Mullet Mining Model Fails to Deliver for Bitcoin and AI

The 'mullet' mining model has been touted as a way for Bitcoin mines to participate in the AI infrastructure boom without abandoning their original business. However, experts say that most existing Bitcoin mines are not realistic candidates for conversion into AI data centers.

Jay Zapata, founder and CEO of SATOKIE, said at the Energy Investors Forum in Dallas that 'Bitcoin will never win that fight' when it comes to accessing suitable substations and infrastructure for both mining and AI operations. He estimated that building a Bitcoin mine can cost around $200,000 to $300,000 per megawatt, compared with over $10 million per megawatt for AI infrastructure.

The 'mullet' model involves using Bitcoin mines as a bridge during the development period of an AI facility, generating revenue from unused electricity and shutting down when the higher-value computers need the power. However, this approach has its limitations, particularly in terms of access to suitable substations and infrastructure. Zapata said that power costing six to eight cents per kilowatt-hour would make the economics difficult for mining.

The panel also discussed how AI projects require more complex and expensive infrastructure compared to Bitcoin mines. They noted that AI tenants may require redundant fiber, backup generation, sophisticated cooling, water, large parcels of developable land, and contractual uptime approaching 99.999%. This means that many existing Bitcoin mines are not equipped to support the needs of AI operations.

The panelists also cautioned that the mullet model is not a sustainable or scalable solution for both mining and AI operations. They noted that long AI contracts introduce a concentration risk, and that at least one significant AI tenant, lender, or landlord is likely to default or break a lease before Bitcoin's next scheduled halving in 2028.