Galaxy Digital Shifts from Bitcoin Mining to AI Computing

Introduction to the Shift

• Galaxy Digital has entered a non-binding agreement with a U.S.-based hyperscaler firm to transform its entire 800 megawatt (MW) mining capacity into high-performance computing (HPC) resources.

• This strategic pivot is a response to the profit challenges faced by the Bitcoin mining sector, exacerbated by the recent Bitcoin halving.

Current Mining Operations and Capacity

• Currently, Galaxy operates 200 MW of its approved 800 MW capacity, with an additional 1.7 gigawatts (GW) under consideration for future permits.

The Rationale Behind the Move

• The transition to AI computing leverages the readily available power capacity of miners, which can be deployed more swiftly than constructing new data centers from scratch.

• This collaboration benefits both miners and AI firms: miners diversify their income streams while AI companies can quickly scale their operations to meet rising demand.

Impact of Bitcoin Halving on Mining Profitability

• The decision to pivot comes after Bitcoin's fourth halving event, which has halved the mining rewards, intensifying competition and squeezing profit margins within the industry.

Industry Trends and Competitor Movements

• The trend towards high-performance computing was initiated by Core Scientific's significant deal with cloud-computing provider CoreWeave, which positively impacted its stock price and prompted other firms to consider similar strategies.

• Notable companies like Hut 8 and HIVE are also allocating substantial resources to AI computation alongside traditional Bitcoin mining.

Financial Performance Overview

• Galaxy reported a 23% decline in mining revenue compared to the previous quarter, despite an 11% increase in total hashrate due to the halving and increased mining difficulty.

• Nevertheless, Galaxy managed to narrow its net loss for the third quarter, with operating revenue rising over 30% from the prior quarter. Following this news, shares in Toronto rose more than 7%, coinciding with positive trends in Bitcoin and the broader market index.

• This shift towards AI computing signifies a broader trend in the Bitcoin mining industry as firms seek to adapt to the evolving landscape and economic pressures.