Galaxy Digital Suggests New Business Diversification Strategy

Bitcoin miners with the right infrastructure and management talent can gain substantial value by pivoting into the booming AI and high-performance computing (HPC) data center market, according to a recent research report by Galaxy Digital. As demand for AI infrastructure continues to grow at exponential rates, crypto miners who already have access to power and cooling facilities are uniquely positioned to profit from supporting high-performance computing workloads, offering colocation solutions for technology companies.

Financial Benefits: From Volatility to Stability

According to analysts at Galaxy Digital, the investment firm led by Mike Novogratz, miners with experienced management teams capable of executing AI and HPC buildouts have a “tremendous opportunity” to bring “significant incremental value to their companies.” The appeal lies in the long-term contracts and stable cash flow models that AI and HPC colocation services offer—described by Galaxy Digital as “predictable and high margin cash flow streams”—a level of stability that’s often lacking in crypto markets.

“Not only is revenue more predictable than Bitcoin mining, it’s also uncorrelated to crypto markets, which smooths revenue profiles of companies with high exposure to the volatile crypto markets. In Bitcoin bear markets, this can enhance financial stability, allowing miners to continue to raise cash through equity or debt without incurring excessive dilution or interest burden,” the Galaxy Digital report notes.

Particularly noteworthy is the valuation gap. According to the report, Bitcoin miners have typically traded at six to 12 times their earnings, while some of the world’s largest data center operators are valued at 20 to 25 times earnings. This creates substantial room for potential stock value appreciation if mining companies successfully diversify their business toward AI data centers.

“Over the past year, we’ve observed a significant shift in the strategic thinking of mining companies’ leadership,” comments Alexei Fedorov, a partner at a cryptocurrency infrastructure consulting firm. “Whereas previously the focus was exclusively on maximizing hashrate, now more companies are viewing their assets through the lens of energy infrastructure that can be utilized for various high-yield computational tasks.”

Infrastructure Advantages and New Financing Opportunities

Financing options are also expanding. Data center operators that have a lease in hand with a credit-worthy counterparty “can take that lease and raise substantial sums of project financing to construct the data center,” Galaxy writes, citing $18 billion in development financing underwritten in Q1 2024 alone.

This situation creates a unique window of opportunity for mining companies that can effectively leverage their existing infrastructure. Many Bitcoin miners already possess key components necessary for AI data centers: access to significant power sources, cooling systems, and experience managing computing infrastructure at scale.

“Infrastructure is just part of the equation,” notes Maria Williams, a data center technical director at Equinix. “Successful transformation also requires attracting new talent with specific technical skills in AI and HPC, establishing partnerships with technology companies, and adapting the business model to new realities.”

Comparing technical requirements, Galaxy Digital points out key differences between AI data centers and mining facilities that companies must consider when planning the transition:

1. Power Density: AI data centers require much higher power density per rack (30-60 kW) compared to traditional data centers (5-10 kW).
2. Cooling: AI infrastructure demands more advanced cooling systems, including liquid cooling.
3. Network Connectivity: Higher network bandwidth with minimal latency is required.
4. Security and Compliance: Stricter requirements for processing corporate and sensitive data.

Not All Sites Are Suitable: Selective Approach to Transformation

However, not all crypto mining sites are fit for the shift, Galaxy Digital warns. Some locations may not have the right conditions for AI and high-performance computing, even if they still work well for Bitcoin mining.

“Location plays a critical role in the success of an AI data center,” explains John Carson, a data center infrastructure analyst at Bank of America. “Proximity to data trunk lines, access to stable and cost-effective power sources, and favorable climate for natural cooling—all these factors must be considered when assessing a mining facility’s suitability for repurposing.”

Some mining companies have already begun this transition. For example, Core Scientific, one of the largest Bitcoin miners in North America, is actively expanding its services in high-performance computing. Earlier this year, the company announced significant investments in infrastructure to serve clients interested in AI and HPC.

“Our recent expansion into high-performance computing allows us to leverage our core competencies in managing large-scale infrastructure while diversifying our revenue,” said Adam Sullivan, CFO of a major mining company. “We see this not as a departure from cryptocurrency mining, but as a natural evolutionary expansion of our business.”

Future Prospects: Scale of Opportunities

With U.S. data center capacity expected to more than double by 2030, according to Galaxy’s estimates, this creates enormous room for growth, and miners who adapt now could become “some of the largest operators in the industry.”

“We are in the early stage of a global AI infrastructure boom,” notes Elena Kobrinskaya, lead digital infrastructure analyst at Goldman Sachs. “Demand for AI computing power is growing so rapidly that traditional data center operators cannot satisfy it alone, creating opportunities for new players who already have relevant skills and infrastructure.”

For investors in mining company stocks, this transformation may represent an interesting opportunity. Companies that successfully diversify toward AI data centers could potentially gain the higher valuation multiples typical of the data center sector, rather than remaining limited to the lower multiples typical of mining companies.

However, diversification toward AI and HPC is not without risks. Competition in the AI data center sector is becoming increasingly intense, with giants like Equinix, Digital Realty, and other major players, as well as technology companies building their own specialized facilities.

“Successful transition from crypto mining to AI infrastructure will require not only capital investment but also cultural transformation within these companies,” warns Mikhail Kolenko, a digital transformation specialist. “Bitcoin miners have often worked with relatively homogeneous infrastructure, whereas AI data centers require more diverse technical competencies and a customer-oriented approach.”

As both sectors—cryptocurrencies and artificial intelligence—evolve, the boundaries between them are becoming increasingly blurred. Mining companies that can successfully adapt to this new reality may potentially benefit from the best aspects of both worlds: the innovative nature of the cryptocurrency industry and the sustainable profitability of AI infrastructure.