Altman Solon is the largest global strategy consulting firm focusing exclusively on the TMT sectors. Altman Solon has partnered with Crypto Oxygen as leading advisors on transforming Bitcoin mining operations into high-performance computing data centers. This insight explores the current state of the Bitcoin market, challenges faced by Bitcoin mining companies, and opportunities for these mining companies to capture profit by diversifying their revenue streams towards high-performance computing data centers.
Bitcoin’s rapid – and often turbulent – rise over the past decade has hit more choppy air recently, with new regulatory challenges, rising energy costs, and enhanced scrutiny over the environmental impact of proof-of-work mining. Falling Bitcoin prices, increasing mining difficulty, and decreasing hash rates (or the computational power in a proof-of-work cryptocurrency network) have led to a considerable profit drop for Bitcoin mining firms.
Unsurprisingly, Bitcoin mining firms have been pursuing new avenues of profitability, particularly in high-performance computing (HPC) data centers, in various ways, from buying specialized data centers with new capabilities to partnering with external providers that bring data center expertise or transforming existing infrastructure for HPC in-house. These HPC data centers are expected to be key for powering artificial intelligence (AI), cloud computing, and big data. Given their access to cheap and often renewable power and their existing computing capacities, Bitcoin mining firms are in a great position to transform mining operations into HPC data centers.
Diversifying Bitcoin mining facilities into HPC data centers helps firms reduce their exposure to the crypto market’s volatility, serve new use cases and customer segments, and become more adaptable as the regulatory environment continues to change. And the opportunity for the crypto mining sector is vast: we have identified approximately 7 gigawatts of Bitcoin mining data centers in North America that could step up to serve the needs of the HPC industry more broadly.
Despite the potential synergies, the transition from crypto mining to non-mining data centers is not turnkey. Some aspects of the crypto mining process do not apply to HPC customers. Running traditional data centers requires increasingly strict operating conditions, controlled environments, and urban locations close to resources and connectivity. By contrast, the self-mining or Tier 0 data centers favored for Bitcoin mining have sparse infrastructure requirements, minimal backup systems, and limited network connectivity options. In addition to different set-ups, crypto mining firms have few direct customer interactions and often lack the resources in marketing, sales, and client success necessary to attract and retain HPC customers. To capitalize on HPC’s opportunity for crypto mining, firms must establish – and sometimes acquire or develop – new processes and people to understand and serve a new customer.
Mining firms can approach diversification through one of the following strategies:
- Acquire a specialized data center provider who already possesses new capabilities to leverage existing crypto-mining assets. This allows the firm to control the process, but significant financial backing is required.
- Partner with external providers experienced in data center services and with existing customer bases. Firms will benefit from leveraging external expertise and resources, but this path introduces a dependency on external providers.
- Transform existing infrastructure for high-performance computing using in-house resources. Some firms may lack the internal capabilities to pursue this path, though it would allow them to maintain control over the process and associated assets.
As firms determine the best course of action for diversifying their business strategy, they must assess and understand the site, market conditions, competitive positioning, and strategic options for repurposing crypto mining assets.
Altman Solon and Crypto Oxygen have partnered to offer best-in-class consulting services to help companies transform their Bitcoin mining operations into high-performance computing data centers.
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