Insights from Fred Thiel on Bitcoin Mining and AI Integration

In a recent interview with analysts at research and brokerage firm Bernstein, Fred Thiel, CEO of bitcoin miner MARA (formerly Marathon Digital), stated that the current AI environment resembles the early 2000s internet boom. Many companies, especially smaller players, risk overbuilding infrastructure without adequate demand.

This overbuilding could lead to possible financial difficulties if clients fail to generate revenues, according to Bernstein's digital assets lead, Gautam Chhugani, in a note to clients from Thursday.

Despite this concern, Thiel acknowledged the potential benefits of this emerging niche. He suggested that successful bitcoin miners would increasingly integrate AI into their operations. They could leverage low-cost energy and become “energy partners” to AI data centers and hyperscalers over the long term.

In 2024, bitcoin miners’ strategies have notably diverged, with stocks of AI diversifiers like Core Scientific, IREN, and Terawulf performing better than pure-play bitcoin mining firms. AI diversifiers have gained from rising demand for high-performance computing and AI data center hosting services, thanks to their valuable power contracts pipeline.

However, pure-play miners argue that the returns on bitcoin mining’s cheaper infrastructure and faster energization outpace AI’s longer gestation periods, especially with a potential cryptocurrency bull run approaching.

Thiel’s long-term perspective indicates an interesting evolution for the firm, which has transitioned from an asset-light miner to consolidating 54% of previously third-party hosted capacity. This mirrors comments from Riot Platform’s CEO Jason Les, who expressed openness to exploring AI opportunities if the right partnership and deal structure arise.

Consolidation, Diversification, and Ownership in Auradine

Thiel detailed MARA's goal to ultimately own 100% of its mining capacity, helping reduce costs and enhance profit margins. The company is currently focused on on-site power generation using stranded/flare gas. This strategy allows MARA to acquire gas at significantly lower rates than the energy grid, reducing costs and avoiding curtailment issues.

Thiel emphasized the importance of maximizing bitcoin collection: "If I can mine bitcoin at zero energy cost, my cost to acquire bitcoin is substantially lower than anybody else in the industry, including Michael Saylor."

MARA also holds an ownership interest in bitcoin mining manufacturer Auradine, where Thiel is a board member. The company participated in Auradine’s $81 million and $80 million Series A and B funding rounds and previously acquired $35.5 million in Auradine preferred stock.

This collaboration grants MARA access to proprietary chip technology, enabling the development of custom miners optimized for immersion cooling, improving operational efficiency and decreasing reliance on external suppliers like Bitmain, MicroBT, and Canaan.

Additionally, Thiel pointed out that modular data centers powered by flare gas are particularly suited for AI inference as demand grows, due to their flexibility and scalability. MARA aims for 50% of its revenue to come from non-bitcoin mining and offshore operations within the next four years, creating a diversified technology company that can effectively “transform energy into value.”

Gautam Chhugani maintains long positions in various cryptocurrencies.