larger companies or convert their facilities into HPC,” he said, adding that most “mid-market” miners are likely up for sale.



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