Many Bitcoin miners are struggling to make a profit this market cycle due to diminishing returns, so they may need to focus on hosting AI or operating their holdings to generate returns, says market maker Wintermute.

Bitcoin (BTC) miners have spent years building large-scale energy infrastructure in low-cost energy markets, and now find themselves “sitting on exactly what the AI ​​industry urgently needs and cannot easily replicate,” Wintermute said in a blog post on Thursday.

Bitcoin mining is a “structurally rigorous business model,” she said, and while the AI ​​pivot is compelling, it is also a “radical and capital-intensive move.”

The report comes as mining giant MARA Holdings is the latest to eye AI, filing with the Securities and Exchange Commission on March 3 to indicate its intent to sell some of its BTC to focus on the technology. Meanwhile, publicly listed mining companies have sold more than 15,000 bitcoins since October.

Miners Holding on to Bitcoin Is a ‘Legacy of the HODL Era’

Wintermute said that Bitcoin miners collectively hold roughly 1% of the total supply of Bitcoin, which he said is a “legacy from the HODL era,” and that “the full toolkit for treasury management remains largely untapped.”

Cryptocurrency return generation has traditionally been limited to staking and decentralized finance, but Wintermute said miners can leverage returns through active management, such as monetizing market risk through derivatives structures, covered calls, and cash-collateralized puts.

Passive management options include deploying Bitcoin in lending protocols to earn interest.

“We believe that active balance sheet management is the least used method available to miners and one that deserves much greater strategic attention,” Wintermute said. “Miners who treat their Bitcoin holdings as a working asset rather than a passive reserve will hold a structural advantage in the next halving.”

Related to: Mining companies are delving into artificial intelligence and high-performance computing as MARA may sell Bitcoin

For the first time in a four-year market cycle, Bitcoin failed to achieve the multiple price return needed to offset revenue reductions caused by the halving, and gross margins peaked at levels that previously represented bear market floors, Wintermute said.

In addition, the transaction fee market has not closed the gap because it is “accidental” rather than structural. Meanwhile, energy costs continue to pressure margins.

The company noted that the data indicates that this pressure differs from previous cycles in 2018 and 2022, and described it as a “healthy change” that fits with Bitcoin’s design and will make the mining industry “more efficient as a result.”

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