Texas Miners Leave Cryptocurrencies for the Coming New Wave

Just off Interstate 20, in the heart of West Texas, lies a town of 125,000 called Abilene. Once a stop along a cattle trail in the Old West, this small town is now headed toward the burgeoning field of artificial intelligence.

Houston-based technology company Lancium and Denver-based Crusoe Energy Systems announced a multibillion-dollar deal Thursday morning to build a 200-megawatt data center just outside Abilene designed to “address the unique needs of AI companies” — such as enabling advanced cloud computing for applications like medical research and aircraft design. It’s the first phase of a larger 1.2-gigawatt facility.

When fully operational, this will be one of the largest AI data centers in the world, Lancium CEO Ali Finn told CNBC, in the latest example of the race to put AI to work — and leave Bitcoin Mining in the back – accelerates.

“Data centers are rapidly evolving to support modern AI workloads, requiring new levels of high-density rack space, direct-to-chip liquid cooling, and unprecedented overall power requirements,” said Chase Lochmiller, co-founder and CEO of Crusoe.

There are a lot of synergies between Bitcoin mining and AI infrastructure.

Mining companies have large data centers, with access to fiber lines and large amounts of power across the United States. These are exactly the kinds of facilities needed for computing-intensive AI operations, which means their locations and technology are in high demand.

Meanwhile, miners need to diversify their investments. After Bitcoin’s halving in April, an event that occurs roughly every four years, the business of generating new coins has become significantly less profitable. “Some operators are feeling the financial strain from the recent block reward halving, which has halved industry revenues, and are actively exploring exit strategies,” JPMorgan Chase analysts wrote in a June report.

With the booming AI industry in need of capacity, and Bitcoin miners looking for new ways to generate returns on their massive investments, mergers, financings, and partnerships are rapidly coming together.

Lancium and Crusoe have joined a long list of miners looking to trade Bitcoin for AI, and so far the strategy appears to be working.

The combined market cap of 14 U.S.-listed bitcoin mining companies tracked by JPMorgan Chase hit a record $22.8 billion on June 15 — adding $4.4 billion in just two weeks, according to a research note from the bank on June 17.

Bit Digital, a bitcoin mining company that now derives an estimated 27% of its revenue from AI, said in June that it had struck a deal with a customer to supply Nvidia graphics processing units (GPUs) over three years at a data center in Iceland, in a deal expected to generate $92 million in annual revenue. The company is paying for the GPUs, in part, by liquidating some of its cryptocurrency holdings.

Miami-based Hut 8 said it has raised $150 million in debt from private equity firm Coatue to help it build out its data center portfolio for artificial intelligence.

Hut 8 CEO Asher Ginott recently told CNBC that his company has “closed commercial agreements for our new AI segment under the GPU service model, including a customer agreement that provides for fixed infrastructure payments as well as revenue sharing.”

The shift to AI has been going particularly well for Scientific nucleuswhich emerged from bankruptcy in January.

On Tuesday, B. Riley upgraded shares from neutral to buy and raised its price target on the stock to $13 from $0.50, citing the company’s recent string of deals with CoreWeave, an Nvidia-backed startup that is one of the chipmaker’s main providers of technology to power artificial intelligence models.

Last month, CoreWeave offered to buy Core Scientific for $1.02 billion, shortly after the two companies announced an expansion of their existing partnership. Core Scientific rejected the offer. The company is currently valued at about $2 billion.

Over the years, Crusoe's work has become almost synonymous with the Bitcoin mining industry.

Crusoe’s technology helps oil companies turn wasted energy, or flare gas, into a useful resource. With Crusoe’s help, many bitcoin miners have installed machines near these sites in order to take advantage of this cheaper source of energy. As of 2021, for example, ExxonMobil began working with Crusoe to mine bitcoin in North Dakota.

But Lochmiller, Crusoe's CEO, told CNBC that AI infrastructure has actually been part of the vision since the company was founded six years ago.

“We are reimagining AI infrastructure from the ground up — from our power solutions, to the design, engineering and construction of custom-built AI data centers, to our manufacturing capabilities with Crusoe Industries for the core electrical data center infrastructure and ultimately to the custom-built AI computing cluster,” he said.

The Abilene facility, which is expected to begin operations in 2025, is also slated to rely primarily on renewable energy sources.

“Our energy regulation technology aims to ensure that massive AI data centers are assets to the grid, not liabilities,” Lansium’s Finn told CNBC.

Lansium has patented a technology that allows it to turn power demand into a kind of dial that can be gradually increased or decreased in just five seconds. This helps balance a power grid that has naturally fluctuating energy sources such as wind and solar.

“Lanseum’s original vision was to deliver large-scale loads to locations with the most abundant renewable energy sources in order to facilitate the energy transition,” said Finn.

In 2018, Finn said the only load that was suitable for it was Bitcoin mining.

One of the most important features of Bitcoin is that it does not depend on geographical location at all. Miners only need a power source and an internet connection, unlike other industries that must be relatively close to end users.

In some cases, the revenues implied by minting cryptocurrency have provided enough financial incentive to make it worthwhile to build the infrastructure needed to harness previously untapped energy sources — especially in Texas, which is known as a mecca for renewable energy sources like wind and solar.

Bitcoin miners are also flexible consumers of electricity – they essentially act as buyers who take as much power as they can from the energy offered to them, whatever the time of day, and they are also willing to turn it off at a moment's notice.

But Lansium's strategy has since shifted to artificial intelligence.

“Traditional data centers have been — and still are — primarily optimized for proximity to urban areas and users,” said Finn. “That has all changed now, with AI data centers being optimized for scale, cost, and green. Our vision, campus, and technology are ideally positioned for this larger, more expansive opportunity.”

Needham analysts estimate that publicly listed Bitcoin mining companies are expected to more than double their power generation capacity in the next year or two, including plans to expand their mining and high-performance computing businesses.

The Electric Power Research Institute estimates that data centers could account for up to 9% of the country’s total electricity consumption by 2030, up from about 4% in 2023. Many see nuclear power as the solution to meet this demand.

TeraWulf powers its mining sites with nuclear power and is looking to get into machine learning. The company currently has two megawatts of high-performance computing capacity, though it plans to shift its power infrastructure toward AI and HPC.

OpenAI CEO Sam Altman told CNBC last year that he is a big believer in nuclear power when it comes to meeting the needs of AI workloads.

“I don't see a way to do it without nuclear,” Altman said. “I mean, maybe we could do it with solar and storage alone. But from my perspective, I feel like that's the most likely and best way to do it.”