These bitcoin miners are expanding into AI. Why they may be a good buy despite the crypto's selloff.

By Frances Yue

Welcome back to Distributed Ledger. I'm Frances Yue, crypto reporter at MarketWatch.

Bitcoin has seen a steep selloff over the past week, falling toward $53,000 last Friday before rising back to around $57,700 on Wednesday. The crypto lost roughly 14.5% of its value in the past 30 days, according to Dow Jones Market Data, and is 22% off its record high of $73,798 set in March - though still up about 38% year to date.

Analysts have attributed the selloff to concerns around bankrupt crypto exchange Mt. Gox's repayment plan and the U.S. and German governments' disposal of bitcoin seized from illegal activities.

Still, shares of several bitcoin miners that are making investments in artificial intelligence have been trading well and outperforming their peers, Joe Nardini, co-head of investment banking at B. Riley Securities, told Distributed Ledger in a phone interview.

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Bitcoin mining + AI?

An increasing number of bitcoin miners have been expanding into AI.

For example, Core Scientific Inc. (CORZ), a bitcoin-mining firm that emerged from bankruptcy earlier this year, last month said it would offer up about 200 megawatts of infrastructure to AI hyperscaler CoreWeave. Bitcoin miner TeraWulf Inc. (WULF) has also been expanding into AI and working on a high-performance computing project at its Lake Mariner facility in New York. Last month, Hut 8 Corp. (HUT) received a $150 million investment from Coatue Management to build AI infrastructure.

As AI becomes the new obsession, "all of a sudden, the demand for crypto miners owning data centers that could be repurposed for high-performance computing applications became very high," Nardini said.

"One of the bottlenecks in AI is basically power and data centers," he added. "You are seeing all types of power suppliers announce transactions with hyperscalers or with data centers, because people need power to run these data centers and they also need the data centers themselves."

Despite bitcoin's recent price decline, shares of bitcoin miners that are tapping into AI have posted decent performance, Nardini noted.

Hut 8's shares have climbed 44% over the past 30 days, while TeraWulf's stock has advanced 32% and CoreScientific's shares have gained 1.5% in that time, according to Dow Jones Market Data. By comparison, Riot Platforms Inc. (RIOT), a major bitcoin miner that has yet to tap into the AI craze, has seen its shares lose 14% over the past 30 days.

Crypto M&A activities

The crypto space in the second quarter saw a total of 51 deals that had an announced value of $2.7 billion, a record high for a quarter, according to data from Architect Partners, a crypto M&A advisory firm. Still, the number of transactions remained lower than those seen in the latter three quarters of 2022 and the first quarter of 2023, according to the data.

Among the deals, Robinhood's acquisition of Bitstamp is especially notable, displaying a trend where more established companies have looked to acquire crypto businesses, noted Elliot Chun, a partner at Architect Partners.

The regulatory environment in the U.S. has become more friendly to the crypto industry as of late, which "removes the last hurdle" for established and traditional companies to engage with blockchain technology, Chun said in a phone interview. "We are going to see a lot more noncrypto companies acquiring crypto companies," Chun said.

Crypto in a snap

Bitcoin (BTCUSD) has declined 3.2% over the past seven days to around $57,700. Ether (ETHUSD) has fallen 4.7% over the past seven days to around $3,102, according to Dow Jones Market Data.

Must-reads

'History has been made.' Why promises by Trump, GOP platform to defend crypto are a big deal for the industry. (MarketWatch)As bitcoin keeps falling, an S&P 500 correction could be close behind (MarketWatch)Bitcoin may head towards $50,000 as Mt. Gox prepares crypto repayment (MarketWawtch)From Facebook to the face of crypto: Inside Anthony Pompliano's wild career (TechCrunch)

-Frances Yue

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07-10-24 1226ET

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