Bitcoin Network Enters First Hashrate Bear Market Amid Shift to AI

The Bitcoin network has entered its first 'hashrate bear market', according to Rafa Zagli, CEO of Twenty One Capital. The term refers to a decline in the total mining computing power deployed across the network. The hashrate rose to about 1.3 zettahash per second late last year and has since been in a gentle decline.

Zagli noted that this is different from the sharp drop seen after the Chinese government's mining ban in 2021, which was followed by a quick recovery as mining equipment moved to other regions. The current phase is characterized by a change in options for using power and facilities, with the emergence of artificial intelligence (AI) and high-performance computing (HPC) being the biggest turning point.

The business models of listed mining firms are rapidly changing, with most shifting away from large-scale, bitcoin-only mining to focus on AI businesses. This is due in part to a gap in profitability per unit of electricity, as contract rates for miners to lease power facilities to AI operators are now well above the mining hash price.

Some companies have already seen their revenue mix change, with Core Scientific and TerraWulf generating more AI-related revenue from data centre leasing than from mining. The competitive benchmark in the bitcoin mining industry is shifting from expanding mining equipment to securing power and building data centre conversion capabilities.