Source: Tiger Research

Written by: Ekko An, Ryan Yoon

Translated by: Shaw Golden Finance

Key Points

• Unstable income and rising Bitcoin mining costs have made the core business of crypto mining companies unstable.

• As a result, crypto mining companies are transforming, leasing data center space from existing mining facilities to large tech companies.

• This move reduces fierce competition and makes the industry more robust.

1. Business Risks Faced by Crypto Mining Companies

We previously analyzed the financial risks posed by the decline in Bitcoin prices to Digital Asset Treasury (DAT) reserve companies. However, it is not only DAT companies that are under pressure. Bitcoin mining companies that directly operate mining businesses also face significant risks.

The vulnerability of mining companies stems from their simple business model. Revenue is almost entirely dependent on Bitcoin prices, which are inherently unpredictable. In contrast, costs tend to rise over time.

• Unpredictable Revenue: Company revenue is entirely dependent on Bitcoin market prices.

• Structural Cost Increases: Mining difficulty continues to rise, electricity prices are increasing, and hardware needs to be replaced regularly.

This structure is particularly problematic during periods of declining Bitcoin prices. Revenue drops immediately, while costs continue to rise. Mining companies find themselves in a double bind.

Regulatory risks add another layer of uncertainty. New York State has proposed a measure to increase consumption taxes on mining companies. Currently, most large crypto mining companies are located in regions with relatively loose regulations, such as Texas, so the short-term impact is limited. Nevertheless, the risks posed by broader regulatory pressures cannot be ignored.

Against this backdrop, mining companies face a fundamental question: Can this business model remain viable in the long term?

2. Structural Vulnerability of Crypto Mining Companies

As of today, the average cost of mining one Bitcoin is approximately $74,600, an increase of nearly 30% from a year ago. When accounting for factors such as depreciation and equity incentives, the total production cost per Bitcoin rises to about $130,000.

Currently, the trading price of Bitcoin is around $90,000, which means that mining companies incur an approximate paper loss of $46,000 for each Bitcoin mined. This gap highlights the growing disconnect between operational costs and market prices.

Over time, the situation has become more precarious. Compared to 2022, mining difficulty is significantly higher in 2025, while energy regulations in multiple regions are tightening. These factors reduce the predictability of costs and decrease the structural stability of mining operations.

3. Transition to AI Data Center Leasing

As competition in the AI field intensifies, the demand for data centers from large tech companies has surged. However, building new data centers takes years. In the fast-paced AI race measured in months or quarters, waiting is not an option.

Mining companies have identified the opportunity presented by this market gap. The facilities they currently operate are equipped with high-performance computing hardware, large-scale power supplies, and advanced cooling systems. While these facilities cannot be completely transformed overnight, their specifications align closely with the needs of large tech companies. This allows them to relatively quickly pivot to AI data centers.

• High-Performance GPUs: Crypto mining companies operate large GPU clusters that can be repurposed for AI computing. NVIDIA GPUs are a common example. By adjusting the facilities, these assets can support new revenue streams beyond mining.

• Power Infrastructure: Mining companies have secured grid access on the scale of hundreds of megawatts. In tightly regulated electricity markets, such access is scarce and difficult to replicate, even with funding.

• Cooling Systems: Experience gained from operating ASIC miners can be effectively applied to managing high-heat AI servers like the H100 and H200. In fact, many mining sites can be converted into AI data centers within six to twelve months.

Core Scientific is a typical example. The company faced bankruptcy risks in 2022 but successfully transformed and entered the AI data center operation sector. Currently, the company operates approximately 200 megawatts of data center capacity and plans to gradually expand to 500 megawatts. This transformation from a struggling mining company to a data center leasing enterprise illustrates how leveraging alternative infrastructure can help stabilize business development.

Other mining companies are also following similar models. IREN and TeraWulf are expanding into areas beyond their core mining businesses. While they have not fully transitioned into data center leasing companies, they are developing supplementary business models outside of Bitcoin mining.

These initiatives reflect a broader trend. As mining profitability declines, crypto mining companies are seeking business models that are more suited to the AI era. This shift is more a matter of necessity than growth ambition.

4. Diversification Strategies of Crypto Mining Companies

The shift of crypto mining companies from unprofitable mining operations to AI data center businesses is not a temporary trend but reflects a rational survival strategy aimed at reallocating capital to more efficient uses.

This transition should not be viewed as a negative development. On the contrary, it helps mining companies establish more stable cash flows. With more stable income, companies can continue to hold Bitcoin without being forced to sell at low prices.

The alternative is far less favorable. Companies with persistently negative cash flows face bankruptcy risks and are often forced to sell Bitcoin at unfavorable prices. In contrast, data center revenues allow mining companies to flexibly hold or sell Bitcoin, enabling strategic transactions. This is more beneficial for both the companies and the overall market.

Not all companies are focused solely on pure data center leasing. Some companies, such as Bitmine and Cathedra Bitcoin, are expanding their businesses into DAT-style models beyond mining.

In summary, these changes indicate that the cryptocurrency mining industry is maturing. Weaker participants are exiting the market or transforming, thereby alleviating mining pressures. Meanwhile, leading companies are evolving from simple mining operations into diversified DAT businesses.

In fact, the weaker links are being eliminated, and the overall market structure is becoming more resilient.

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