Bitcoin Miner Debt Soars 500%, Betting $12.7 Billion on AI and Hashrate

Investment giant VanEck's latest report shows that Bitcoin miners are investing in new mining rigs and artificial intelligence infrastructure to remain competitive in the global hashrate race, with debt surging from $2.1 billion to $12.7 billion in just 12 months, an increase of over 500%. VanEck analysts refer to this phenomenon as the “ice cube melting problem”; without continuous investment in the latest mining rigs, miners will see their global hashrate share decline.

The “Iceberg Melting Problem” Crisis Behind $12.7 Billion in Debt

(Source: VanEck)

VanEck analyst Nathan Frankovitz and digital asset research director Matthew Sigel pointed out in the October Bitcoin ChainCheck report that Bitcoin miner debt increased from $2.1 billion to $12.7 billion over the past 12 months, a surge of 505%. This aggressive debt expansion stems from the “ice melting problem” that Bitcoin miners face; if they do not continuously invest in the latest Mining Rigs, their share of the global hashrate will decline, resulting in a decrease in the daily share of Bitcoin earned.

The “melting ice cube problem” vividly describes the predicament of Bitcoin miners. As the global hashrate continues to grow, the proportion of computing power from old mining rigs is continually diluted, just like ice melting gradually under the sun. To maintain their market share, Bitcoin miners must continuously purchase more efficient new mining rigs. However, the price of the latest generation of mining rigs often reaches several thousand dollars, which means hundreds of millions or even billions of dollars in capital expenditures for large mining farms that operate tens of thousands of mining rigs.

Frankovitz and Sigel stated: “Historically, mining companies have relied on the stock market rather than debt to finance these high capital expenditure costs. This is because miners' revenues are difficult to underwrite, as they are almost entirely dependent on the price of Bitcoin, which is speculative in nature. Importantly, equity is often a more expensive form of capital than debt.”

However, a turning point began to emerge in 2024. The industry publication “Mining Magazine” estimates that the total debt and convertible note issuance of 15 publicly listed mining companies will reach $4.6 billion in Q4 2024, $200 million in early 2025, and $1.5 billion in Q2 2025. This trend of shifting from equity financing to debt financing reflects a profound change in the business model of Bitcoin miners.

Debt financing has become possible because Bitcoin miners have started to diversify their businesses into AI and HPC (High-Performance Computing) hosting services. These new businesses offer predictable cash flows supported by multi-year contracts, making creditors more willing to provide financing. In contrast, the model that purely relies on Bitcoin mining revenue struggles to gain favor in the traditional debt market due to the extreme volatility of Bitcoin prices.

Survival Strategy After Halving: Shift to AI Hosting

After the halving in April 2024, which will reduce the mining reward to 3.125 Bitcoin, an increasing number of Bitcoin miners are starting to shift their energy capacity towards artificial intelligence and HPC hosting services to diversify their income sources. The halving event immediately reduces the block reward income of Bitcoin miners by 50%, which directly impacts profitability. With Bitcoin prices failing to rise in tandem, many miners are facing the brink of loss.

Frankovitz and Sigel stated: “By doing so, miners gain a more predictable cash flow supported by long-term contracts. The relative predictability of these cash flows enables miners to access the debt market, thereby diversifying their income away from the speculative and cyclical pricing of Bitcoin and reducing their overall capital costs.”

In October, Bitfarms completed the issuance of convertible notes worth 588 million USD, with the proceeds to be used for HPC and AI infrastructure construction in North America. This financing by Bitfarms shows that Bitcoin miners are pouring significant capital into the AI sector rather than upgrading traditional mining equipment. Convertible notes are a hybrid financing instrument that allows investors to choose to convert debt into equity in the future, providing Bitcoin miners with a relatively flexible financing option.

Another mining company, TeraWulf, has also announced the issuance of $320 million in senior secured bonds to partially fund the expansion of its data center at the Lake Mariner site in Buckeye, New York. TeraWulf's strategy indicates that Bitcoin miners are reconfiguring their existing power infrastructure to support AI and HPC workloads. The logic behind this transformation is straightforward: both AI computations and Bitcoin mining require substantial power and cooling infrastructure, and the ready-made facilities owned by miners can be quickly repurposed.

At the same time, IREN completed a $100 million convertible note issuance in October, part of which will be used for general corporate purposes and working capital. These large-scale financing cases indicate that the Bitcoin miner industry is undergoing a capital-intensive transformation.

Three Major Drivers of Bitcoin Miners Turning to AI:

Income Stability: AI and HPC hosting offer multi-year contracts, with cash flow predictability far exceeding Bitcoin mining.

Capital Efficiency: Predictable cash flows enable miners to obtain debt financing at a lower cost.

Asset Reutilization: Existing power and cooling infrastructure can be quickly converted into AI computing centers.

AI transformation will not threaten Bitcoin network security

Bitcoin miners are the backbone of the Bitcoin network; they verify all Bitcoin transactions and record them into new blocks. The more miners that participate, the higher the hashrate, which helps secure the network. However, when a large number of Bitcoin miners shift their computing power to AI and HPC hosting, could that pose a threat to the security of the Bitcoin network?

Frankovitz and Sigel believe that miners focusing on artificial intelligence and HPC hosting will not pose a threat to the network's hashrate, as “the priority of artificial intelligence over electronics is a net gain for Bitcoin.” Their logic is that Bitcoin mining remains a simple method to quickly monetize excess power in remote or developing energy markets, effectively subsidizing the development of data centers designed with AI and HPC convertibility in mind.

This perspective is somewhat convincing. The demand for AI computing experiences periodic fluctuations throughout the day, typically with higher AI inference demand during the day compared to night, based on human activity patterns. Bitcoin miners are exploring ways to monetize surplus power capacity during times of low AI service demand, which can allow miners to offset or even eliminate expensive backup power sources, such as diesel generators.

“Although this is still conceptual, we believe it represents a logical next step in the unique synergy between Bitcoin and artificial intelligence, thereby improving the efficiency of financial and power capital usage,” Frankovitz and Sigel stated. This “dynamic load management” model allows Bitcoin mining to serve as a flexible load for AI data centers, yielding computing power during peak AI demand and taking over excess electricity during valleys.

From the hashrate data, despite some miners turning to AI, the global hashrate of the Bitcoin network continues to grow. This indicates that the expansion of new entrants and existing miners is sufficient to offset some of the power diversion. Additionally, debt financing enables Bitcoin miners to invest in both areas simultaneously, rather than completely abandoning the mining business.

Debt Risk and Long-Term Sustainability

The scale of debt at 12.7 billion USD is astonishing, but it must be understood in the context of the overall scale of the Bitcoin miner industry. This debt primarily exists in the form of convertible notes and senior secured bonds, which have relatively flexible repayment terms. Convertible notes allow creditors to convert into equity when the company's stock price rises, providing Bitcoin miners with a buffer.

However, the surge in debt also brings risks. If the price of Bitcoin remains low for an extended period and the AI hosting business fails to generate cash flow as expected, some highly leveraged Bitcoin miners may face financial difficulties. Historically, Bitcoin bear markets have led to the bankruptcy of several mining companies, and the market crash in 2022 forced several mining firms to liquidate assets.