Category: Bitcoin

Bitcoin Miners Addressing AI’s Near-term Time to Power Bottleneck with up to $50 Billion in Commitments

Posted on by io-fund

This analysis was published on the Discovery tier on August 29, 2025. Learn more about Discovery hereLearn more about Discovery here

Time to power is the most important focal point for AI investors at the moment, considering the high level of demand for compute, the inability of Big Tech to meet said demand in the cloud, and the rapid upgrade cycle between GPU generations.  

Once exposed to the volatility and uncertainty of Bitcoin prices and halving, transitioning to offering AI hosting provides more lucrative, predictable, and higher-margin revenue streams for Bitcoin miners. The AI industry is now giving miners a vote of confidence, with up to $50 billion committed in long-term deals this year for AI/HPC data center hosting. 

This boils down to two key advantages miners can provide: the ability to retrofit or repurpose existing space for GPUs with lower incremental capex than building AI data centers from scratch, and quicker time to power.  

Below, we discuss why time to power is of utmost importance to the AI industry and for AI investors, how Bitcoin miners can bridge the gap and meet near-term power needs, and which BTC mining stocks are engaged in multi-billion dollar AI deals.  

The I/O Fund bought shares in Core Scientific early in this trend after first analyzing its AI angle exclusively for our Discovery members. We closed the position shortly after CoreWeave’s acquisition announcement for a 193% return. To subscribe to Discovery with 30% off, please click here to email us or email premium@io-fund.com and mention code DISCOVERY30.click here to email us or email premium@io-fund.com and mention code DISCOVERY30.

Why Time to Power is Mission-Critical 

Power connection is quickly becoming a primary constraint for the AI industry as GPU bottlenecks ease relative to the last two years. Essentially, long lead times for grid interconnection means hyperscalers and specialized AI neoclouds like CoreWeave simply cannot get enough capacity online to meet high demand. This was noted by Microsoft in April and Amazon this quarter, with Amazon CEO Andy Jassy not shy in saying that “the single biggest constraint is power.” 

Here's why time to power is now emerging as a critical focal point: 

Grid connection timelines in key regions are 36+ months, per data from TD Cowen and Riot Platforms, with major Data Center Alley in North Virginia at 42 months or longer. Even in 2024, Bloomberg reported that utility Dominion said large data centers in Virginia (>100MW) were facing seven year wait times for new connection hookups.  

Additionally, the most powerful GPUs from Nvidia (and now AMD) are being upgraded on an annual cadence, so any delays in getting GPU clusters online shortens the time these chips are ‘useful’ before becoming outdated by the next generation. Think of it this way: hyperscalers and GPU providers do not want to spend tens of billions of dollars on AI hardware to then have it sit idle while waiting for power, as this translates directly into lost revenue and lost profits.  

Tying into this, if a company like Microsoft can get new data centers connected to the grid and stood up faster than competitors such as Amazon, they can then meet higher demand, win new customers and gain market share. For example, AI startups simply seeking capacity to train models likely have lower cloud switching costs, meaning that these companies could easily and quickly shift workloads to whichever cloud provider can offer them the capacity they need the quickest.  

Bitcoin Miners Provide a Path to Meet More Immediate Power Needs 

While some companies like Meta are building 1GW+ clusters from scratch, for others in the neocloud arena that do not have access to tens of billions in cash, Bitcoin miners are recently attracting increased levels of interest. Miners help address immediate power needs with multiple gigawatts of grid-connected facilities that can quickly be converted from mining to AI GPUs. As TeraWulf’s executives put it, the “ability to scale quickly provides a meaningful advantage in today’s race to secure power and compute capacity.” 

Consider some of those challenges that exist on the power side when building data centers from the ground up – short power supply in key markets like Virginia, grid connection requests extending four to seven years, or permitting delaying full power delivery to new infrastructure. Miners, on the other hand, streamline this process by offering access to readily available grid-connected power, cooling infrastructure, and low latency to major hubs.  

Core Scientific, Applied Digital and Galaxy are expecting to bring their first AI-focused facilities online by Q4 2025 through 1H 2026, or four to ten months from now, substantially quicker than new construction. Transitioning existing facilities also offers rapid time to operation; for example, IREN stated that it seamlessly transitioned from mining ASICs to AI GPUs at its 50 MW Prince George facility in six to eight weeks, though this is likely at a very small scale considering the size of its GPU fleet. 

For a company like CoreWeave or Fluidstack, signing long-term contracts for capacity with BTC miners and fronting the cash for capex allows them to build hyperscale clusters for a fraction of the cost and time. As CoreWeave’s CEO Michael Intrator put it, “Right now the key bottleneck really is the powered shell. When you think about that, that’s really the building, the cooling, the distribution of electricity.”  

Instead of having to worry about the prolonged process of site selection, permitting, planning, and more before final power delivery, these neoclouds instead have near immediate access to the powered shell. While retrofitting for liquid cooling, networking and connectivity may still be necessary and pose some challenges, miners offer a fast time to operation and relatively cheaper capex costs for a hyperscale-size data center outfitted with tens to hundreds of thousands of GPUs.  

Capex Costs Highlight Miners’ Attractive Positioning 

Considering that most of the miners that have struck deals are rather cash-strapped, these GPU cloud firms behind the deals are putting up all (or the majority) of the capex required to retrofit existing facilities for high-end AI GPUs. Miners are highlighting the capex costs per MW for these facilities, and these costs, while varying quite wildly between miners, help emphasize the industry’s rather attractive positioning when factoring in quick time to power.   

Core Scientific had offered one of the cheapest project costs, costing CoreWeave approximately $1.5 million per MW, though Core Scientific’s executives had stated in Q3 2024 that “they were able to significantly buy down their rates.” 

IREN is touting the next lowest capex costs at ~$6-7 million per MW of IT load, for its Horizon 1 facility in Texas, which it says is catered to liquid-cooled NVIDIA Blackwell GPUs and provides ~6ms latency to Dallas. IREN says it expects the capex to be funded primarily by colocation customer prepayments and debt financing. 

TeraWulf expects its capex per MW of critical IT load to be in the range of $8-10 million for its recent deal with Fluidstack, while offering <8ms latency to New York City and Boston and <2ms to Toronto.  

Applied Digital and Galaxy are a bit on the higher end – both are anticipating capex of $11-$13 million per MW, with Galaxy recently securing $1.4 billion in project financing to aid development of its first 133MW phase with CoreWeave. However, Galaxy expects capex to move higher for its second 260 MW phase.  

Compared to new construction costs per MW, miners can offer some capex savings, with savings becoming more attractive the lower capex costs go, such as in the case of IREN and TeraWulf. Cushman & Wakefield estimates construction costs per MW in the range of $9-15 million across key markets, averaging $11-13 million. This aligns with estimates from CBRE for $10-14 million per MW, though costs can reach $16-20 million per MW in certain cases (or higher).  

Source: Cushman & Wakefield  Cushman & Wakefield  

While Applied Digital and Galaxy may not offer much of a discount relative to new construction, IREN and TeraWulf can offer more pronounced capex savings. Based on a $12 million per MW construction cost estimate, TeraWulf could offer up to 33% savings per MW and IREN up to 50% savings, translating into hundreds of millions to billions in savings at a 400-800 MW scale.  

Time to Power Comparison 

Theoretically speaking, miners with the quickest time to power should enjoy a two-fold advantage: quicker time to revenue recognition, and potentially better deal economics arising from the ability to meet customers’ demand faster.    

For example, Core Scientific’s ability to bring 250MW of power online for CoreWeave’s AI compute needs supports why it was the first to be acquired, as no other miner could match that scale within the same timeframe. 

There are nuances in delivery timelines and expectations that make it difficult to offer a direct quarter-by-quarter comparison, such as Galaxy only offering vague delivery comments for 1H or throughout the year. However, roughly speaking (and excluding Core Scientific), by the end of 2025, Applied Digital should lead with 100MW, yet this shifts by year-end 2026 with TeraWulf aiming to deliver more power.  

By Q4 2025: 

  • Applied Digital expects its first 100MW of power online. 
  • TeraWulf expects 60MW of power online. 
  • IREN could have 50-130MW of AI-dedicated power online, depending on how it retrofits its Prince George and Mackenzie facilities. 
  • Galaxy does not expect to have capacity online. 

By Q4 2026: 

  • TeraWulf expects to have 420MW of capacity online as it progresses with quick expansion. 
  • Applied Digital expects to have 250MW of capacity online. 
  • Galaxy expects to have 133MW of capacity online. 
  • IREN is aiming to energize its 1.4GW Sweetwater facility in early 2026, though there is no indication yet that it will be able to stand up fully operational infrastructure by year-end.  

Long-Term Power Needs Far Outstrip Miner Capacity 

Looking at the bigger picture, the contracted power that miners can provide will only meet a small portion of the projected demand growth over the next three to ten years, and are unlikely to be the sole solution to this structural power shortfall. As we had covered in our free newsletter, Nuclear Power Emerging as a Clean AI Data Center Energy Source, data center power demand is expected to grow at an accelerated 16% CAGR from 2023 to 2028 and beyond. 

For example, Boston Consulting Group forecasts 45 GW of growth in global data center power demand in just three years, from 82 GW in 2025 to 127 GW by 2028.  

In the US, data center demand was forecast to rise as much as 5x over the next decade. Deloitte estimated US data center power demand to triple from 2025 to 2030, from 41 GW to 120 GW, before rising further to 176 GW by 2035. In terms of power consumption, the DOE recently forecast data centers will consume 6.7% to 12% of total US power production by 2028, up from 4.4% in 2023. 

Bitcoin miners can only meet a fraction of this growth, likely around several gigawatts in total. Yet their innate ability to deliver this power over the next 12 to 24 months, supporting up to hundreds of thousands of high-end GPUs in larger-scale facilities, is why miners are prime targets to meet hyperscalers and neoclouds’ immediate power needs.  

Below, we discuss miners that have secured large-scale deals and/or progressing with building out GPU fleets for self-hosted AI cloud services. As it stands, CoreWeave has been the primary undertaker of major AI deals with miners, committing to over $35 billion including its acquisition of Core Scientific; though Fluidstack is making a splash with a deal worth up to $16 billion with TeraWulf.  

Core Scientific Acquired by CoreWeave Following $10B+ Deal 

CoreWeave made a statement to the industry with its acquisition of CoreScientific for $9 billion, a Bitcoin miner and key compute partner. The acquisition communicates that immediate power at scale is paramount. This stems from Core Scientific’s key advantage, as the only miner that will be able to bring 250MW online this calendar year, capable of hosting >100,000 GB200 chips.  

Prior to the acquisition, CoreWeave had contracted 590MW of total capacity from Core Scientific as of February, worth $10.2 billion in cumulative revenue to the miner over the 12-year lease terms. Core Scientific stated in May that it was on track to deliver 250MW of billable capacity to CoreWeave by the end of 2025, with expectations for the full 590MW to be delivered by 2027. 

CoreWeave says that with the acquisition, it will now own 1.3 GW of gross power across Core Scientific's national footprint (including BTC mining facilities), with an incremental 1 GW+ of potential gross power available for future expansion. The acquisition also adds $500 million of estimated fully ramped, annual run rate cost savings by eliminating CoreWeave’s $10 billion lease obligations to Core Scientific.  

This combination of hundreds of MW of deliverable power by year end and substantial long-term cost savings from owning infrastructure outright versus leasing underscore why CoreWeave was quick to progress with the acquisition. 

For a deeper look at Core Scientific, refer to our prior analyses, Core Scientific Q1: Expects 250MW of Billable Capacity to CoreWeave by Year-End and Core Scientific: Hypergrowth with 21X AI Segment Growth Potential.Core Scientific Q1: Expects 250MW of Billable Capacity to CoreWeave by Year-End and Core Scientific: Hypergrowth with 21X AI Segment Growth Potential. 

TeraWulf Signs up to $16B Deal with Fluidstack, Backed by Google 

TeraWulf is no stranger to AI/HPC hosting, having signed a $1 billion, 72.5 MW deal with Core42 in December 2024, with dedicated GPU compute infrastructure coming online throughout 2025. However, its recent deal with Fluidstack represents one of the largest deals to date between an AI cloud firm and a Bitcoin miner. 

  • TeraWulf had originally announced a $3.7 billion, 10-year AI hosting deal with AI cloud startup Fluidstack for 200+ MW capacity at its CB-3 and CB-4 buildings at its Lake Mariner data center in upstate New York.  
  • Only a few days later, TeraWulf announced that Fluidstack was expanding its deal to include ~160MW at CB-5, bringing its total contracted IT load to 360MW and contracted revenue to $6.7 billion. Including potential lease extensions, the new deal could be worth up to $16 billion.  
  • Perhaps more importantly, Google is backstopping $3.2 billion of Fluidstack’s lease obligations to support project financing, and has taken a 14% stake in the miner (up from a $1.8 billion backstop and 8% stake with the original deal).  

TeraWulf is aiming for quick delivery of power to Fluidstack, with the first 40MW phase expected to come online in the first half of 2026 and all 200+MW delivered by year-end; additionally, operations are expected to commence for the 160MW tranche at CB-5 in 2H 2026. Multiple different OEM GPU equipment is expected to be deployed, likely GPUs from Nvidia and AMD, able to serve a variety of AI training and inference workloads. 

Overall, Fluidstack’s deal represents just over 70% of the current available power at Lake Mariner of 500MW, though TeraWulf does have 250MW additional power pending regulatory approval for expansion. This would bring the facility’s total power potentially up to 750MW with its targeted upgrades, or allowing a second deal of similar size to be signed in the future.  

TeraWulf also recently signed an 80-year ground lease with purchase option at Cayuga, securing its exclusive rights to develop 400MW of data center infrastructure “on a fully equipped site, with high-capacity transmission, industrial water intake and redundant fiber.” The company expects to bring the first 130MW online in 2027, while boosting its long-term power capacity to over 1GW.  

Applied Digital a Secondary Benefactor of CoreWeave with $11B Deal 

If CoreWeave’s acquisition of Core Scientific wasn’t enough, it also committed to leasing 400MW of capacity from Nvidia partner Applied Digital at its Ellendale, North Dakota facility, worth ~$11 billion over the 15-year terms. Ellendale (now referred to as Polaris Forge 1) has the potential to scale up to over 1GW capacity over the long run, though the 400MW represents the maximum current capacity.  

Applied Digital expects the first 100 MW data center to be ready for service in Q4 2025, while the second 150 MW data center is expected to be ready in mid-2026. The third 150 MW facility is expected to be ready in 2027. Applied shared some details on the campus, saying that the campus “will feature high-density racks and direct-to-chip closed-loop liquid cooling and air cooling combo” as it entered a $150 million, 36-month convertible preferred equity financing to advance construction. 

On August 18, Applied announced that it is expecting to break ground on its $3 billion, 280MW Polaris Forge 2 data center in Harwood, North Dakota. Applied is aiming to have initial capacity online in 2026 and the facility reaching full capacity by early 2027, a quick 16-20 month time to power. The company also claimed in 2024 to offer approximately 30% lower costs than AWS, Azure and GCP for cloud compute on Nvidia’s GPUs with short, 8-10 week lead times, a key advantage in the race to deliver compute.  

Galaxy: Another CoreWeave Partner with ~$15B Deal 

CoreWeave has struck another deal with digital asset platform and now data center infrastructure provider Galaxy Digital, committing to the entire 800 MW of approved capacity (~526MW critical IT load) at Galaxy’s Helios data center. With 2.7GW of power under load study, Helios has the potential to expand up to 3.5GW, which would make it one of the largest single data center facilities in the US and the world.  

Galaxy stated that they anticipate average annual revenue of more than $1 billion over the 15-year term, based on committed contractual terms, internal capex estimates, and full capacity utilization. This estimate would place the deal value above $15B.  

Source: GalaxyGalaxy

Galaxy is expected to deliver its first 133 MW phase of power to CoreWeave in the first half of 2026, followed by the next 260 MW phase throughout 2027 and a subsequent 133 MW phase throughout 2028.  

To fund this first phase, Galaxy has secured $1.4 billion in project financing debt, providing the $350 million equity requirement for the funding. Management also stated in Q2 that its $480 million in cash proceeds from its May equity raise would go towards capex related to the Helios DC buildout. Overall, the combined phases are no small task, likely requiring close to $10 billion over the next few years, especially considering management stating Phase 2’s will likely be slightly higher than Phase 1 due to the size of the committed load.  

Galaxy made it clear that for Phase 2, discussions for project financing are still “pretty preliminary,” though management expects that as they produce results with Phase 1 and generate returns/revenue, they will “earn the right to achieve larger financings at lower cost.” Simply getting the second phase financed is the company’s primary goal, considering the 16-20 month timeline to delivery.   

IREN Building Out its Nvidia GPU Fleet, Targeting Deals 

In March, IREN hit the pause button on its bitcoin mining expansion as it pivoted to focus more on AI and HPC, given the revenue potential stemming from its >2.9 GW of grid-connected power.  

Unlike peers, IREN is primarily focusing on short-duration contracts, from on-demand use to three-year term lengths, while expanding its GPU fleet to drive growth in its self-hosted AI cloud business. Revenue for its AI Cloud Services surged 94% QoQ to $7 million in fiscal Q4, after rising 33% QoQ to $3.6 million in its fiscal Q3. The company laid out an aggressive $200-250 million annualized AI Cloud Services revenue target by December 2025, up 8-10x versus its current annualized run rate. 

IREN is working to expand its GPU fleet, which is still extremely small considering its power pipeline as GPUs are not cheap at scale. IREN purchased 2,400 Blackwell GPUs in early July for ~$130 million including fit-out costs, comprised of 1,300 B200s and 1,100 B300s.  

In late August, IREN doubled its fleet to ~8,500 GPUs with another purchase of 4,200 B200s for ~$193 million, while securing $102 million in funding for the July purchase. The company has already contracted out its first batch of 256 B200s to an undisclosed customer.  

In its fiscal Q4 report, IREN also stated that it has secured $200 million in GPU financing, aiming to increase its GPU fleet to ~10,900, or an additional ~2,400 GPUs.  

Given that a 50MW data center could be outfitted with ~25K GPUs, IREN is far from outfitting its own facilities with its current fleet, though it is somewhat capital constrained given its $564 million cash on hand.   

The company says that it is “observing demand for multi-thousand air-cooled Blackwell GPUs,” and has ~47MW of capacity still available at its Prince George, British Columbia facility, capable of supporting ~20,000 Blackwell GPUs. 

For its other AI data centers, IREN is targeting calendar Q4 2025 delivery at its Horizon 1 facility in Texas with up to 50 MW of IT load. IREN says that it has several customers undergoing due diligence and contractual negotiations with interest expanding beyond 50MW, though it has not announced any signed deals. The company is also eyeing a complete transformation for Horizon to reach the full 750MW power capacity, noting in fiscal Q4 that procurement is underway for a second 50MW. 

IREN is looking to create an interconnected 2GW data center hub at its Sweetwater 1 and 2 facilities, with the 1.4GW Sweetwater 1 facility expected to be energized by April 2026 and the 0.6GW Sweetwater 2 facility expected to be energized in late 2027. This is a slight acceleration for Sweetwater 2 from early 2028. Together, Sweetwater could support 700K liquid-cooled Blackwell GPUs, in close proximity to Stargate’s Abilene data center.  

Other Miners Considering AI Pivots 

Riot Platforms and Hut 8 are two other miners that are pivoting towards AI hosting, though the two have yet to secure long-term contracts.  

Riot is aiming to transition from Bitcoin mining to AI hosting when “economic and feasible,” and said last quarter that it is “actively progressing toward securing a lease with a high-quality tenant” at its Corsicana facility. As of January, Riot was evaluating using the remaining 600MW of power capacity at the facility for AI/HPC, with 400MW currently geared towards mining. Needham analysts are encouraged by Riot’s possible pivot, saying they “believe Riot’s Corsicana site is one of the most attractive HPC sites in our universe” with amplefiber connectivity for low latency AI inference. Needham believes Riot could be in advanced discussions with potential tenants by 2H 25 and sign a lease as early as Q1 2026. 

Hut 8 has ~3.4MW of HPC capacity operational and ~670MW of mining capacity, and similar to IREN is leasing Nvidia GPUs in the cloud. Hut reported a $2.3 million increase in revenue from leasing ~1,000 H100 GPUs to an unnamed AI developer, which launched in September 2024. Hut 8 also just broke ground on a ~300MW data center in Louisiana, and is expected to invest ~$2.5 billion, while undisclosed future tenants are expected to contribute ~$10 billion in compute equipment. However, it is reported that Hut will likely need external financing or a partner for the project.  

Earlier in 2025, Bitfarms announced it was mulling a shift to AI, and in early August, the miner announced a partnership with T5 Data Centers to advance the development of its Panther Creek facility in Pennsylvania. The two are expected to engage in pre-construction design planning and development approval processes, with Bitfarms also submitting its master site plan to Macquarie for future development.   

Cipher is also considering a pivot, saying that it created a new strategic plan at its 150MW Black Pearl Phase II to bridge both AI compute and hydro-bitcoin mining, though in the long run it expects the site to be fully leased by AI/HPC tenants. Cipher added that it is seeing continuing HPC interest at its Barber Lake site. 

AI/DC Deals are High-Margin, Highly Visible Revenue for BTC Miners 

These AI hosting deals are very attractive for miners as they provide highly visible, high-margin revenue streams, a major operational shift from the prior business model with growth and earnings tied to Bitcoin’s price volatility, network difficulty and halving.  

Applied Digital’s deal with CoreWeave has pricing set upfront with an annual escalator, with average annual revenue of ~$733 million based on the $11 billion, 15-year terms. Revenue is likely to start small and begin to ramp rapidly once full capacity is online. Applied is also targeting 88%, +/- 3% net operating income margins on the AI hosting revenue, or ~$645 million average annual net operating income for the duration of the deal.  

TeraWulf’s expanded deal with Fluidstack will generate average annual revenue of $670 million at its current scope, though the full extension to $16 billion could provide significant revenue upside. TeraWulf is eyeing an 85% net operating income margin for the Fluidstack deal, or ~$570 million on average annually. This is at the low end of Applied Digital’s range, likely accounting for higher operating costs due to location (upstate New York vs North Dakota). Combined with the Core42 deal, TeraWulf has visibility into ~$770 million in average annual revenue, with the first revenue from Core42 now being recognized.  

Galaxy is targeting 90% adjusted EBITDA margins on its AI hosting deal with CoreWeave, implying adjusted EBITDA of ~$900M+ on its average annual revenue estimate of more than $1 billion. Given energization times spanning into 2028 and a longer 15-year term structure, Galaxy’s initial revenue ramp may be more prolonged than peers. 

IREN does not have a firm hosting deal, though it has touted a 97-98% hardware profit margin for its AI Cloud Services, or revenue minus electricity costs. This is more than 20 points above its Bitcoin hardware profit margin, highlighting why AI is more attractive than mining at scale. However, margin tailwinds are likely minimal in the near-term given AI Cloud Services contributes less than 3% of revenue. 

Accelerated Revenue CAGR  

While there are nuances in deal sizes and lengths, IREN, Applied Digital and TeraWulf are seeing accelerated forward revenue growth CAGRs as AI capacity soon comes online. These miners’ growth rates are much stronger than others such as Riot and MARA who have not jumped headfirst into AI hosting.  

Applied Digital and TeraWulf are expected to see revenue increase at an 88-90% 2-year CAGR from 2025 to 2027, a significant acceleration from their respective historical 61% and 73% CAGRs from FY23 to FY25.  

IREN is expected to see revenue grow at a 42% CAGR from FY25 to FY27, though this is a bit skewed as the company has benefitted from rapid mining hashrate expansion and rising Bitcoin prices over the past two quarters. 

Compare this to Riot and MARA, with both expected to see FY25 to FY27 revenue growth at a 17-18% CAGR, decelerating sharply from the 55-60% level over the past two years. While revenue is coming off a higher base than say APLD or WULF, the difference in forward growth rates is notable for AI-engaged miners and these two who have not yet pivoted in full force.  

Thin Balance Sheets Present Capital Raise Risk 

Miners are rather cash-strapped, and while neoclouds and partners are fronting the cash for capex, capital raises and dilution are still a risk, considering IREN and TeraWulf both recently launched larger-scale convertible note offerings.  

Here’s a quick snapshot into the health of IREN, TeraWulf, Applied Digital, and Galaxy’s cash versus debt, with the chart below showing how thin and lumpy cash balances are: 

IREN reported cash and equivalents of $196 million in Q3, down from $455 million in the prior quarter. As of Q4, IREN reported $564 million in cash and equivalents, after closing an upsized $550 million convertible note offering in June, while debt is now at $963 million. This presents possible dilution risk in the high-teens, based on IREN’s $5 billion valuation.  

Applied Digital reported cash and equivalents of $114 million, down from $254 million in the prior quarter.  Applied has a deal with Macquarie for up to $5 billion in financing, including a $900 million initial investment at Ellendale and $4.1 billion on retainer to for future data center expansion. For any future builds, Macquarie would invest $2.25 million per MW and Applied would invest $0.75 million per MW. 

TeraWulf reported cash and equivalents of $90 million, down from $220 million in the prior quarter. However, shortly after the Fluidstack deal, the company announced the full exercise of its $1 billion convertible note offering, or ~27% of its current market cap. Based on prior capital allocation projections, this would likely leave TeraWulf with ~$600-700 million in unallocated cash, for project cost overruns or other expansion needs. 

Galaxy reported cash and stablecoins of $1.18 billion in Q2, including $691 million in cash and $489 million in stablecoins, approximately flat from the prior quarter. Notes and loans payable were $1.07 billion.  

Galaxy President and CIO Christopher Ferraro offered some very important perspective on funding and capacity growth, and why capital is likely to be the limiting factor for miners’ current buildouts:  

“There’s also a practical component, which is, these are very large-scale, long-term development projects that take a lot of capital. And so our ability to grow into the opportunity is wholly dependent on 2 things: one, us executing excellently; but then also two, growing and getting bigger as a company so that we can actually support the growth, meaning like it would be totally imprudent for us to now take on in parallel, for example, like another $10 billion build, because that requires a capital base and the attention and resources that we're just not built out for today.” 

This matches our statements in our Core Scientific analysis from May, Core Scientific Q1: Expects 250MW of Billable Capacity to CoreWeave by Year-End, where we explained that if CoreWeave did not front the capex for the data centers, the “business model would not work as CORZ would struggle to raise the level of capital required to acquire more sites and modify the existing infrastructure.” 

These comments that the current builds underway for CoreWeave and Fluidstack are likely to be the main focus of the miners over the next few years, especially considering the thin balance sheets, convertible note raises, and difficulty from CoreWeave to keep funding multiple different projects.  

Customer Concentration Another Risk to Consider 

One other risk to consider is customer concentration, given the fact that CoreWeave is the sole backer for a majority of the miners discussed here. TeraWulf has the benefit of Google backstopping Fluidstack’s obligations, offering early termination protection for the first six years.  

Considering CoreWeave has made the move to acquire Core Scientific and has signed deals with Applied Digital and Galaxy, it may be more limited in its ability to fund future projects. It also means that miners signing away all or a majority of their power to CoreWeave find it hard to diversify revenue streams away, with Galaxy noting that the deal with CoreWeave “is going to take up the vast majority of our attention over the next few years” and prevent other hyperscaler engagements. 

Also, if CoreWeave should pull away from a deal down the road, it could create a significant blow to revenue and earnings for miners it is currently engaged with. This is due to two factors: high-margin, high concentration of revenue CoreWeave’s deal will drive, and that there is little room for diversification as new capacity is expensive for miners to handle without major financing.

Technical Analysis 

The risk associated with Bitcoin miners is present in the potential setups outlined below. As you will see, some have the potential for wild swings in either direction, which follows very messy and overlapping uptrend patterns. For this reason, we approach these charts only from the mindset of risk management. If we do take a position in any of these names, we do not view them as buy-and-hold vehicles, and all will come with relatively tight risk controls.

Galaxy Digital (GLXY) 

  • Green – GLXY appears to be tracing a very large diagonal pattern. If we zoom into the current drop in GLXY, it appears to be a 4th wave, and needs one more swing higher to complete the larger pattern. The target for this swing is $34 – $43. As long as we hold $19, this setup remains valid. 
  • Blue – Instead of getting one more swing higher, we should see two more. Once we reach $35 – $43, we’ll see another 3-wave drop and a final swing to $56 – $67. Once again, if we break below $19, then both of these scenarios are no longer valid, and a larger top will likely be in. 

TeraWulf (WULF)

  • Blue- We have completed wave 1 in a very large diagonal, as well as wave 2. We are just now completing wave A of 3. This should be a double top that turn lower in 3 waves toward $5.25 – $3.65. The drop needs to be a 3-wave drop to confirm this count. Once this ends, we should see a 5-wave pattern turn higher. This would point toward $69 – $105 in a pretty direct path.  
  • Green – If we instead keep pushing higher over $12.50, with volume and momentum expanding with price, then we could be in a more direct path higher. Instead of a large diagonal pattern, it would be a standard 5 wave pattern. Wave 1 of 3 would push toward $35 – $69. 
  • Please note, while the pattern below allows for these counts, we still only have 3 waves up off the 2022 low. So, until we see either the green count get confirmed, or a 3-wave correction, risk remains high. Any drop below $4.20 will be the first warning. If we see a 5-wave drop break below this level, the risk will increase that something more bearish might be in play.  

Applied Digital (APLD) 

  • Green – APLD is tracing a very large 3 wave pattern, which best fits as a diagonal pattern.  If we can see a breakout on heavy volume and expanding momentum over $17.25, it will confirm this count, which should see a continuation towards $23 – $29.  
  • Blue – We fail to breakout over $17.25 and instead drop back into the $14.50 – $12.50 range. We’ll then break through the $11.35 region and head toward $9 in a larger 2nd wave. 

Riot Digital (RIOT) 

  • Blue – We are completing the B wave in a larger 2nd wave. We will fail under $14.10 – $15.35 and see a sharp, 5-wave drop back to $9 – $8. This will hold, as we set up for a larger 3rd wave breakout to new highs.  
  • Green – We completed the 2nd wave, and it was shallow. We’ll see a strong breakout over $14.10 – $15.35 on expanding volume and momentum.  the 3rd wave target is $27 – $31.  
  • Both counts must hold $7.56 on any weakness, or they will get invalidated.  

Iren Limited (IREN) 

  • Green – Note how the most recent push higher is happening on less volume and momentum. This is the 5th wave, which can continue as high as $35. Once complete, this will end a large 3rd wave within a diagonal pattern. The target for the 4th wave is around $8. We should then see a large 5th wave to new highs.  
  • Red – We only have 3 waves up off the 2022 low.  This is not ideal, and until we see a 3 wave retrace, it is a risk that should not be ignored. If this is all we get, then we should see a large 5 wave drop develop that takes us through $8 and then $2.80. We would then be on our way to new all-time lows.  
  • While both counts have IREN in a 5th wave, if we can see volume and momentum expand with price over $35, then something more bullish may be going on. If we see this then we will adjust accordingly. 

Conclusion 

Bitcoin miners are not able to solve the long-term power deficit that the industry is coming head-to-head with, but in the 12 to 36 month window, miners are uniquely positioned to meet hyperscale and neocloud power needs. AI hosting deals provide highly-visible, high-margin revenue over the next decade and beyond, a major operational shift for miners once reliant on volatile Bitcoin prices for growth. 

The catch is that miners cannot finance these AI data center builds themselves, as they have thin balance sheets and larger debt loads. Instead, they are reliant on their backers such as CoreWeave, and in TeraWulf’s case, Fluidstack and Google, to front the cash for the projects and provide the necessary compute.  

While risk does stem from the fact that CoreWeave is the sole backer for a majority of these AI hosting deals, limiting opportunities for revenue diversification and minimizing concentration risk, AI presents much stronger, higher-margin forward growth opportunities.

Damien Robbins, Equity Analyst at I/O Fund contributed to this analysis.

Please note: The I/O Fund conducts research and draws conclusions for the Fund’s positions. We then share that information with our readers. This is not a guarantee of a stock’s performance. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis.

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Bitcoin Miners Addressing AI’s Near-term Time to Power Bottleneck with up to $50 Billion in Commitments

Posted on by io-fund

Time to power is the most important focal point for AI investors at the moment, considering the high level of demand for compute, the inability of Big Tech to meet said demand in the cloud, and the rapid upgrade cycle between GPU generations.  

Once exposed to the volatility and uncertainty of Bitcoin prices and halving, transitioning to offering AI hosting provides more lucrative, predictable, and higher-margin revenue streams for Bitcoin miners. The AI industry is now giving miners a vote of confidence, with up to $50 billion committed in long-term deals this year for AI/HPC data center hosting. 

This boils down to two key advantages miners can provide: the ability to retrofit or repurpose existing space for GPUs with lower incremental capex than building AI data centers from scratch, and quicker time to power.  

Below, we discuss why time to power is of utmost importance to the AI industry and for AI investors, how Bitcoin miners can bridge the gap and meet near-term power needs, and which BTC mining stocks are engaged in multi-billion dollar AI deals.  

The I/O Fund bought shares in Core Scientific early in this trend after first analyzing its AI angle exclusively for our Discovery members. We closed the position shortly after CoreWeave’s acquisition announcement for a 193% return. To access the I/O Fund’s full portfolio, full research library, webinars and more, take advantage of our exclusive Labor Day sale with $110 off Pro and $200 off Advanced.exclusive Labor Day sale with $110 off Pro and $200 off Advanced. 

Why Time to Power is Mission-Critical 

Power connection is quickly becoming a primary constraint for the AI industry as GPU bottlenecks ease relative to the last two years. Essentially, long lead times for grid interconnection means hyperscalers and specialized AI neoclouds like CoreWeave simply cannot get enough capacity online to meet high demand. This was noted by Microsoft in April and Amazon this quarter, with Amazon CEO Andy Jassy not shy in saying that “the single biggest constraint is power.” 

Here's why time to power is now emerging as a critical focal point: 

Grid connection timelines in key regions are 36+ months, per data from TD Cowen and Riot Platforms, with major Data Center Alley in North Virginia at 42 months or longer. Even in 2024, Bloomberg reported that utility Dominion said large data centers in Virginia (>100MW) were facing seven year wait times for new connection hookups.  

Additionally, the most powerful GPUs from Nvidia (and now AMD) are being upgraded on an annual cadence, so any delays in getting GPU clusters online shortens the time these chips are ‘useful’ before becoming outdated by the next generation. Think of it this way: hyperscalers and GPU providers do not want to spend tens of billions of dollars on AI hardware to then have it sit idle while waiting for power, as this translates directly into lost revenue and lost profits.  

Tying into this, if a company like Microsoft can get new data centers connected to the grid and stood up faster than competitors such as Amazon, they can then meet higher demand, win new customers and gain market share. For example, AI startups simply seeking capacity to train models likely have lower cloud switching costs, meaning that these companies could easily and quickly shift workloads to whichever cloud provider can offer them the capacity they need the quickest.  

Bitcoin Miners Provide a Path to Meet More Immediate Power Needs 

While some companies like Meta are building 1GW+ clusters from scratch, for others in the neocloud arena that do not have access to tens of billions in cash, Bitcoin miners are recently attracting increased levels of interest. Miners help address immediate power needs with multiple gigawatts of grid-connected facilities that can quickly be converted from mining to AI GPUs. As TeraWulf’s executives put it, the “ability to scale quickly provides a meaningful advantage in today’s race to secure power and compute capacity.” 

Consider some of those challenges that exist on the power side when building data centers from the ground up – short power supply in key markets like Virginia, grid connection requests extending four to seven years, or permitting delaying full power delivery to new infrastructure. Miners, on the other hand, streamline this process by offering access to readily available grid-connected power, cooling infrastructure, and low latency to major hubs.  

Core Scientific, Applied Digital and Galaxy are expecting to bring their first AI-focused facilities online by Q4 2025 through 1H 2026, or four to ten months from now, substantially quicker than new construction. Transitioning existing facilities also offers rapid time to operation; for example, IREN stated that it seamlessly transitioned from mining ASICs to AI GPUs at its 50 MW Prince George facility in six to eight weeks, though this is likely at a very small scale considering the size of its GPU fleet. 

For a company like CoreWeave or Fluidstack, signing long-term contracts for capacity with BTC miners and fronting the cash for capex allows them to build hyperscale clusters for a fraction of the cost and time. As CoreWeave’s CEO Michael Intrator put it, “Right now the key bottleneck really is the powered shell. When you think about that, that’s really the building, the cooling, the distribution of electricity.”  

Instead of having to worry about the prolonged process of site selection, permitting, planning, and more before final power delivery, these neoclouds instead have near immediate access to the powered shell. While retrofitting for liquid cooling, networking and connectivity may still be necessary and pose some challenges, miners offer a fast time to operation and relatively cheaper capex costs for a hyperscale-size data center outfitted with tens to hundreds of thousands of GPUs.  

Capex Costs Highlight Miners’ Attractive Positioning 

Considering that most of the miners that have struck deals are rather cash-strapped, these GPU cloud firms behind the deals are putting up all (or the majority) of the capex required to retrofit existing facilities for high-end AI GPUs. Miners are highlighting the capex costs per MW for these facilities, and these costs, while varying quite wildly between miners, help emphasize the industry’s rather attractive positioning when factoring in quick time to power.   

Core Scientific had offered one of the cheapest project costs, costing CoreWeave approximately $1.5 million per MW, though Core Scientific’s executives had stated in Q3 2024 that “they were able to significantly buy down their rates.” 

IREN is touting the next lowest capex costs at ~$6-7 million per MW of IT load, for its Horizon 1 facility in Texas, which it says is catered to liquid-cooled NVIDIA Blackwell GPUs and provides ~6ms latency to Dallas. IREN says it expects the capex to be funded primarily by colocation customer prepayments and debt financing. 

TeraWulf expects its capex per MW of critical IT load to be in the range of $8-10 million for its recent deal with Fluidstack, while offering <8ms latency to New York City and Boston and <2ms to Toronto.  

Applied Digital and Galaxy are a bit on the higher end – both are anticipating capex of $11-$13 million per MW, with Galaxy recently securing $1.4 billion in project financing to aid development of its first 133MW phase with CoreWeave. However, Galaxy expects capex to move higher for its second 260 MW phase.  

Compared to new construction costs per MW, miners can offer some capex savings, with savings becoming more attractive the lower capex costs go, such as in the case of IREN and TeraWulf. Cushman & Wakefield estimates construction costs per MW in the range of $9-15 million across key markets, averaging $11-13 million. This aligns with estimates from CBRE for $10-14 million per MW, though costs can reach $16-20 million per MW in certain cases (or higher).  

Source: Cushman & Wakefield  

While Applied Digital and Galaxy may not offer much of a discount relative to new construction, IREN and TeraWulf can offer more pronounced capex savings. Based on a $12 million per MW construction cost estimate, TeraWulf could offer up to 33% savings per MW and IREN up to 50% savings, translating into hundreds of millions to billions in savings at a 400-800 MW scale.  

Time to Power Comparison 

Theoretically speaking, miners with the quickest time to power should enjoy a two-fold advantage: quicker time to revenue recognition, and potentially better deal economics arising from the ability to meet customers’ demand faster.    

For example, Core Scientific’s ability to bring 250MW of power online for CoreWeave’s AI compute needs supports why it was the first to be acquired, as no other miner could match that scale within the same timeframe. 

There are nuances in delivery timelines and expectations that make it difficult to offer a direct quarter-by-quarter comparison, such as Galaxy only offering vague delivery comments for 1H or throughout the year. However, roughly speaking (and excluding Core Scientific), by the end of 2025, Applied Digital should lead with 100MW, yet this shifts by year-end 2026 with TeraWulf aiming to deliver more power.  

By Q4 2025: 

  • Applied Digital expects its first 100MW of power online. 
  • TeraWulf expects 60MW of power online. 
  • IREN could have 50-130MW of AI-dedicated power online, depending on how it retrofits its Prince George and Mackenzie facilities. 
  • Galaxy does not expect to have capacity online. 

By Q4 2026: 

  • TeraWulf expects to have 420MW of capacity online as it progresses with quick expansion. 
  • Applied Digital expects to have 250MW of capacity online. 
  • Galaxy expects to have 133MW of capacity online. 
  • IREN is aiming to energize its 1.4GW Sweetwater facility in early 2026, though there is no indication yet that it will be able to stand up fully operational infrastructure by year-end.  

Long-Term Power Needs Far Outstrip Miner Capacity 

Looking at the bigger picture, the contracted power that miners can provide will only meet a small portion of the projected demand growth over the next three to ten years, and are unlikely to be the sole solution to this structural power shortfall. As we had covered in our free newsletter, Nuclear Power Emerging as a Clean AI Data Center Energy Source, data center power demand is expected to grow at an accelerated 16% CAGR from 2023 to 2028 and beyond. 

For example, Boston Consulting Group forecasts 45 GW of growth in global data center power demand in just three years, from 82 GW in 2025 to 127 GW by 2028.  

In the US, data center demand was forecast to rise as much as 5x over the next decade. Deloitte estimated US data center power demand to triple from 2025 to 2030, from 41 GW to 120 GW, before rising further to 176 GW by 2035. In terms of power consumption, the DOE recently forecast data centers will consume 6.7% to 12% of total US power production by 2028, up from 4.4% in 2023. 

Bitcoin miners can only meet a fraction of this growth, likely around several gigawatts in total. Yet their innate ability to deliver this power over the next 12 to 24 months, supporting up to hundreds of thousands of high-end GPUs in larger-scale facilities, is why miners are prime targets to meet hyperscalers and neoclouds’ immediate power needs.  

Below, we discuss miners that have secured large-scale deals and/or progressing with building out GPU fleets for self-hosted AI cloud services. As it stands, CoreWeave has been the primary undertaker of major AI deals with miners, committing to over $35 billion including its acquisition of Core Scientific; though Fluidstack is making a splash with a deal worth up to $16 billion with TeraWulf.  

Core Scientific Acquired by CoreWeave Following $10B+ Deal 

CoreWeave made a statement to the industry with its acquisition of CoreScientific for $9 billion, a Bitcoin miner and key compute partner. The acquisition communicates that immediate power at scale is paramount. This stems from Core Scientific’s key advantage, as the only miner that will be able to bring 250MW online this calendar year, capable of hosting >100,000 GB200 chips.  

Prior to the acquisition, CoreWeave had contracted 590MW of total capacity from Core Scientific as of February, worth $10.2 billion in cumulative revenue to the miner over the 12-year lease terms. Core Scientific stated in May that it was on track to deliver 250MW of billable capacity to CoreWeave by the end of 2025, with expectations for the full 590MW to be delivered by 2027. 

CoreWeave says that with the acquisition, it will now own 1.3 GW of gross power across Core Scientific's national footprint (including BTC mining facilities), with an incremental 1 GW+ of potential gross power available for future expansion. The acquisition also adds $500 million of estimated fully ramped, annual run rate cost savings by eliminating CoreWeave’s $10 billion lease obligations to Core Scientific.  

This combination of hundreds of MW of deliverable power by year end and substantial long-term cost savings from owning infrastructure outright versus leasing underscore why CoreWeave was quick to progress with the acquisition. 

For a deeper look at Core Scientific, refer to our prior analyses, Core Scientific Q1: Expects 250MW of Billable Capacity to CoreWeave by Year-End and Core Scientific: Hypergrowth with 21X AI Segment Growth Potential.Core Scientific Q1: Expects 250MW of Billable Capacity to CoreWeave by Year-End and Core Scientific: Hypergrowth with 21X AI Segment Growth Potential. 

TeraWulf Signs up to $16B Deal with Fluidstack, Backed by Google 

TeraWulf is no stranger to AI/HPC hosting, having signed a $1 billion, 72.5 MW deal with Core42 in December 2024, with dedicated GPU compute infrastructure coming online throughout 2025. However, its recent deal with Fluidstack represents one of the largest deals to date between an AI cloud firm and a Bitcoin miner. 

  • TeraWulf had originally announced a $3.7 billion, 10-year AI hosting deal with AI cloud startup Fluidstack for 200+ MW capacity at its CB-3 and CB-4 buildings at its Lake Mariner data center in upstate New York.  
  • Only a few days later, TeraWulf announced that Fluidstack was expanding its deal to include ~160MW at CB-5, bringing its total contracted IT load to 360MW and contracted revenue to $6.7 billion. Including potential lease extensions, the new deal could be worth up to $16 billion.  
  • Perhaps more importantly, Google is backstopping $3.2 billion of Fluidstack’s lease obligations to support project financing, and has taken a 14% stake in the miner (up from a $1.8 billion backstop and 8% stake with the original deal).  

TeraWulf is aiming for quick delivery of power to Fluidstack, with the first 40MW phase expected to come online in the first half of 2026 and all 200+MW delivered by year-end; additionally, operations are expected to commence for the 160MW tranche at CB-5 in 2H 2026. Multiple different OEM GPU equipment is expected to be deployed, likely GPUs from Nvidia and AMD, able to serve a variety of AI training and inference workloads. 

Overall, Fluidstack’s deal represents just over 70% of the current available power at Lake Mariner of 500MW, though TeraWulf does have 250MW additional power pending regulatory approval for expansion. This would bring the facility’s total power potentially up to 750MW with its targeted upgrades, or allowing a second deal of similar size to be signed in the future.  

TeraWulf also recently signed an 80-year ground lease with purchase option at Cayuga, securing its exclusive rights to develop 400MW of data center infrastructure “on a fully equipped site, with high-capacity transmission, industrial water intake and redundant fiber.” The company expects to bring the first 130MW online in 2027, while boosting its long-term power capacity to over 1GW.  

Applied Digital a Secondary Benefactor of CoreWeave with $11B Deal 

If CoreWeave’s acquisition of Core Scientific wasn’t enough, it also committed to leasing 400MW of capacity from Nvidia partner Applied Digital at its Ellendale, North Dakota facility, worth ~$11 billion over the 15-year terms. Ellendale (now referred to as Polaris Forge 1) has the potential to scale up to over 1GW capacity over the long run, though the 400MW represents the maximum current capacity.  

Applied Digital expects the first 100 MW data center to be ready for service in Q4 2025, while the second 150 MW data center is expected to be ready in mid-2026. The third 150 MW facility is expected to be ready in 2027. Applied shared some details on the campus, saying that the campus “will feature high-density racks and direct-to-chip closed-loop liquid cooling and air cooling combo” as it entered a $150 million, 36-month convertible preferred equity financing to advance construction. 

On August 18, Applied announced that it is expecting to break ground on its $3 billion, 280MW Polaris Forge 2 data center in Harwood, North Dakota. Applied is aiming to have initial capacity online in 2026 and the facility reaching full capacity by early 2027, a quick 16-20 month time to power. The company also claimed in 2024 to offer approximately 30% lower costs than AWS, Azure and GCP for cloud compute on Nvidia’s GPUs with short, 8-10 week lead times, a key advantage in the race to deliver compute.  

Galaxy: Another CoreWeave Partner with ~$15B Deal 

CoreWeave has struck another deal with digital asset platform and now data center infrastructure provider Galaxy Digital, committing to the entire 800 MW of approved capacity (~526MW critical IT load) at Galaxy’s Helios data center. With 2.7GW of power under load study, Helios has the potential to expand up to 3.5GW, which would make it one of the largest single data center facilities in the US and the world.  

Galaxy stated that they anticipate average annual revenue of more than $1 billion over the 15-year term, based on committed contractual terms, internal capex estimates, and full capacity utilization. This estimate would place the deal value above $15B.  

Source: Galaxy

Galaxy is expected to deliver its first 133 MW phase of power to CoreWeave in the first half of 2026, followed by the next 260 MW phase throughout 2027 and a subsequent 133 MW phase throughout 2028.  

To fund this first phase, Galaxy has secured $1.4 billion in project financing debt, providing the $350 million equity requirement for the funding. Management also stated in Q2 that its $480 million in cash proceeds from its May equity raise would go towards capex related to the Helios DC buildout. Overall, the combined phases are no small task, likely requiring close to $10 billion over the next few years, especially considering management stating Phase 2’s will likely be slightly higher than Phase 1 due to the size of the committed load.  

Galaxy made it clear that for Phase 2, discussions for project financing are still “pretty preliminary,” though management expects that as they produce results with Phase 1 and generate returns/revenue, they will “earn the right to achieve larger financings at lower cost.” Simply getting the second phase financed is the company’s primary goal, considering the 16-20 month timeline to delivery.   

IREN Building Out its Nvidia GPU Fleet, Targeting Deals 

In March, IREN hit the pause button on its bitcoin mining expansion as it pivoted to focus more on AI and HPC, given the revenue potential stemming from its >2.9 GW of grid-connected power.  

Unlike peers, IREN is primarily focusing on short-duration contracts, from on-demand use to three-year term lengths, while expanding its GPU fleet to drive growth in its self-hosted AI cloud business. Revenue for its AI Cloud Services surged 94% QoQ to $7 million in fiscal Q4, after rising 33% QoQ to $3.6 million in its fiscal Q3. The company laid out an aggressive $200-250 million annualized AI Cloud Services revenue target by December 2025, up 8-10x versus its current annualized run rate. 

IREN is working to expand its GPU fleet, which is still extremely small considering its power pipeline as GPUs are not cheap at scale. IREN purchased 2,400 Blackwell GPUs in early July for ~$130 million including fit-out costs, comprised of 1,300 B200s and 1,100 B300s.  

In late August, IREN doubled its fleet to ~8,500 GPUs with another purchase of 4,200 B200s for ~$193 million, while securing $102 million in funding for the July purchase. The company has already contracted out its first batch of 256 B200s to an undisclosed customer.  

In its fiscal Q4 report, IREN also stated that it has secured $200 million in GPU financing, aiming to increase its GPU fleet to ~10,900, or an additional ~2,400 GPUs.  

Given that a 50MW data center could be outfitted with ~25K GPUs, IREN is far from outfitting its own facilities with its current fleet, though it is somewhat capital constrained given its $564 million cash on hand.   

The company says that it is “observing demand for multi-thousand air-cooled Blackwell GPUs,” and has ~47MW of capacity still available at its Prince George, British Columbia facility, capable of supporting ~20,000 Blackwell GPUs. 

For its other AI data centers, IREN is targeting calendar Q4 2025 delivery at its Horizon 1 facility in Texas with up to 50 MW of IT load. IREN says that it has several customers undergoing due diligence and contractual negotiations with interest expanding beyond 50MW, though it has not announced any signed deals. The company is also eyeing a complete transformation for Horizon to reach the full 750MW power capacity, noting in fiscal Q4 that procurement is underway for a second 50MW. 

IREN is looking to create an interconnected 2GW data center hub at its Sweetwater 1 and 2 facilities, with the 1.4GW Sweetwater 1 facility expected to be energized by April 2026 and the 0.6GW Sweetwater 2 facility expected to be energized in late 2027. This is a slight acceleration for Sweetwater 2 from early 2028. Together, Sweetwater could support 700K liquid-cooled Blackwell GPUs, in close proximity to Stargate’s Abilene data center.  

Other Miners Considering AI Pivots 

Riot Platforms and Hut 8 are two other miners that are pivoting towards AI hosting, though the two have yet to secure long-term contracts.  

Riot is aiming to transition from Bitcoin mining to AI hosting when “economic and feasible,” and said last quarter that it is “actively progressing toward securing a lease with a high-quality tenant” at its Corsicana facility. As of January, Riot was evaluating using the remaining 600MW of power capacity at the facility for AI/HPC, with 400MW currently geared towards mining. Needham analysts are encouraged by Riot’s possible pivot, saying they “believe Riot’s Corsicana site is one of the most attractive HPC sites in our universe” with amplefiber connectivity for low latency AI inference. Needham believes Riot could be in advanced discussions with potential tenants by 2H 25 and sign a lease as early as Q1 2026. 

Hut 8 has ~3.4MW of HPC capacity operational and ~670MW of mining capacity, and similar to IREN is leasing Nvidia GPUs in the cloud. Hut reported a $2.3 million increase in revenue from leasing ~1,000 H100 GPUs to an unnamed AI developer, which launched in September 2024. Hut 8 also just broke ground on a ~300MW data center in Louisiana, and is expected to invest ~$2.5 billion, while undisclosed future tenants are expected to contribute ~$10 billion in compute equipment. However, it is reported that Hut will likely need external financing or a partner for the project.  

Earlier in 2025, Bitfarms announced it was mulling a shift to AI, and in early August, the miner announced a partnership with T5 Data Centers to advance the development of its Panther Creek facility in Pennsylvania. The two are expected to engage in pre-construction design planning and development approval processes, with Bitfarms also submitting its master site plan to Macquarie for future development.   

Cipher is also considering a pivot, saying that it created a new strategic plan at its 150MW Black Pearl Phase II to bridge both AI compute and hydro-bitcoin mining, though in the long run it expects the site to be fully leased by AI/HPC tenants. Cipher added that it is seeing continuing HPC interest at its Barber Lake site. 

AI/DC Deals are High-Margin, Highly Visible Revenue for BTC Miners 

These AI hosting deals are very attractive for miners as they provide highly visible, high-margin revenue streams, a major operational shift from the prior business model with growth and earnings tied to Bitcoin’s price volatility, network difficulty and halving.  

Applied Digital’s deal with CoreWeave has pricing set upfront with an annual escalator, with average annual revenue of ~$733 million based on the $11 billion, 15-year terms. Revenue is likely to start small and begin to ramp rapidly once full capacity is online. Applied is also targeting 88%, +/- 3% net operating income margins on the AI hosting revenue, or ~$645 million average annual net operating income for the duration of the deal.  

TeraWulf’s expanded deal with Fluidstack will generate average annual revenue of $670 million at its current scope, though the full extension to $16 billion could provide significant revenue upside. TeraWulf is eyeing an 85% net operating income margin for the Fluidstack deal, or ~$570 million on average annually. This is at the low end of Applied Digital’s range, likely accounting for higher operating costs due to location (upstate New York vs North Dakota). Combined with the Core42 deal, TeraWulf has visibility into ~$770 million in average annual revenue, with the first revenue from Core42 now being recognized.  

Galaxy is targeting 90% adjusted EBITDA margins on its AI hosting deal with CoreWeave, implying adjusted EBITDA of ~$900M+ on its average annual revenue estimate of more than $1 billion. Given energization times spanning into 2028 and a longer 15-year term structure, Galaxy’s initial revenue ramp may be more prolonged than peers. 

IREN does not have a firm hosting deal, though it has touted a 97-98% hardware profit margin for its AI Cloud Services, or revenue minus electricity costs. This is more than 20 points above its Bitcoin hardware profit margin, highlighting why AI is more attractive than mining at scale. However, margin tailwinds are likely minimal in the near-term given AI Cloud Services contributes less than 3% of revenue. 

Accelerated Revenue CAGR  

While there are nuances in deal sizes and lengths, IREN, Applied Digital and TeraWulf are seeing accelerated forward revenue growth CAGRs as AI capacity soon comes online. These miners’ growth rates are much stronger than others such as Riot and MARA who have not jumped headfirst into AI hosting.  

Applied Digital and TeraWulf are expected to see revenue increase at an 88-90% 2-year CAGR from 2025 to 2027, a significant acceleration from their respective historical 61% and 73% CAGRs from FY23 to FY25.  

IREN is expected to see revenue grow at a 42% CAGR from FY25 to FY27, though this is a bit skewed as the company has benefitted from rapid mining hashrate expansion and rising Bitcoin prices over the past two quarters. 

Compare this to Riot and MARA, with both expected to see FY25 to FY27 revenue growth at a 17-18% CAGR, decelerating sharply from the 55-60% level over the past two years. While revenue is coming off a higher base than say APLD or WULF, the difference in forward growth rates is notable for AI-engaged miners and these two who have not yet pivoted in full force.  

Thin Balance Sheets Present Capital Raise Risk 

Miners are rather cash-strapped, and while neoclouds and partners are fronting the cash for capex, capital raises and dilution are still a risk, considering IREN and TeraWulf both recently launched larger-scale convertible note offerings.  

Here’s a quick snapshot into the health of IREN, TeraWulf, Applied Digital, and Galaxy’s cash versus debt, with the chart below showing how thin and lumpy cash balances are: 

IREN reported cash and equivalents of $196 million in Q3, down from $455 million in the prior quarter. As of Q4, IREN reported $564 million in cash and equivalents, after closing an upsized $550 million convertible note offering in June, while debt is now at $963 million. This presents possible dilution risk in the high-teens, based on IREN’s $5 billion valuation.  

Applied Digital reported cash and equivalents of $114 million, down from $254 million in the prior quarter.  Applied has a deal with Macquarie for up to $5 billion in financing, including a $900 million initial investment at Ellendale and $4.1 billion on retainer to for future data center expansion. For any future builds, Macquarie would invest $2.25 million per MW and Applied would invest $0.75 million per MW. 

TeraWulf reported cash and equivalents of $90 million, down from $220 million in the prior quarter. However, shortly after the Fluidstack deal, the company announced the full exercise of its $1 billion convertible note offering, or ~27% of its current market cap. Based on prior capital allocation projections, this would likely leave TeraWulf with ~$600-700 million in unallocated cash, for project cost overruns or other expansion needs. 

Galaxy reported cash and stablecoins of $1.18 billion in Q2, including $691 million in cash and $489 million in stablecoins, approximately flat from the prior quarter. Notes and loans payable were $1.07 billion.  

Galaxy President and CIO Christopher Ferraro offered some very important perspective on funding and capacity growth, and why capital is likely to be the limiting factor for miners’ current buildouts:  

“There’s also a practical component, which is, these are very large-scale, long-term development projects that take a lot of capital. And so our ability to grow into the opportunity is wholly dependent on 2 things: one, us executing excellently; but then also two, growing and getting bigger as a company so that we can actually support the growth, meaning like it would be totally imprudent for us to now take on in parallel, for example, like another $10 billion build, because that requires a capital base and the attention and resources that we're just not built out for today.” 

This matches our statements in our Core Scientific analysis from May, Core Scientific Q1: Expects 250MW of Billable Capacity to CoreWeave by Year-End, where we explained that if CoreWeave did not front the capex for the data centers, the “business model would not work as CORZ would struggle to raise the level of capital required to acquire more sites and modify the existing infrastructure.” 

These comments that the current builds underway for CoreWeave and Fluidstack are likely to be the main focus of the miners over the next few years, especially considering the thin balance sheets, convertible note raises, and difficulty from CoreWeave to keep funding multiple different projects.  

Customer Concentration Another Risk to Consider 

One other risk to consider is customer concentration, given the fact that CoreWeave is the sole backer for a majority of the miners discussed here. TeraWulf has the benefit of Google backstopping Fluidstack’s obligations, offering early termination protection for the first six years.  

Considering CoreWeave has made the move to acquire Core Scientific and has signed deals with Applied Digital and Galaxy, it may be more limited in its ability to fund future projects. It also means that miners signing away all or a majority of their power to CoreWeave find it hard to diversify revenue streams away, with Galaxy noting that the deal with CoreWeave “is going to take up the vast majority of our attention over the next few years” and prevent other hyperscaler engagements. 

Also, if CoreWeave should pull away from a deal down the road, it could create a significant blow to revenue and earnings for miners it is currently engaged with. This is due to two factors: high-margin, high concentration of revenue CoreWeave’s deal will drive, and that there is little room for diversification as new capacity is expensive for miners to handle without major financing.

Technical Analysis 

The risk associated with Bitcoin miners is present in the potential setups outlined below. As you will see, some have the potential for wild swings in either direction, which follows very messy and overlapping uptrend patterns. For this reason, we approach these charts only from the mindset of risk management. If we do take a position in any of these names, we do not view them as buy-and-hold vehicles, and all will come with relatively tight risk controls.

Galaxy Digital (GLXY) 

  • Green – GLXY appears to be tracing a very large diagonal pattern. If we zoom into the current drop in GLXY, it appears to be a 4th wave, and needs one more swing higher to complete the larger pattern. The target for this swing is $34 – $43. As long as we hold $19, this setup remains valid. 
  • Blue – Instead of getting one more swing higher, we should see two more. Once we reach $35 – $43, we’ll see another 3-wave drop and a final swing to $56 – $67. Once again, if we break below $19, then both of these scenarios are no longer valid, and a larger top will likely be in. 

TeraWulf (WULF)

  • Blue- We have completed wave 1 in a very large diagonal, as well as wave 2. We are just now completing wave A of 3. This should be a double top that turn lower in 3 waves toward $5.25 – $3.65. The drop needs to be a 3-wave drop to confirm this count. Once this ends, we should see a 5-wave pattern turn higher. This would point toward $69 – $105 in a pretty direct path.  
  • Green – If we instead keep pushing higher over $12.50, with volume and momentum expanding with price, then we could be in a more direct path higher. Instead of a large diagonal pattern, it would be a standard 5 wave pattern. Wave 1 of 3 would push toward $35 – $69. 
  • Please note, while the pattern below allows for these counts, we still only have 3 waves up off the 2022 low. So, until we see either the green count get confirmed, or a 3-wave correction, risk remains high. Any drop below $4.20 will be the first warning. If we see a 5-wave drop break below this level, the risk will increase that something more bearish might be in play.  

Applied Digital (APLD) 

  • Green – APLD is tracing a very large 3 wave pattern, which best fits as a diagonal pattern.  If we can see a breakout on heavy volume and expanding momentum over $17.25, it will confirm this count, which should see a continuation towards $23 – $29.  
  • Blue – We fail to breakout over $17.25 and instead drop back into the $14.50 – $12.50 range. We’ll then break through the $11.35 region and head toward $9 in a larger 2nd wave. 

Riot Digital (RIOT) 

  • Blue – We are completing the B wave in a larger 2nd wave. We will fail under $14.10 – $15.35 and see a sharp, 5-wave drop back to $9 – $8. This will hold, as we set up for a larger 3rd wave breakout to new highs.  
  • Green – We completed the 2nd wave, and it was shallow. We’ll see a strong breakout over $14.10 – $15.35 on expanding volume and momentum.  the 3rd wave target is $27 – $31.  
  • Both counts must hold $7.56 on any weakness, or they will get invalidated.  

Iren Limited (IREN) 

  • Green – Note how the most recent push higher is happening on less volume and momentum. This is the 5th wave, which can continue as high as $35. Once complete, this will end a large 3rd wave within a diagonal pattern. The target for the 4th wave is around $8. We should then see a large 5th wave to new highs.  
  • Red – We only have 3 waves up off the 2022 low.  This is not ideal, and until we see a 3 wave retrace, it is a risk that should not be ignored. If this is all we get, then we should see a large 5 wave drop develop that takes us through $8 and then $2.80. We would then be on our way to new all-time lows.  
  • While both counts have IREN in a 5th wave, if we can see volume and momentum expand with price over $35, then something more bullish may be going on. If we see this then we will adjust accordingly. 

Conclusion 

Bitcoin miners are not able to solve the long-term power deficit that the industry is coming head-to-head with, but in the 12 to 36 month window, miners are uniquely positioned to meet hyperscale and neocloud power needs. AI hosting deals provide highly-visible, high-margin revenue over the next decade and beyond, a major operational shift for miners once reliant on volatile Bitcoin prices for growth. 

The catch is that miners cannot finance these AI data center builds themselves, as they have thin balance sheets and larger debt loads. Instead, they are reliant on their backers such as CoreWeave, and in TeraWulf’s case, Fluidstack and Google, to front the cash for the projects and provide the necessary compute.  

While risk does stem from the fact that CoreWeave is the sole backer for a majority of these AI hosting deals, limiting opportunities for revenue diversification and minimizing concentration risk, AI presents much stronger, higher-margin forward growth opportunities.

Damien Robbins, Equity Analyst at I/O Fund contributed to this analysis.

Please note: The I/O Fund conducts research and draws conclusions for the Fund’s positions. We then share that information with our readers. This is not a guarantee of a stock’s performance. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis.

Recommended Reading:

Why Bitcoin’s Bull Run May Be Nearing a Top Despite Pro-Crypto Tailwinds

Posted on by io-fund

Since December of 2022, when Bitcoin was trading in the $16,000 region, we went against the crowd and called for a new bull cycle. Since that report, we released seven additional articles, confirming Bitcoin as a buy, and even sent out 13 buy alerts to our premium members at key spots between $25,000 and up to $60,000.

What separates our firm is the ability to follow our process regardless of the market’s emotions around extreme lows as well as highs. For example, in our last Bitcoin article in October of 2024, titled “Bitcoin Bull Market Intact as Risk Increases,” we started to shift our tone to a more cautious stance than prior reports. 

“While we still believe the original price targets of $106,000 – $190,000 are attainable, we do believe risk has increased. As a result, we will likely reduce some risk on the next rally to all-time highs.”  

At the time, Bitcoin was trading in the $70,000 region and had not yet broken out over its March high of $73,835. It was dead money for most of 2024, and not a topic of interest. At the time of our October report, it was down nearly 5% from its March high, while the tech focused NASDAQ-100 was up nearly 12% in the same time frame. Yet, our research was firm that Bitcoin had at least one more swing to the $82,000 – $106,000 region.

In early November, Bitcoin jumped nearly 50% in just over 2 months to a new high of $109,354, which was just over our $106,000 target. As stated, we used that move to reduce our position by 50%, as we maintained a cautious stance due to mounting risk.

This cautious approach stems from technical indicators suggesting the current rally is likely in its final stage. While both on chain and technical analysis support another push higher, if we do get this swing, it will likely be the final push higher before a period of prolonged volatility begins.

This is a contrarian opinion, as the narrative around Bitcoin is quite positive right now. 

However, when we look back at the history of Bitcoin, narrative-based optimism has historically marked major tops, not sustainable breakouts. As such, we emphasize disciplined risk management and view sentiment extremes as a cue to protect gains, not chase headlines.

The Hidden Risk of Following Bitcoin News Headlines

Regarding equities, investors can lean into fundamental analysis to identify what to buy and sell, such as the growth rate of a company compared to competitors, do key metrics support sustained growth, is there operational efficiency, and is there a path to profitability? These are all questions that must be answered to justify the quality of a stock.

Regarding Bitcoin, there is no management team or earnings calls to guide investment decisions. For this reason, investors tend to lean into news events and narratives to guide investment decisions. There is an obvious logic around this strategy, which we are witnessing in real-time. The current narrative surrounding Bitcoin is quite bullish. Just in the last few months, we have seen:

  • The U.S. government announced a Strategic Crypto Reserve. Regarding Bitcoin, they will retain all seized Bitcoin, which is valued at approximately $20 billion. 
  • Several petty SEC Lawsuits have been dismissed. 
  • New  leadership at CFTC and SEC that are supportive of digital assets.   
  • Progressive bills being introduced, like FIT21 and the Bitcoin Act.

Thematic investing suggests that these developments are tailwinds for Bitcoin that should support higher prices from here. However, if we look at history, Bitcoin has an uncanny inclination to do the opposite of what the news-based narrative at the time suggests. In other words, it likes to top on bullish news and bottom on bearish news.  

Bitcoin historical pattern showing price peaks during bullish narratives and bottoms during bearish sentiment

Against popular belief, Bitcoin’s history shows that it likes to top bullish narratives and bottom on bearish ones. 

  • December 10th, 2017 – CBOE launches first Bitcoin futures. It was believed that this marked a new era in Bitcoin, opening easy access to Wall Street. One year later, Bitcoin was -83% lower. 
  • November/December of 2018 – Three of the world’s largest Bitcoin miners file for bankruptcy due to Bitcoin’s price going below mining cost. The narrative that followed is that Bitcoin’s network would be altered and never fully return. One year later, Bitcoin was approximately +150% higher. 
  • February 9th, 2021 – Elon Musk announces that Tesla has added $1.5 Billion in Bitcoin to its balance sheet and sets out plans to accept Bitcoin for payments. It was believed that institutions and companies would follow, creating growing demand. One year later, Bitcoin was approximately -40% lower. 
  • September 7th, 2021 – El Salvador is the 1st country to accept Bitcoin as legal tender. It provides free Bitcoin wallets to its citizens and establishes plans to mine Bitcoin using geothermal heat from active volcanoes. It was believed that demand would only grow, as more countries followed along. One year later, Bitcoin was down -61%. 
  • November 11th, 2022 – The world’s 3rd largest crypto exchange, FTX, files for bankruptcy, after allegations of extensive fraud led to insolvency. It was believed that this scandal would keep investors away from Bitcoin for years to come. One year later, Bitcoin was up +510%. Notably, this was around the time our firm stated Bitcoin would start to rally again.

Thematic investing certainly has its benefits, and the I/O Fund uses it as one of many blended techniques. However, when used alone, it instills too much confidence and can be detrimental – especially with crypto.

Instead, we have found technical analysis and on-chain analysis to be the most effective methods for successfully participating in Bitcoin’s meteoric rise, while also mitigating the inevitable volatility.

Decoding Bitcoin’s Price Moves Through Technical Analysis

If an investor cannot lean into fundamental analysis with Bitcoin, and narratives do not affect the price swings of Bitcoin, investors are left with two assumptions: 1) the price swings are random and have no logic to them; 2) there is a logic behind these swings, which can be deciphered and navigated.

When viewed through the lens of technical analysis, it becomes apparent that the latter is true. What tends to drive Bitcoin price actions is sentiment, which technical analysis is designed to address. Sentiment is simply analyzing herd mentality, which manifests in repeatable patterns.

Regarding the current sentiment pattern in play, Bitcoin has been tracing a large degree 5-wave pattern off the 2022 low, and we have either completed the final 5th wave or have one more swing higher to complete the 5th wave.

In a 5-wave pattern, the 3rd wave is the most powerful part of the trend. It is the moment when everyone realizes at once the direction of the trend – shorts cover at the same time while longs panic buy. This causes a vertical move in price and tends to coincide with peak volume expansion and momentum.

The 5th wave is for those who missed out and think that the trend is just starting. It is the riskiest part of the trend and should only be bought with an established exit plan – i.e., brief to intermediate trade. Here, we tend to see price make a higher high, but on lower volume and lower momentum.

If you look below, this is exactly what we are seeing in Bitcoin’s current price trend.  

Bitcoin Elliott Wave chart highlighting the vertical 3rd wave and current position in the final 5th wave since 2022

The Key to Elliott Wave Analysis is to locate the 3rd wave. This is the most vertical part of the trend, met with max volume and momentum. Then, work backwards from there. By doing this, Bitcoin is clearly in the final 5th wave of the bull cycle that started in 2022. 

The period from October 2023 – March of 2024 is when price went vertical. It’s also the period where we saw max volume and max momentum. This is the 3rd wave.  

Now, look at the most recent move to new highs. This was made on lower volume and lower momentum, confirming that we are in the final stage of the bull cycle that started in 2022. Once again, this analysis runs contrary to the bullish narratives surrounding Bitcoin currently, suggesting that we are closer to a meaningful top than low.

Bitcoin Price Forecast: Three Potential Outcomes 

In our last report, we stated that the 5-wave pattern off the 2022 low was “incomplete until we push to new all-time highs,” meaning that the odds were high that we’d see a push higher. Now that we made this push to new highs, we have the minimal waves in place to constitute the larger uptrend is complete.

This scenario is outlined in Red in the chart below.   

Bitcoin chart showing three potential Q2 2022 scenarios, with completed 5-wave pattern suggesting increased risk of a market top

Three potential scenarios in Bitcoin as we enter Q2 of 2022. The most likely is that we push to new high; however, for the first time in over 2 years, we now have a fully formed 5-wave pattern off the 2022 low. This increases risk, as a case can now be made for a meaningful top. 

Here, the push to $109,354 was the final 5th wave, providing us with the minimum number of waves needed to satisfy a full 5-wave pattern. This scenario would see Bitcoin fail below $102,000 and then turn lower toward the $60,000 region. We would then make a series of lower highs into 2026, until we see the final flush. This scenario would be an accelerated push into our long-term buy-and-hold targets, which we have been discussing in our premium service for several months.

While I do not think this outcome is the most probable given the price action, it still must be respected, which is why it is on my chart. In the years that I have provided free Bitcoin analysis; this report is the first one where I can present a fully formed and completed 5-wave pattern off the 2022 low. For this reason, we are more focused on risk management at this stage of the game, as any long attempts will come with stops and overhead targets where we will take gains.

The two scenarios that I believe are most likely are outlined in Green and Blue.

  • Green – We are in the final 5th wave. We need to breakout over $102,000 and then break above $109, 354. In this scenario, our targets are at least $120,000. We would use this move to reduce most of our position.

    If this scenario is going to play out, any further weakness that we see needs to hold over $79,900. Below here and here and we will shift into the below scenario.

  • Blue – This count mimics the Red one presented above for the next move lower. Both counts will fail under the $102,000 region, then head toward the $60,000 region. Where this scenario differs from the Red one is that from the $60,000 region Bitcoin will setup for the final 5th wave to the $120,000+ region. 

Onchain Analysis 

Though Bitcoin does not provide classical fundamental analysis, it does have its own unique brand of internal dynamics called onchain analysis. What this type of analysis does is examine the blockchain  data to better understand transaction patterns, asset movements, and network health.

It is a relatively new brand of crypto analysis, which we find helpful in helping us better risk manage our position. When it comes to onchain analysis, we favor the work of WealthUmbrella, who has done some comprehensive and remarkable work in this field. The below comments are from Vincent Duchaine of WealthUmbrella.

Since late December of 2024, our stance has remained that Bitcoin likely will see higher prices before confirming a cyclical top.  This lines up best with I/O Fund’s Green and Blue scenarios presented above.

Our analysis suggests that we are in a prolonged correction within the ongoing bull market that began with the November 2022 low. This is reinforced by our three Market Top indicators, each of which analyzes a different aspect of the Bitcoin blockchain ecosystem. These indicators are adjusted to account for Bitcoin’s structural evolution over time, and none have reached levels that typically align with a major cycle peak. 

Bitcoin chart showing market value stress test, miner profitability, and exchange money flow, with 2025 indicators pointing to potential market top

This view is further reinforced by our primary Overbought/Oversold Indicator, which is designed to flag probable highs and lows at any stage of a trend, not just at major tops or bottoms.

During the recent pullback, this indicator bottomed within the zone where corrections have found a low in the past. What is key, is that at no point did this indicator break into the levels that we see during more severe periods of volatility, like 2021 – 2022, suggesting this is only a correction. 

Bitcoin chart with MLDP Z-Score showing historic price bottoms in bull markets and bear markets, with current data indicating a recent bounce from bull market bottoming zone

Regarding supply and demand dynamics, the flows that we track support the April 7th low holding, for now. However, we’re not currently seeing the kind of supply-demand undercurrents that would point to an imminent breakout to new all-time highs. Considering this, we view the current supply/demand dynamics to be healthy, and typical of what we see prior to a breakout higher.

A few examples of these healthy supply/demand dynamics are listed below:

  • The number of newly created addresses with a non-zero starting balance. This metric measures new interest in Bitcoin. It dropped considerably once the option to invest in ETFs hit the market; however, it has been steadily moving higher while Bitcoin remains in a correction.  
Bitcoin chart of newly created addresses with non-zero balances showing trend reversal in 2024 followed by ascending channel and recent consolidation in 2025

This suggests that investors’ interest in Bitcoin continues to remain stable, regardless of the current volatility in price. Even more encouraging, as shown in the chart above, the current rate of new address creation is on average 25% higher than last summer’s low, with even the weakest reading during the recent “tariff” sell-off still sitting 17% above that baseline.

  • The percentage of coins that have not moved in over a year. This metric measures the behaviors of long-term holders of Bitcoin. It began moving higher in mid-February, suggesting accumulation. This led to a sharp rise in the percentage of coins that haven’t moved in over a year—from 61.7% to 63.61%—by April 2nd.  
A line chart illustrating the price of Bitcoin (BTC) against the US Dollar (USD) over the past year, from May 2024 to May 2025. The chart shows a significant 9% drop followed by a smaller 1.88% recovery.
  • ETF flows. The current flows in the existing ETFs are not currently in a favorable posture. Bitcoin ETFs were a major driving force behind the price surge in early 2024, but they also contributed significantly to the choppy conditions that emerged around the start of the year. In fact, the first three months of 2024 saw the worst daily outflows in the short history of these ETFs, as illustrated in the chart below: 
An analysis of Bitcoin ETF activity, depicting both inflows and outflows in Bitcoin, plotted alongside the corresponding Bitcoin price in US dollars, with a notable large outflow highlighted.

However, these outflows peaked on March 10th, coinciding with Bitcoin’s initial attempt to bottom. Since then, outflows have meaningfully subsided, settling into neutral territory around zero net flow, and then shifting into meaningful inflows starting April 21st: 

A chart displaying the net flows of US Spot Bitcoin ETFs (green bars for inflows, red for outflows) and the Bitcoin price in USD (black line) from November 2024 to May 2025. The chart highlights a period of low ETF flow volume around March 2025, followed by a significant new inflow in late April/early May 2025.

Conclusion: 

In conclusion, while the narratives around Bitcoin support higher prices, history has shown that investing in Bitcoin without risk management can be painful. Bitcoin tends to do the opposite of what the narratives suggest at major turning points. To better prepare for the immense volatility in crypto, we lean into our process of analyzing sentiment through technical analysis and shifting our risk profile based on where we are in the uptrend.

Whether we hold the April 7th low, or see one more drop to the $60,000 range, we believe Bitcoin still has another move higher. This is supported by the onchain analysis provided by WealthUmbrella, who lines up with our two bullish scenarios. While odds support this rally, considering it will be the final 5th wave in this multi-year bull cycle, we will use it to reduce risk further, locking in well-deserved gains, and raising cash for lower prices.

📈 If you are sitting on outsized gains in Bitcoin with no risk management plan, or interested in our long-term buy for Bitcoin, then we encourage you to join us this Thursday, May 15h at 4:30 PM EST for a premium webinar. We will discuss where we see the crypto market going, our targets for the last swing higher in the current bull cycle, and where we believe the next bull cycle will begin. 👉 Sign up heregn up here

Please note: The I/O Fund conducts research and draws conclusions for the Fund’s positions. We then share that information with our readers. This is not a guarantee of a stock’s performance. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis.

Recommended Reading:

Core Scientific Q1: Expects 250MW of Billable Capacity to CoreWeave by Year-End 

Posted on by io-fund

Core Scientific laid the footprint for strong growth in HPC (colocation) revenue by the end of the year as it begins to bring online billable capacity for CoreWeave and subsequently rapidly ramp capacity of 250MW. This is the riskiest stock in our portfolio when you consider the current fundamentals are (at face value) of poor quality with revenue declining (55%) YoY and (16%) QoQ to $79.5 million this quarter compared to $179.3 million in the year ago quarter. The company reported an operating loss of $42.6 million and negative adjusted EBITDA of ($6.1) million.  

We’ve covered Core Scientific transitioning from Bitcoin mining operations to data centers in more detail here. The company noted that it remains on track to deliver 250MW of billable capacity to CoreWeave by the end of 2025, with the first 8MW tranche to be delivered by the end of May, expanding 5x to 40MW by the end of Q2. According to the earnings call, the Denton facility is a site CoreWeave is working on with Open AI with a recent $12 billion investment. 

On the call the company stated: “At full scale, the site will represent around 260 megawatts of billable capacity. To put that in perspective, we broke ground in January, and in just roughly four months, we've achieved meaningful progress. It's a powerful demonstration of our ability to execute quickly and at scale, with before-and-after pictures included in our updated investor presentation.” 

Refresher on Core Scientific's Business Model 

Before we go into the earnings report, I think it’s appropriate to pause and review Core Scientific's business model given it’s quite unique, and to also help translate what the company is setting up to do in terms of future revenue. 

Core Scientific was a major Bitcoin miner that is transitioning to power AI data centers with their primary customer being CoreWeave worth about $10.2 billion when fully realized over a 12-year period for 590 MW of HPC infrastructure. Roth MKM sees CORZ having about $1.6B in revenue by 2027, up from $473M expected today.  

CoreWeave, the primary customer, fronts the capex which allows Core Scientific to grow capacity, without which, the business model would not work as CORZ would struggle to raise the level of capital required to acquire more sites and modify the existing infrastructure. 

Here is what was shared regarding CoreWeave putting up the capex costs in the most recent earnings call: “From a capital perspective, CoreWeave is funding virtually all of the CapEx associated with these deployments. Our only direct capital outlay on the contract is the $104 million associated with the 70-megawatt expansion we announced during our last earnings call. That structure significantly reduces our capital burden, keeps our balance sheet leverage like compared to peers and gives us the flexibility to use debt more strategically for future growth. We believe this approach sets us apart and creates a clear path to long-term value creation.” 

Revenue 

Revenue continued to be impacted by Bitcoin’s halving and Core Scientific’s operational shift from Bitcoin to HPC. While the ramp in AI/HPC revenue approaches, crypto self-mining remained the primary driver of the YoY decline in Q1 as it contributed nearly 85% of revenue. Q1 revenue declined (55.6%) YoY, missing estimates by nearly 7%. 

  • Crypto self-mining revenue declined (55.2%) YoY to $67.2 million, impacted by a (75%) decline in Bitcoin mined and shift to HPC 
  • Crypto hosted mining revenue declined (87%) YoY to $3.8 million, again impacted by the HPC shift. 
  • Colocation (HPC) revenue was approximately flat QoQ at $8.6 million.  

Here is what was stated on the call about the revenue decline: “The sequential revenue decline was primarily driven by mining disconnections and relocations as we continue converting sites to support high-density colocation. More specifically, we earned 719 Bitcoin in the first quarter compared to 974 in the fourth quarter.” 

Quickly ramping capacity for CoreWeave in Q2 through year-end is expected to drive significant growth in Colocation revenue. Management says they expect the 250MW will allow them to enter 2026 with annualized colocation revenue of ~$360 million ($90 million per quarter), up more than 10x from its $8.6 million ($34.4 million annualized) in Q1.  

This ramp is expected to drive a significant rebound in Core Scientific’s revenue growth, with analysts currently expecting the company to exit 2025 at ~$160 million in revenue, approximately double Q1’s level. This would correspond to growth of 68.3% YoY, a more than 120 point acceleration as the year progresses. 

However, it’s important to note that estimates have come down sharply over the past three months: 

  • Q2 revenue was estimated to decline just (10%) to $126.6 million at the end of February, but is now seen declining (34%) to $93.1 million. 
  • Q3 revenue was estimated to rise 84.4% to $175.8 million, but is now expected to rise 27.5% to $121.2 million.  
  • Q4 revenue was estimated to rise 110.5% to almost $200 million, but is now expected to rise 68.3% to $159.8 million. 

Despite these changes in estimates, management reiterated they are on track to reach their capacity goals: “Looking ahead, I'm even more confident than I was just two months ago in our ability to hit our milestones, 250 megawatts by the end of this year, inclusive of Austin and 590 megawatts by early 2027.” 

The company pointed toward growth potential as well, stating there are additional opportunities to add the following capacity: “On the organic side, we remain confident in our ability to add approximately 300 megawatts of billable capacity across our existing sites by the end of 2027. Looking ahead, we also continue to believe there are significant opportunities to grow into new geographies, and we're targeting an additional 400 megawatts of billable capacity through new site development over the next three years.” 

Margins 

Gross margin expanded sequentially, but operating margin widened to more than (50%) as rising costs bit into weaker revenue. While Colocation promises to bring substantial revenue streams and strong tailwinds to growth through year-end, margins at the moment are minimal, even with power costs being passed through to CoreWeave. 

  • Gross margin was 10.3% in Q1, expanding from 5% last quarter but well below the 43.3% margin from the year-ago quarter due to the Bitcoin halving and operational shift.  
  • Operating margin was (53.6%), widening from (41.9%) last quarter and a stark contrast to the 30.3% margin from a year ago. The significant YoY difference was primarily caused by a more than (89%) YoY decline in gross profit and a 137% increase in SG&A expenses. 

By segment: 

  • Crypto self-mining gross profit margin was 9%, down from 49% a year ago, impacted by the shift to HPC and a (75%) decline in BTC mined, partially offset by a 74% increase in the average price of BTC and a 33% decrease in power costs.  
  • Crypto hosting gross profit margin was 46%, up from 32% a year ago, primarily due to lower power costs. 
  • Colocation gross profit margin was 5%.  

EPS 

Core Scientific benefited significantly from a $621.5 million mark-to-market adjustment on its warrants, and as a result, it reported $580.7 million in net income. This represented $1.25 in EPS, which is not comparable to the ($0.12) estimate due to the warrant impact. Stripping out this impact, net income would be ($40.8) million. 

Core Scientific is currently expected to record losses through the rest of the year, shrinking each quarter from ($0.11) in Q2 to ($0.03) by Q4.  

Cash and Balance Sheet 

Core Scientific burned through a substantial chunk of cash in the quarter as it continues on its operational shift.  

  • Operating cash flow was ($40.6) million for a (51.1%) margin.  
  • Free cash flow was ($129.0) million for a (162.3%) margin, as Core Scientific’s capex rose 177% YoY to $88.4 million. 
  • Cash and equivalents totaled $697.9 million, with Core Scientific burning through $138 million in cash in the quarter. 
  • Debt totaled $1.12 billion. Management also shared long-term debt leverage targets on the call — per the CFO: “And over time, we believe our net debt to adjusted EBITDA leverage can and should trend toward approximately 4 times, consistent with peers in the space.” 
  • Adjusted EBITDA was ($6.0) million for an (8%) margin, down from $88 million or a 49.1% margin in the year ago quarter. 
  • Core Scientific also recognized $42 million in prepaid colocation license fees as deferred revenue in the quarter. 

Earnings Call Q&A: 

No New Customers Yet; but Enterprise Customers on the Horizon

The market will reward Core Scientific if the company can add more customers. In our previous write-up we stated the company’s goal is to have CoreWeave customer concentration to be 50% or less by 2028. This remains the goal with no updates on customer concentration improving: 

“Now, to be clear, we haven't signed a new customer yet, but our sales pipeline is expanding. It includes a healthy mix of hyperscale and large enterprise customers, and we are actively negotiating with multiple customers today […] We currently have several non-hyperscale deals in our pipeline, ranging from 50 megawatt to 100 megawatt customers. These are substantial deployments, and they come with a return profile that's attractive […] I'm more confident than ever in our ability to build a customer base that is more diverse, more balanced, and more strategically aligned with our long-term vision. Our target remains the same, to have Core represent less than 50% of our billable capacity by the end of 2028.” 

The advantages of enterprise customers were discussed further in the call, with Core Scientific likely needing to first prove it’s been able to stand up Blackwell systems before demand increases from a broader set of customers. 

“Adam Sullivan 

Yeah, it's a great question. Thanks Darren. Large enterprises, the timeline to get into final contract details are definitely faster than on the hyperscale side. There's a natural inclination to move towards hyperscale from the broader perspective of their creditworthiness. But the large enterprises that we're looking at today are I think $75 billion market cap plus and represent a creditworthiness that we find very acceptable in the return profile of these are higher than hyperscale deals as well. So, as we evaluate potential multitenant build-outs going forward, large enterprises could represent significant anchor tenants for those new sites to allow us to begin development in new geographies and start building out new sites” 

The CEO reiterated again they are getting close to signing more enterprise customers: 

“And so, we're currently evaluating a number of different deal structures that we're in discussions with clients. And I would say we're excited about the return profiles the large enterprises represent because they do have the capability, based on their scale and their size, that they're demanding today to represent an acre tenant for us to open up a new site location. And so, we will continue to evaluate deals going forward, and we're excited about the continuously growing pipeline in large enterprise channel.” 

In time, however, Core Scientific believes it will prove itself to other hyperscalers, stating: “I think our delivery and execution is only going to breed confidence kind of as this year goes on. And again, we're probably one of the only data center providers right now that's going to launch 250 megawatts in a single calendar year of what essentially is going to be more than 100,000 of GB200.” 

Tariffs 

It wouldn’t be a Q1 earnings report if I did not address tariff commentary from the call. Core Scientific stated they have procured components to deliver on time this year and into the first part of 2026, although there seemed to be some hesitation when looking further out. Although management put a positive spin on it, there’s a scenario that should be monitored which is that data center builds become more expensive as we approach 2026, and thus, budgets could tighten. 

Paul Golding: 

Thanks so much. Just quickly a housekeeping question I wanted to ask regarding digital asset mining. I think previously you'd mentioned that the digital asset mining hosting the capacity was you were going to exit that by year end. Just wanted to confirm that that was still the plan since we saw some revenue come through this quarter for that.  

And then, my main question is around long lead time items. Just referencing your commentary around 2025 goals, the equipment being acquired to meet those goals. Wanted to ask about ’26 hearing about long lead times for step down infrastructure and other components, particularly around electrical equipment, and so just wanted to see how that was progressing as well? Thank you.  

Matt Brown: 

Yeah. I think the way to look at this is 2025, we've already secured all that equipment and most of it is already sitting in the ground either in warehouses adjacent to the projects that are ongoing or at the project site themselves. So, 2025 is locked in from an equipment standpoint. 

2026, we have a good read-through on both the availability and cost for all that equipment. A lot of that through the first half of ’26 has already been procured, and a few portions of that will start taking delivery towards the second half of this year for projects that are going to extend that are going to start launching in 2026.  

With that said, I think this part of this touches on tariffs and equipment availability. With our strong relationships with our suppliers that I would say we have really, really good insights in the availability and that we're not really too concerned right now about not being able to take receipt of equipment and meeting our dates or any buy dates to meet our delivery goals.” 

Conclusion: 

Core Scientific is the highest risk stock in our portfolio as it takes a leap of faith that the partnership with CoreWeave is setting a standard in terms of standing up and powering up data centers very quickly. This quarter the company is starting to transition toward AI revenue rather than bitcoin revenue (i.e., primarily Bitcoin losses). According to analyst estimates, CORZ looks to be returning to revenue growth by Q3 which gives you a good idea as to when AI should be leading the market again as CoreWeave is a strong proxy for when Nvidia will resume its product cadence.  

We feel confident taking on the challenge of owning CORZ although it will require an active stance with risk management controls in place. 

Please note: The I/O Fund conducts research and draws conclusions for the Fund’s positions. We then share that information with our readers. This is not a guarantee of a stock’s performance. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis.

Recommended Reading:

Core Scientific: Hypergrowth with 21X AI Segment Growth Potential

Posted on by io-fund
  • Core Scientific is a major Bitcoin miner leading the transition to high-performance compute (HPC) data centers with 1.3 GW of contracted powered infrastructure.
  • The Company signed 12-year hosting deals with AI Hyperscaler CoreWeave to provide 590 MW of HPC infrastructure valued at up to $10.2 billion.
  • CoreWeave will front the $750+ million in capex funds to modify Core Scientific’s data centers as an anchor client.
  • Core Scientific’s HPC hosting revenues could surge 21X per quarter when the full 590 MW of critical load go online in 2027.
  • ROTH MKM expects Core Scientific to reach a $1.58 billion run rate by 2027. 
  • The I/O Fund will be holding a very tight stop on any position we initiate, and the stock will be for Advanced Market Signals only, indicating it qualifies for more advanced investors who are comfortable trading daily/weekly.
  • This analysis originated as a Discovery idea, yet Knox sees a setup he may pursue in the coming weeks. Join his webinar this Thursday at 4:30 pm EST to learn more.

Core Scientific (NASDAQ: CORZ) is a digital infrastructure company that operates bitcoin mining and hosting services, and high-performance compute (HPC) hosting services through its nine purpose-built data centers. As one of the largest Bitcoin miners in North America, operating 171,000 mining rigs (164,000 owned), the Company is positioning itself for significant growth in the AI space.

Its strategic shift to high-performance computing (HPC) hosting is particularly compelling, allowing it to mitigate Bitcoin’s volatility while capitalizing on the surging demand for AI data centers. By securing high-margin HPC hosting contracts, the company is poised to tap into one of the most lucrative and rapidly growing markets in technology. While other Bitcoin miners are starting to catch on, attempting to transition to AI data centers, Core Scientific has a clear first mover advantage reinforced by lucrative multi-billion dollar 12-year contracts with upside revenue potential of $10.2 billion with AI hyperscaler CoreWeave with a trajectory aimed at generating 21X HPC hosting revenue growth in 2027.

Core Scientific’s Value Proposition for HPC Hosting Customers

Core Scientific provides many attractive value propositions to hyperscalers:

  • Specialized Power Infrastructure: HPC customers require more power than conventional data centers can offer. AI and HPC workloads require 6 to 10 times more electricity to operate. Traditional data centers are accustomed to single racks consuming 10 to 15 kW of power. Current AI racks push 80 KW as they will soon draw 120 kW to 150 kW in the next generations, with 200 kW within several years. Core Scientific has the existing infrastructure with nearly 900 MW of capacity for HPC hosting in addition to the 400 MW for Bitcoin mining capacity.
  • Scalable HPC Infrastructure: They are actively transitioning their facilities to cater specifically to AI workloads with infrastructure optimized for machine learning and deep learning applications. Its Denton, Texas, facility is undergoing a $6.1 billion expansion, boosting its MW capacity by 97 MW to 394 MW with 47 more acres to 78 acres to host one of North America's largest GPU supercomputers for AI computing. It's being converted entirely for HPC hosting.
  • Location: Core Scientific operates 9 Application Specific Data Centers strategically located near major internet hubs in Georgia, Kentucky, North Dakota, North Carolina, Oklahoma, Alabama and three in Texas. Its new leased (with an option to buy) site in Alabama offers 11 MW of critical IT load and is scalable up to 66 MW of critical IT load, which Core Scientific is in discussions with potential new clients to contract for HPC hosting. They are developing a state-of-the-art 100 MW data center in Muskogee, Oklahoma.
  • Maintenance and Repair: Offering 24/7 around-the-clock monitoring, support and maintenance, Core Scientific is one of the largest application-specific integrated chips (ASIC) repair centers in North America, servicing their own and customer’s fleet of 171,000 bitcoin mining rigs. Parlaying from ASICs, they plan on using their expertise and manpower to replicate it and expand their offering on the GPU side.

CoreWeave: An Early Believer in the Core Logic’s HPC Transition

CoreWeave is an NVIDIA-backed AI Hyperscaler, providing AI cloud services by offering GPU clusters for HPC and AI workloads. CoreWeave is a specialized cloud provider offering an optimized platform for GPU-intensive tasks. They build and operate their own data centers equipped with a massive scale of over 300,000 Nvidia GPUs. They currently have 28 operational data centers and plan to open 10 new data centers in 2025, leasing a significant portion of their capacity with Core Scientific.

On March 6, 2024, Core Scientific announced an initial long-term deal with anchor customer CoreWeave to provide up to 16 MW of data center infrastructure for their HPC and AI workloads at their tier 3 data center in Austin, Texas. This helps to substantiate the pivot from Bitcoin mining to offering AI/HPC infrastructure, stating a “strategy shift” to AI may be good for a temporary stock price spike, but actually signing up customers is another story.

CoreWeave was already a GPU hosting client from 2019 to 2022, hosting thousands of GPUs. Despite the potential value of the March 6 deal being worth up to $100 million, it didn’t move the needle much for the stock price, which still traded under $4.00, selling off to $2.95 the following week.

CoreWeave Ups the Ante and Fronts the Capex Funds in $3.5 Billion Deal

Core Scientific was successful in delivering 16 MW of capacity more than 30 days ahead of schedule at its Austin, Texas, data center. This prompted more deals. On June 3, 2024, CoreWeave signed several 12-year contract deals securing 200 MW of infrastructure to host CoreWeave’s NVDA GPUs. Additionally, CoreWeave will fully fund (not pay for) the capital investments (capex), estimated around $300 million, required to modify Core Scientific’s “existing infrastructure into cutting-edge application-specific data centers customized for dense HPC." CoreWeave will put up the capital for the modifications and Core Scientific will credit them 50% of their hosting fees until it’s paid back fully.

Regarding CoreWeave paying for the capex, here is what was stated on the call:

“Yes. Thanks, Brett. I mean really, the difference in the CoreWeave deal is 100% funding of the CapEx. They were able to significantly buy down their rates. And I think as we look forward, what we're seeing for 2025 is frankly rather unique. If you're able to deliver capacity in 2025 and 2026 right now — we're definitely seeing those lease rates be much higher than we expected, especially given that many of these folks are willing to cover some portion of the CapEx of the build-out. So we're excited about where lease rates are going, and we believe we'll be able to extract a significant amount of value from the demand that we're currently seeing over the next few years.”

CoreWeave Contracts a Total of 502 MW Generating $8.7 Billion Over 12 Years

Once the 200 MW of HPC is operational Core Scientific estimates they’ll receive around $290 million annually or more than $3.5 billion during the initial 12-years terms of the contracts. CoreWeave exercised its options and signed for an additional 70 MW on June 25, 2024, and $105 million of capex funding, equating to an additional $1.23 billion for Core Scientific during its 12-year term. In August 2024, CoreWeave signed another 112 MW contract beginning in 2026.

In October 2024, CoreWeave exercised the rest of its options and signed another 120 MW hosting contract for 12 years for a total of a full 502 MW of critical IT load with a total revenue potential of $8.7 billion over the 12-year terms of its contracts. The average annual run rate is $725 million. HPC hosting revenues are expected to start flowing in 2025 with 200 MW delivered by the end of 1H 2025, up to 270 MW delivered by the end of 2H 2025, up to 382 MW by the end of 1H 2026 and up to 500 MW by the end of 2H 2026. CoreWeave is expected to fund capex costs of $750 million, which Core Scientific will credit 50% of the hosting fees until fully repaid.

CoreWeave: Providing 250,000+ NVIDIA GPU-powered AI Infrastructure For Lease

As Core Scientific’s largest anchor customer, it’s important to take a look into this client. Core Scientific is a direct benefactor of CoreWeave’s success. What’s good for CoreWeave is also good for Core Scientific.

CoreWeave is an AI hyperscaler that has evolved from a crypto miner that leased space and power (NVIDIA GPUs) from Core Scientific to an AI hyperscaler powerhouse with a roster of high profile clients including Microsoft, Meta Platforms, IBM, Cohere, NVIDIA and OpenAI. CoreWeave is a specialized cloud provider focused on offering scalable AI cloud infrastructure including access to over 250,000 NVIDIA GPUs, low-latency networking and high-bandwidth storage optimized for the massive computational workloads of AI training and inference and ML. The company stands out, as NVIDIA stated, “… CoreWeave has launched NVIDIA GB200 NVL72-based instances, becoming the first cloud service provider to make the NVIDIA Blackwell platform generally available.”

CoreWeave builds infrastructure that can scale at a moment’s notice that can go from zero GPUS to 10,000 GPU working on the same job within a minute.

In 2024, Microsoft accounted for nearly 62% of CoreWeave’s revenue (with Meta accounting for 15% according to H.C. Wainwright), which surged 737% YoY from $229 million to $1.9 billion. Customer concentration concerns were eased a bit with the signing of a $11.9 billion deal with OpenAI, who will also become an investor owning $350 million of stock. NVIDIA holds a 5% minority stake in CoreWeave, which will be going public in 2025.

Core Scientific Gets a Game Changer Deal with CoreWeave

The revenue potential of CoreWeave’s contracts is $8.7 billion over their 12-year terms, equivalent to $725 million annually once fully online. That equates to $181.25 million of quarterly HPC revenue, up from $8.5 million in Q4 or 21X potential, by early 2027. When compared to overall revenue, this is 2X growth on a quarterly basis.

The 21X growth in HPC and 2X growth in overall revenue is before the additional 70 MW $1.2 billion expansion deal announced at its Denton, Texas facility in its Q4 earnings release, resulting in the cumulative revenue potential of over $10 billion from CoreWeave, with 75 to 80% cash gross profit margins according to the Company. The full 590MW contracted to CoreWeave is expected to come online in 2027. This would be up from 250 MW expected in 2025.

CoreWeave Announces $1.2 Billion Expansion at Denton, Texas Facility

On Feb 26, 2025, coinciding with its Q4 2024 earnings release, Core Scientific announced a $1.2 billion 70 MW expansion at the Denton, TX site, for CoreWeave. The 70 MW of additional contracted power at the Denton site increases the full critical IT load to approximately 260 MW. The agreement increases CoreWeave's total contracted HPC infrastructure with Core Scientific to approximately 590 MW across six sites.

Under the terms of our Agreement with CoreWeave with respect to this additional 70MW, Core Scientific is responsible for funding $104 million of the additional required capex ($1.5M per MW), with CoreWeave responsible for the additional capex associated with the expansion. The company also retains the option for two additional five-year renewal terms.

This additional 70 MW brings the total projected revenue to $10.2 billion from CoreWeave over 12-year contract terms and a total of 590 MW of critical IT load spread through six Core Scientific sites. Core Scientific expects all 590 MW to be online in early 2027 as stated by CEO Adam Sullivan during the Q4 2024 conference call on Feb 26, 2025. He said this.

“Looking ahead, we now expect to have delivered approximately 250 megawatts of HPC capacity to CoreWeave by the end of this year, with the full 590 megawatts coming online in early 2027. This represents a shift from our previous timeline and reflects both the size and complexity of the project, particularly the addition of an incremental 70 megawatts of critical IT load.“

Adam Sullivan also added this, “So from what we're seeing on CoreWeave's demand side is significantly stronger than what we saw in 2024. There's a lot of things going on in the market today that we're seeing that's actually driving continued demand and flow into CoreWeave. And so we're excited about continuing to expand with them at Denton. And Denton is going to be one of the largest supercomputers in the United States, and it's going to be a flagship asset for CoreWeave.“

One note of caution: Core Scientific has all the makings of a hypergrowth stock and this includes immense risk. The company is recently out of Chapter 11 Bankruptcy and has to raise cash to fund operations, which means taking on debt. The I/O Fund will be holding a very tight stop on any position we initiate, and the stock would be for Advanced Market Signals only, indicating it qualifies for more advanced investors who are comfortable trading daily/weekly.

Looking Beyond the Q4 2024 Headline Numbers   

Core Scientific reported disastrous-looking Q4 2024 earnings results based on headline numbers, with an EPS loss of ($0.60), missing consensus estimates for a loss of ($0.09) by ($0.51). Revenues fell 33.1% YoY to $94.93 million, missing consensus estimates by ($2.14 million). Yet, the stock gapped over 10% following its release.

The reason is that just beneath the surface, Core Scientific is setting up to solve one of the biggest issues the United States and the AI market face: power supply. The company is going through a transition period as it moves into the AI/HPC data center markets supported by AI hyperscaler CoreWeave, who just signed a five-year $11.9 billion deal with OpenAI.

$224.7 Million Mark-to-Market Adjustment Shouldn’t Spook Investors

The initial sting of the reported ($265.5 million) GAAP loss in Q4 2024 may sound like bad news, but $224.7 million of it is a non-cash mark-to-market adjustment on warrants; just accounting noise. The “actual” Q4 net loss was ($31.8 million), not ($265.5 million).

Core Scientific issued warrants, which are considered liabilities under GAAP accounting rules since the Company has to deliver stock at the exercise price. If the stock rises in value, the Company has to post a larger liability, but it doesn’t mean they are taking any actual losses. The Company issued two tranches of warrants at $6.81 x 98.3M shares for Tranche 1 (CORZW) exp. January 23, 2027, and $0.01 x 81.9M shares for Tranche 2 (CORZZ) exp. January 23, 2029, as part of its plan to emerge from Chapter 11 bankruptcy in January 2024.

The Company still receives the funds when the warrants convert as they issue the required shares. There are no real losses. In fact, it’s relatively good news since the higher the stock price rises, the deeper the “paper losses” appear until the warrants are all exercised or expired and taken off the books. However, that presents a dilution issue of an additional 180.2 million additional common shares.

The 116 Million Shares from Warrants Remaining Might Spook Investors

During 2024, Core Scientific received $4.4 million in proceeds from 646,109 shares of Tranche 1 warrants being exercised. On December 24, 2024, 60.9 million Tranche 2 warrants were exercised for $600,000. This leaves 116 million warrant-related shares remaining of potential dilution on the remaining warrants. Core Scientific has 294 million shares outstanding as of February 20, 2025.  

As of February 20, 2025, the pro forma diluted share count is 501 million shares. This includes the current 294 million shares outstanding along with 207 million additional unissued shares that include Tranche 1 and Tranche 2 warrants of 116 million remaining, convertible notes of 70 million shares and 21 million shares of restricted stock and reserve shares.

Revenues Sink as Company Converts Bitcoin Data Centers to HPC Data Centers

The company’s Q4 revenue fell by (33.1%) YoY and (0.44%) QoQ to $94.93 million, primarily due to the decline in self-mined Bitcoin to 974, down from 3,042 in the year ago period. The Company has been converting some of its Bitcoin mining data centers to HPC data centers and actively “sunsetting” Bitcoin hosting contracts as it transitions to HPC hosting. The Bitcoin halving event also occurred in April of Q2 2024, thereby causing Bitcoin revenue to shrink on a YoY basis further magnifying the deceleration. Revenue fell short of estimates by (2.2%).

  • Analyst expect revenue to fall (48.26%) YoY to $92.77 million in Q1 2025, and fall (30.03%) YoY to $98.73 million in Q2 2025.
  • Full-year 2024 revenues rose 1.6% to $510.7 million.
  • Analysts expect FY2025 revenue to fall (3.71%) YoY to $491.75 million.

Revenue Segments: Bitcoin Revenues Drop in Preparation for HPC Revenue Acceleration

As Core Scientific transitions from Bitcoin self-mining and hosting to HPC hosting, the revenue segments can be expected to drop in the Bitcoin segments and rise in the HPC hosting segment. The quarters may look predominantly worse until the Core Scientific HPC revenues start to ramp up as they go online. Based on analyst estimates, Q1 2025 may be the final “kitchen sink” quarter before revenues reaccelerate. 

Margins Consistently Expand Through 2024

  • Q4 gross margin was 5%, compared to 27.7% in the same period last year.
  • Q4 operating margin was (41.9%), compared to 2.8% in the same period last year. However, EPS is showing a rebound on the horizon as higher margin HPC hosting revenues increase.

GAAP EPS Trending Towards Positive After Mark-to-Market Adjustments on Warrants

Q4 GAAP EPS was ($0.60) compared to ($0.11) in the same period last year. The EPS miss was primarily due to the $244.7 million non-cash market-to-market (MTM) adjusted on the warrants.

  • Analysts expect GAAP Q1 2025 EPS to improve to ($0.10).
  • Analysts expect GAAP Q2 2025 EPS to improve to ($0.07).
  • Analysts expect GAAP Q3 2025 EPS to improve to ($0.05).
  • Analysts expect GAAP Q4 2025 EPS to improve to $0.01 as CoreWeave's data centers come online.

Full year 2024 GAAP EPS was ($4.39) compared to ($0.65) last year.

  • Analysts expect full year 2025 GAAP EPS to improve to ($0.24).
  • Analysts expect full year 2026 GAAP EPS to improve to $0.40 as more of CoreWeave’s data centers come online.

Cash Grows as Core Scientific Issues $1.09 Billion in Convertible Senior Notes

Core Scientific closed Q4 with $836.2 million in cash and $1.09 billion in debt. The debt is comprised of two convertible notes. In August 2024, The Company issued $460 million in convertible notes due 2029, which enabled the Company to refinance its debt from a 12% interest rate to 3% while increasing its cash position and removing covenants to allow the Company to accumulate Bitcoin. The conversion price is $11.00 at a rate of 90.9256 shares per $1,000 in principal, which brings a total 41.82 million shares issued upon conversion.

In December 2024, Core Scientific priced an upsized $625 million convertible senior notes offering due 2031. The conversion price is $22.49 at a rate of 44.4587 shares per $1,000 in principal. This brings a total of 71.61 million additional common shares upon full conversion.

The Implications of Not Being Investment Grade

Its worth noting that there are implications of not being investment grade especially when needing to raise cash. Considering Core Scientific emerged from Chapter 11 bankruptcy in January 2024, this status alone shapes their cash-raising strategy. Being non-investment grade tends to mean higher borrowing costs, but Core Scientific was able to cut their interest rate from 12% to 3% by swapping out the debt with convertible notes.

It’s worth noting that Core Scientific’s 3% interest rate is impressive for a company just out of bankruptcy implying the institution(s) are very confident in Core Scientific’s strategy. However, that route also comes with its potential share of dilution (41.82 million new shares) if shares are converted at $11.00 per share. Core Scientific has the option to redeem early if the stock trades 130% above the conversion price for 20-30 trading days ($14.30) after the initial non-call period August 2027.

The additional $625 million convertible also comes with dilution (27.79 million new shares) but at a higher conversion price of $22.49 and no interest rate. However, Core Scientific achieved this funding with 0% interest implying very high confidence that Core Scientific will either redeem the notes at maturity or that the shares will surge above the conversion price enabling them to convert shares for a profit before then. Both convertibles are senior unsecured obligations, therefore in the event of bankruptcy or default, unsecured creditors rank below secured lenders.

Valuation

 The Company trades at a forward P/E ratio of 12.27. The trailing twelve month (TTM) P/S ratio is 4.34 and forward P/S is 12.27. The five-year average P/S ratio is 5.08. The P/S ratio peaked at 9.3 in November 2024.

Q4 Earnings Call: CoreWeave Contracts Totals $10 Billion in Potential Revenue

Management highlighted their strategic pivot from Bitcoin mining to HPC hosting. The Company delivered 500MW of capacity through 12-year agreements worth $8.7 billion, expanding its HPC infrastructure to over 1.3GW of contracted power. Its key initiatives include accelerating capacity expansion and targeting significant new site acquisitions, including projects in Auburn, Alabama, and Denton, Texas.

In Q4, the Company secured approval to expand its gross capacity at its site in Denton, Texas, by nearly 100MW, which equates to nearly 70MW of critical IT load. Denton is on track to host one of the largest GPU supercomputers in North America. The Auburn, Alabama, site currently has 11MW of critical IT load, and the Company is actively working with Alabama Power to secure a much larger power agreement. They are deferring significant capital deployment until they finalize negotiations with prospective customers.

CEO Adam Sullivan said this.

“Today, we announced a significant expansion of our relationship with CoreWeave at our Denton facility, which will bring that site to full capacity. This new agreement adds approximately 70 megawatts of critical IT load and represents approximately $1.2 billion in additional contracted revenue over a 12-year term. With this latest expansion, our total contracted value with CoreWeave now exceeds $10 billion, an amount that includes our Austin, Texas agreement, and covers roughly 590 megawatts of critical IT load once fully online. Of that total, just over 570 megawatts reflect the capacity we're converting at existing sites to HPC, where we expect 75% to 80% cash gross profit margins.”

However, Core Scientific will put up the CapEx to receive full HPC rental payments rather than 50% payments, with the other 50% being a CapEx credit for the upfront CapEx spent by CoreWeave. Sullivan said this.

“Under this newest agreement for the additional 70 megawatts, we will fund $1.5 million in capital expenditures per megawatt, whereas in prior agreements, CoreWeave covered those costs. In return, we will benefit from full rental payments during the first two years of the contract because there will be no CapEx credit associated with this new agreement.”

It’s worth noting that analysts may be considering 2027 full delivery as too ambitious considering as evidenced by the lowering of revisions. There are execution risks that may be out of their hands including grid delays and securing power with utilities (IE: working with Alabama Power to secure more power to the Auburn site), funding capex or negative developments with CoreWeave.

Prioritizing Customer Diversification and CoreWeave Timeline to Come Online Fully

Diversifying its customer base is a key priority as it aims to reduce CoreWeave's share of revenues to under 50% of critical IT load by 2028. The Company is in active discussions and remains confident in its ability to diversify its HPC customer base. The Company exited the year with 15MW of critical IT load. New block ASIC chips are expected in 2H 2025, which will refresh some of its Bitcoin mining fleet. Otherwise, there are no plans for any further CapEx spending in 2025 for its Bitcoin mining business.

CEO Adam Sullivan reiterated their top priority of diversifying new customers.

“We are in active discussions with dozens of new customers, including the vast majority of hyperscale providers in several large enterprise companies. Demand remains strong, but we're seeing considerably more due diligence compared to the first half of 2024. This heightened scrutiny reflects the influx of new market entrants who make ambitious capacity promises yet lack the tangible power agreements to back them up, much like the recent situation where a hyperscaler canceled contracts with companies that overstated their available power.”

The Company expects to have nearly 250MW of HPC capacity to CoreWeave delivered by the end of 2025. The full 590MW is coming online in early 2027. Core Scientific believes they can add another 300MW of capacity across existing sites by the end of 2027.

Earnings Call Q&A:

The Goal of Reducing CoreWeave’s Concentration of Revenue under 50%

Core Scientific is actively trying to diversify their concentration of revenue from CoreWeave.

Jeffries analyst John Peterson:

“Okay. And then I appreciate the goal of wanting to bring CoreWeave down to less than 50% of revenue by the end of 2028. I think that would require you to procure a lot more power this year in addition to signing on additional customers. So maybe just talk through the milestones that you need to hit throughout this year to be on track to do that.”

Adam Sullivan:

“We talk about the ability to continue to expand at existing sites. And that's a competitive process because we are getting direction in terms of how much additional power we're going to be able to achieve at some of our existing sites and then some of our new sites as well. Very attractive locations. Our focus today is on building blue-chip assets. And we want to have those blue-chip assets with blue-chip clients. And so that's where our focus is today. And we're going to continue to execute and acquire more sites to bring more capacity online to secure more contracts and achieve our goal of getting them below 50% by 2028.”

At 75% to 80% margins, 590 MW would yield $637.5 to $680 million, with a midpoint of $658.75 million after 2027 (assuming all 590 MW comes online). If CoreWeave is 50% of critical load by 2028, total HPC capacity needs to double to 1,180 MW from producing more power and acquiring more sites. It would require Core Scientific to assume more hyperscalers sign under similar 12-year terms to CoreWeave. Sullivan stated how diversifying its customer base was a top priority, “Starting with diversifying our customer base, this is the top priority for the company this year, and the goal is to sign enough contracts so that CoreWeave represents less than 50% of critical IT load by the end of 2028.” Sullivan mentioned 700 MW was available.

Nick Giles:

“So, appreciate your target that CoreWeave represents less than 50% of critical IT, but that implies that you sign at least the same amount with other customers, but you do have 700 megawatts that you've outlined between existing and new sites by 2027. So, should we assume that the delta would be new customers as well, or could that kind of 130 be split between a new customer and maybe one more tranche with CoreWeave?”

Adam Sullivan:

“Yes. So, we've outlined the 300 and the 400 number that's critical IT load megawatts, so about 700 megawatts. As we look forward if we have 590 of CoreWeave contracts the 700 available to us is really where our focus is going to be on executing new clients. So that's part of our goal to get them below 50%, to have enough capacity available and saleable for us to be able to bring them down to that level.”

How the Deep Seek News Only Made People Want to Move Faster

The Deep Seek news was a head fake as actual demand increased, and it only made people want to move faster.

Adam Sullivan:

“We've seen much more specific requests around locations in terms of developments and where they would like to build. But overall, the Deep Seek news for hitting the public markets rather hard from everything that we've seen on the actual demand side, demand continues to increase, and those conversations continue to progress very well.”

Diversifying the Customer Base Beyond Hyperscalers

While Core Scientific makes headlines when deals are made with name-brand hyperscalers, enterprise customers could also fill in pieces of the void to improve diversification.

Greg Lewis:

“Could you talk a little bit about you mentioned enterprise customers potentially. It's something that seems to be we're hearing more about beyond just the hyperscalers. As maybe you broaden out the customer base beyond just the hyperscalers, which it seems that latency is a big issue for them. Maybe scalability is a big issue for them. As you kind of look at potential enterprise customers, does that open up sites maybe in your portfolio and elsewhere that maybe under hyperscaler footprint wouldn’t work but through enterprise it might?”

Adam Sullivan:

“And so, we're looking at having hyperscale at the very least as anchor, potentially a single tenant. And if they're serving as an anchor, being able to fill out the rest of the capacity with enterprise clients as well. So, the demand, does it open up more sites with enterprise? Absolutely. But we're focused on blue chip assets with blue chip clients, which includes both of those groups.”

Delivery Times and Securing Power Agreements is a Competitive Advantage

Sullivan pointed out that many while demand remains strong, they are seeing considerably more due diligence compared to the first half of 2024 due to the influx of new market entrants that make “ambitious capacity promises” but actually lack the “tangible power agreements to back them up.” Sullivan referenced what may have been the rumored Microsoft cancellation of commitments with CoreWeave due to “delivery issues and missed deadlines.” Microsoft outright denied the cancellations.

Adam Sullivan:

“This heightened scrutiny reflects the influx of new market entrants who make ambitious capacity promises yet lack the tangible power agreements to back them up, much like the recent situation where a hyperscaler canceled contracts with companies that overstated their available power. Our proven track record and secured power agreements set us apart in this environment, and we won't be expanding our footprint unless we have a high degree of confidence in our ability to deliver for additional customers.”

When pressed about the rumor of Microsoft cancelling capacity with CoreWeave, Sullivan responded.

“I can't comment specifically on any relationship between CoreWeave and Microsoft other than what they've spoken about publicly. But, I mean, CoreWeave's continuing to expand. You're seeing it not only with Core Scientific, but really across the globe and internationally. So, from what we're seeing on CoreWeave's demand side is significantly stronger than what we saw in 2024. There's a lot of things going on in the market today that we're seeing that's actually driving continued demand and flow into CoreWeave. And so, we're excited about continuing to expand with them at Denton.”

Is Core Scientific in Discussions with Other Hyperscalers?

Needham analyst John Todaro inquired about discussions with other hyperscalers and CoreWeave. Sullivan noted they are in talks with a majority of hyperscalers in conversations with large enterprises. The customer conversations are continuing to evolve throughout the early part of 2025. Sullivan was asked if he saw any demand changes across inference and training workloads on the back of Deep Seek headlines.

Adam Sullivan:

“Denton was a site that we were really slating for CoreWeave. We did have conversations with some other hyperscalers and other clients on those megawatts. As we talked about the 300 megawatts potential at other existing sites, we're in conversations today with other potential customers around that. There's really no guarantee that anything like that would go to CoreWeave, because what we do want to do now is really focus on continuing to diversify our client base, and our existing sites are great campuses for us to do that.”

Elaboration on the Delays

Sullivan mentioned there were some delays from changing some of the designs to fit for the equipment further impacted by the constrained supply chains going out into 2026.

Adam Sullivan:

“And one of the things that we wanted to ensure that we achieved was that we had the right equipment on the right schedules for the site plans that we had. And so, that required us to change some of the designs to fit for the equipment that was available to deliver on the timelines that we set forward. And so, there was just some incremental delays there. But overall, we have high confidence in where the delivery schedules that we've put forward today. And we believe we're going to be able to hit those timelines.”

Management now expects critical IT load to be 250 MW, including the 16.5 MW, down from 270 MW plus 16.5 MW.

Brett Knoblauch:

“Thanks, guys. Really appreciate it. Maybe just quickly on the delays, if you will, or the pushback in timing. Just want to make sure I heard you right. You're now expecting critical IT load this year to be 250 megawatts. Does that include the 16.5? And before, you guys were expecting, I think, 270 plus the 16.5.”

Adam Sullivan:

“Yes, thanks, Brett. Yes, that's correct. That's really a push out of just one 40-megawatt building out into early 2026. And you're absolutely right. That number does include the 16.5 megawatts.”

Core Scientific Implements a Utility First Process For Evaluating Expansion Sites

For data center site selection, there is a shift away from large remote training sites towards locations that are closer to major metropolitan areas. This has been driven by demand and the need for proximity as the Company expands into new markets, which include the East Coast. However, prioritization is based on reliable utility partnerships.

Rosemarie Sison:

“Just to follow up on that comment that you made, Adam, about proximity to major metro areas. Would that mean that you're potentially looking at expanding out of the markets that you're in right now possibly into the East Coast or the West Coast as those opportunities present themselves?”

Adam Sullivan:

“Yes, absolutely. Thank you for the question, Rosemarie. I mean, we are building one of the larger data centers on the East Coast right now. And so, we have a lot of confidence in our ability to continue to expand in new markets. This is something where we're going to be one of the larger providers in the Dallas market. We believe something similar in the Atlanta market as well. So, we're definitely looking at continuing to enter into new cities. But albeit that looks a little bit different because we might have less familiarity with the utilities in that location. A point on that is we currently operate with seven utilities. We're continuing to expand our relationships across that base. And so, we're taking a very diligent process, a utility-first process, when we're evaluating entering new locations to ensure that we have a strong partnership and relationship with that utility so that we know that we have that firm power available when we go take them to a client.”

Conclusion: Solid Gameplan, Execution is the Key

Other Bitcoin mining companies are adopting Core Scientific's pivot to HPC hosting. However, Core Scientific's game-changing contracts amounting to over $10 billion in revenues over 12-year terms with CoreWeave give them a first-to-market advantage fortified by $10.2 billion in revenue potential from an AI disruptor.

CoreWeave, backed by NVIDIA as an investor and customer, is likely the leading hyperscaler in the market, positioning itself as a first mover in the AI data center space.

Hyperscalers will likely follow in CoreWeave's footsteps. This dynamic reinforces the notion that Core Scientific's strategic pivot to HPC hosting could be bolstered by CoreWeave's leadership in the hyperscaler space, further underscoring that what’s good for CoreWeave is also good for Core Scientific.

CoreWeave was initially interested in acquiring Core Scientific for $1.02 billion or $5.75 per share in June 2024, but was rejected and they decided to back them as they expanded their data center footprint. The downside to this relationship is the very limited customer concentration, as CoreWeave is their largest HPC hosting client. Core Scientific’s near-term future lies with CoreWeave. CoreWeave is expected to generate $10 billion from Microsoft as a client by the end of the decade.

As a potential lottery ticket element for investors, CoreWeave could revisit another acquisition attempt for Core Scientific after its IPO, where it would have additional cash and stock to use as currency. The initial acquisition attempt in June 2024 was for $1.02 billion in cash or $5.75 per share, which Core Scientific rejected stating that the offer “significantly undervalues the Company.” With an estimated $35 billion valuation, CoreWeave could make a much more attractive acquisition offer for less than it would be paying Core Scientific over its 12-year term leases.

Core Scientific has a solid game plan to accelerate its quarterly HPC hosting revenue by at least 21X in two years. As with any great game plan, the flaw always lies in the execution. Analyst estimates forecast one more kitchen sink quarter to go before revenues turn back up as HPC hosting revenues start to ramp up. The potential for more than doubling the outstanding shares to 501 million shares upon full conversion and vesting of restricted stock is concern down the road, but for now the game plan looks solid; the execution is the key.

This is a sample of the I/O Fund’s new Discovery tier, where we cover a new stock idea on a weekly or bi-monthly basis. We are excited to bring you more coverage from the I/O Fund team geared toward new idea generation only. For existing members who wish to subscribe, please email Premium@io-fund.com or click here.Premium@io-fund.com or click here.

Jea Yu, Equity Analyst at the I/O Fund, contributed to this article.

Please note: The I/O Fund conducts research and draws conclusions for the Fund’s positions. We then share that information with our readers. This is not a guarantee of a stock’s performance. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis.

Recommended Reading:

Bitcoin Bull Market Intact as Risk Increases

Posted on by io-fund

In December of 2022, when Bitcoin was trading around $17,000, we boldly stated that “Bitcoin is a buy.” At the time, we were beginning to position for a new Bitcoin bull cycle.  We even posted a chart in this report entitled “Bitcoin’s Upcoming Rally – What You Need to Know,” showing our targets for the coming bull market of $75,000 – $132,000, shown below.

A chart illustrating Bitcoin’s potential bull market price targets of $75,000 to $132,000, referencing a December 2022 statement that “Bitcoin is a buy” when it was trading around $17,000.

This was an unpopular report at the time, as Bitcoin was down nearly 80% from the 2021 highs, and was coming off the heels of a crypto panic following the FTX scandal. Over 1 year later in March of 2024, Bitcoin did indeed hit $73,757 — just shy of our lower target.

With tech stocks, we offer fundamental analysis to identify what to buy, and then we use technical analysis as a supplement for gauging sentiment and risk. However, with Bitcoin, there is no management team, earnings calls, and minimal news events. For this reason, we lean heavily into technical analysis and on-chain analysis to guide our position management.

These techniques are what we used to call the 2022 low as well as the accurate upper targets a year in advance. These same techniques were used when we increased our upper targets to $106,000 – $190,000 in our April of 2024 report.

We believe these targets are attainable, which is supported by the updated technical analysis as well as the on-chain analysis below. However, the correction that started in March of this year was simply too long in time, and has led to us adjusting our targets. We are also adjusting our game plan for the sake of risk management and will look to reduce our crypto exposure by ~50% on the next push to all-time highs (ATHs), locking in well-deserved gains. We will then revisit buying back once we get more information on the following consolidation.

Technical Analysis

Since 2019, we have repeatedly presented to our Premium Members that we are in a large degree uptrend that started in late 2018. This uptrend is taking the shape of a standard 5-wave pattern, which is one of the reasons we were calling for a low in 2022.

In our December 2022 report, we stated…

“As of now, since the 2018 low, we only have 4 waves in place, which implies that we have one more 5th wave push before the larger bull cycle is over.”

As bad as it felt, this made the recent bear market a correction within a larger uptrend. We simply did not have a full 5 waves in place, and until we saw a 5th wave push to new highs, the pattern remained incomplete.  We are currently in that final 5th wave of this nearly 7-year uptrend. That being said, we still see the potential for another +50% – 90% move higher in the coming months.

A chart depicting Bitcoin’s market trend, showing a correction within a larger uptrend and highlighting the current final 5th wave of a nearly 7-year uptrend.

Source: I/O Fund

The below is our price analysis on this final 5th wave that started in November of 2022. It is also unfolding as a standard 5-wave pattern, and is incomplete until we push to new all-time highs. We stated this in our April 2024 report, which we used to buy this dip.

“We are in a large 5 wave pattern, which is targeting well above $100,000. It is an incomplete pattern, and needs 2 more large swings higher to complete the full 5 waves. Like with all 5 wave patterns, we have bought on each dip, and continue to buy as long as we stay above critical support.”

As stated earlier, the correction this year was simply too long in time to not adjust our prior price targets. While we still believe Bitcoin can go well into the $100,000 region, we will take a more active stance going forward to protect our gains.

Updated Bitcoin Targets

Our updated target for this next push higher is between $82,000 – $106,000. There are now two scenarios that we are tracking, which will determine our risk management:

  • Red – We push into the $82,000 – $106,000 region, completing the minimum number of waves required within this bull cycle. This will end the large degree bull market that started in 2018.
  • Green – After pushing into the $82,000 – $106,000 region, instead of topping in the 5th wave, we are topping in the 3rd wave. We then see another multi-week to multi-month correction that holds over $41,156 – $47,750, which eventually leads to the final 5th wave taking us well into the $132,000 – $190,000 region.
A chart analyzing Bitcoin’s final 5th wave, starting in November 2022, showing an incomplete 5-wave pattern targeting above $100,000 and emphasizing dip buying while maintaining critical support.

Source: I/O Fund

We do believe the next breakout will likely be limited, and that another correction will soon follow. To support this, note when price went vertical in February, which was met with max volume and max momentum. This is what 3rd waves look like. It is the part of the trend where everyone realizes, at once, the direction of the market. This leads to shorts covering, and longs buying more, putting everyone on the same side of the market.

The common characteristic of a 5th wave, which is the final swing in a trend, is that price makes one more high, but on less volume and lower momentum. From a sentiment perspective, the start of a 4th wave consolidation is when smart money exits. The 5th wave tends to happen when investors that are late, want to get exposure to what is believed to be a continuation of the trend. This explains why price goes higher with reduced buyers and weaker momentum.

Note these patterns in play in the chart above. We are clearly in a 5th wave, which will give way to more volatility when it completes.

Confirmation of 5th Wave Targets

To further support our new targets, the pattern of this new swing is also pointing to the same region. If we zoom in on the current bounce we are in, it is taking the shape of an ending diagonal pattern. This pattern only shows up at the end of a move, which fits with us being in some type of a 5th wave.

An ending diagonal consists of 5 waves with large overlaps. The 3rd wave is targeting $74,000 – $82,000, and the final 5th wave is targeting the $82,000 – $106,000 region. As long as any volatility stays above $60,800 – $58,800, I expect us to push into these targets.

A chart of Bitcoin showing a potential breakout and correction, highlighting the final 5th wave’s lower volume and momentum, with an ending diagonal pattern targeting $74,000 - $106,000 if volatility stays above $60,800 - $58,800.

Source: I/O Fund

As of now, we have provided 13 buy alerts to our premium members at the $17,000, $26,000, $33,000, $40,000, $55,000 and $62,000 regions. These unrealized gains range from +300% to 15%, based on our buy alerts. Our game plan is to reduce risk, take well deserved gains on this next push higher. Once we approach these upper targets, we will enter distribution mode.  We will then analyze the next pullback to determine if the more bullish scenario in green is likely to play out. If so, we will add back at levels that are lower risk.

On-Chain Analysis

For those that are not familiar with on-chain data, it offers a unique type of fundamental analysis within crypto and is a relatively new field of study. We partnered with WealthUmbrella, a team of machine learning engineers and professors, to provide this level of analysis within the crypto space. The below was provided to us by Vincent Duchaine, the CEO of WeathUmbrella, and interestingly, they are arriving at the same general conclusions as our technical analysis.

The current imbalance between supply and demand is favorable for a sustained uptrend. This was one of the thematic catalysts that we believed would propel Bitcoin over $100,000, and it is still playing out today. If you look at the ETF flows over the last several weeks, we are seeing buyers move back into the ETFs, creating positive flows.

An analysis of on-chain data showing a favorable supply-demand imbalance for Bitcoin, supported by Vincent Duchaine of WealthUmbrella, with positive ETF flows indicating a potential uptrend above $100,000.

Source: The Block

This is further backed up by the amount of newly created addresses on the blockchain with a non-zero starting balance. This metric has also been consistently on the rise over the last 2 months. It is suggesting that new investors are becoming interested in Bitcoin, which increases also demand.

A metric showing an increase in newly created blockchain addresses with non-zero balances, indicating rising interest from new Bitcoin investors and increased demand.

Source: WealthUmbrella

The above data supports a renewed interest in Bitcoin, as demand from new investors is back on the rise. What we like to see along with this pattern is the behavior of the long-term Bitcoin investors (hodlers). We can measure behavior by analyzing the percentage of Bitcoins that have not moved in over a year, which we call our 1-Year HODL percentage indicator.

A 1-Year HODL percentage indicator showing the proportion of Bitcoin that hasn’t moved in over a year, reflecting renewed interest from long-term investors.

Source: WealthUmbrella

As demand increases at a greater rate than the supply of Bitcoin, we expect price to continue to rise. The above trends should also continue as price increases, which is typically what we see at the onset of a fresh Bitcoin rally.

Regarding where we see this rally going, we first need to see a price candle close above the current all-time highs. The history of Bitcoin tells us that once we accomplish this, we typically see Bitcoin in price discovery mode for at least a few weeks before going into a consolidation or a pullback.

The March high was an exception. Even though we closed above all-time highs in March, this was accompanied with very rare overbought signals that tends to precede a correction. Today, all our metrics have been reset due to the length of the recent correction, which further supports a rally.

For example, one of our primary metrics for gauging cyclical tops/bottoms in Bitcoin, our Metcalfe's Law discount/premium model, was at 3.3 standard deviations around the ATH in March 2024.  This is a reading only seen at prior cyclical tops, and warranted caution. Today, this same model is at only 0.2 today, which is consistent with meaningful lows within on-going uptrends.

A chart comparing Bitcoin’s Metcalfe’s Law discount/premium model, highlighting a previous reading of 3.3 standard deviations at the March 2024 all-time high and the current reading of 0.2, suggesting a potential low in an uptrend.

Source: WealthUmbrella

For reference, the last time this indicator was at such a value was in October 2023 when Bitcoin was at $28K. This allowed Bitcoin to reach $45K, a 60% move, before consolidating.

As Bitcoin's market cap increases, investors should not expect the same % moves when it was much smaller. However, if we were to move higher in only the absolute value from the last time we saw this metric at a similar support, we would see a ~$16,000 increase in price, which would bring Bitcoin to around $80,000.

This doesn't mean that Bitcoin will stop at this conservative target, as the move to $45,000 last year was then followed by a move to $73,000 after some consolidation. If Bitcoin were to move by the same percentage, this would bring price to around $115,000, a price we believe Bitcoin will someday reach, but not necessarily as soon as the current rally.

This lines up with the technical analysis presented – a high probability rally that will likely fall below the $100,000 mark. If our on-chain analysis had to lean in one direction with what we are seeing now, it would support the green scenario outlined above. In other words, we should see another period of consolidation before pushing well into the $100,000 region.

According to our Cyclical Top Indicator, we are still quite early this next leg higher. One of the projects we spent an enormous amount of time on was creating cyclical top and bottom indicators that will give a normalized reading across each cycle. Our bottom indicator has already proven to be quite accurate in calling the November 2022 bottom.

An overview of the Cyclical Top Indicator for Bitcoin, indicating that the market is still early in the next upward leg, with a note on the accuracy of the bottom indicator in identifying the November 2022 low.

Source: WealthUmbrella

We expect the same with our Cyclical Top Indicator, which is shown below. At this moment, even though we are pushing toward new all-time highs, all our top indicators remain depressed. So, even with a push into the $80,000 – $100,000 range in the coming rally, this indicator will still leave ample room for a prolonged uptrend to continue.

A chart of the Cyclical Top Indicator for Bitcoin, showing that despite nearing new all-time highs, the indicator remains depressed, suggesting ample room for a prolonged uptrend even with a potential rally into the $80,000 - $100,000 range.

Source: WealthUmbrella

We anticipate that we will need at least one pullback or consolidation after the current push, followed by another push, before seeing them at a level that will start to enter the zone that could be consistent with a major top.

One final point worth mentioning is the considerable rise in the absolute floor for Bitcoin’s price. Bitcoin tends to not trade too far within this floor, which we can derive from Bitcoin's realized value (the average value at which every BTC last traded) and Bitcoin’s Thermocap history.

An analysis of Bitcoin indicating a needed pullback after the current push and highlighting a rising price floor based on realized value and Thermocap history.

Source: WealthUmbrella

While the realized value and price floor from Thermocap were around $24,000 in March 2024, these values are now $33,000 for the realized value and $28,300 for our price floor from Thermocap. These are very strong levels that tend to act as a floor at the height of a cyclical decline.

Although we don’t think we are going there, seeing them considerably increase while Bitcoin's price did nothing is, for us, a massive improvement that should pay off later. While this still represents considerable downside, what is important is knowing that at a cyclical top Bitcoin usually trades at 4-5X these values. The current downside appears limited and expectations for Bitcoin's price at a cyclical top become very interesting ($120K-$150K, which aligns with some targets we got in December 2023 by playing with some of our top indicators).

In conclusion, while we still believe the original price targets of $106,000 – $190,000 are attainable, we do believe risk has increased. As a result, we will likely reduce some risk on the next rally to all-time highs. Both the technical and on-chain analysis support a move the likely falls short of $100,000, followed by another correction. We will prudently take some gains in the hope of adding back when the technical picture and on-chain data support the outlined green scenario, which would take us well into the $100,000 region.

It is difficult to predict these targets, which we hold loosely as general guides for our risk management. However, there are two things we know for certain: 1) the uptrend pattern is incomplete, and will remain so until the breakout to new all-time highs; 2) several on-chain metrics have cooled off considerably over the past few months and now indicate a promising uptrend that could easily approach the $100,000.

If you own crypto or are interested in how to invest in crypto, we encourage you to attend our weekly webinar that we hold for premium members, held every Thursday at 4:30 EST. This week, we will outline our game plan for Bitcoin in real-time, as well as how we plan to manage the gains in three other altcoins that we currently own. If you would like a more automated risk-on/risk-off signal to help navigate your crypto positions, we encourage you to look at WealthUmrella’s hedge signal.

Please note: The I/O Fund conducts research and draws conclusions for the company’s portfolio. We then share that information with our readers and offer real-time trade notifications. This is not a guarantee of a stock’s performance and it is not financial advice. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis. Beth Kindig and the I/O Fund own BTC at the time of writing and may own stocks pictured in the charts.

Recommended Reading:

Bitcoin Update: Next Stop $100,000

Posted on by io-fund

Bitcoin is the best performing asset in market history. There is no stock or asset that has come close to delivering the returns of this digital currency — it has greatly outperformed all FAANGs, and all outliers in the history of the markets. Yet, Bitcoin is also unusual in that its volatility is equally as historic, capable of regular +70% drawdowns that inevitably push to new highs within an average of 2.5 years.

The sane approach to the immense, yet volatile, opportunity that Bitcoin provides is to use risk management. Understanding what Bitcoin is and why governments have been unable to squash the currency is also instrumental to being a successful Bitcoin investor. Since 2019, our firm has helped our readers understand this unique protocol and why it’s worthy of rivaling the world’s most valuable stocks.

However, with that said, it’s technical and on-chain analysis that keeps you in the game with Bitcoin. Our goal with Bitcoin and other life-changing tech stocks is to participate in the outsized returns, while side-stepping painful periods of volatility.

For example, in early 2021, we cut our position in half when Bitcoin was trading between $50,000 – $64,000. This was after accumulating between $7,000 – $20,000. We then started accumulating again in December of 2022, when we went on record stating that Bitcoin was a buy in the $16,000 region.

“Though we are in the 4th bear cycle in Bitcoin's history, the prior 3 cycles suggest where we are is a rare buying opportunity. There is ample evidence to support the $15,500 level is either a major low or very close to a major low. Both the technical and on-chain analysis support this.”

Bitcoin does not have classic fundamental analysis to guide investors, therefore, technical analysis and a new field of on-chain analysis has been a rewarding approach to managing Bitcoin’s risk.

In our last report, we stated that we are raising our overhead targets to $106,000 – $190,000. The technical and on-chain analysis supported this stance, and still does. While bitcoin tested the upper region of our support zone, we believe that the low is likely in. We are setting up for the next leg higher, and setting up our final purchase within the current Bitcoin bull cycle.

The Truth About Bitcoin’s Upside and Downside

The below chart shows four of the best investments in US market history. from their IPOs, Apple is up +143,000%, Berkshire Hathaway is up +215,000%, Nvidia is up +285,000%, Microsoft is up +445,000%.

Line graph comparing the percentage growth of Microsoft, Nvidia, Berkshire Hathaway and Apple over time.

Source: I/O Fund

Here is the same chart, measured in percentage increase, when we add Bitcoin in with the four of the best stocks in history.

Line graph comparing the percentage growth of Microsoft, Nvidia, Berkshire Hathaway, Apple against Bitcoin.

Source: I/O Fund

These stocks don’t even register in comparison to Bitcoin’s returns since it began mysteriously trading in October of 2009. Since this release, it is up an incredible +8 billion percent (not a typo). However, many have argued that it did not really start gaining public recognition until one year later, and that should be the true starting point for measuring it’s returns.  So, to be fair, from October of 2010, it is still up a staggering 665,000,000%.

This is not a feature of the past. Since its recent low in 2022, Bitcoin is up 336%, outpacing all but one of the Mag 7 including AI stocks such as, Broadcom (AVGO).

A line graph comparing the historical price performance of Bitcoin the Mag 7.

Source: I/O Fund

What makes this valuable to a portfolio is not only the alpha it has generated, but the fact that it has such a low correlation to tech stocks. The below chart measures the correlation coefficient between Bitcoin and the Mag 7 + Broadcom. Anything between +50 and +100 means the two are highly correlated, between +50 and -50 means no correlation, and between -50 and -100 means inversely correlated.

A line chart showing Bitcoin price against Mag 7 and Avgo

Source: I/O Fund

While delivering superior returns than all of the great large-cap tech stocks in this bull cycle, minus Nvidia, it did so while having a low inverse correlation to tech. As of right now, while tech is seeing outsized volatility due to a much needed rotation in the equity markets, Bitcoin has an inverse relationship to these stocks, moving higher against the volatility. As a portfolio manager who seeks unique diversification in the form of a growth asset, this is very valuable. It’s easy to miss this key quality to Bitcoin’s price action without looking closely at the data.

Unusual Volatility

Another intriguing point about Bitcoin’s performance can be found in analyzing its volatility. Most investors are well aware it’s highly volatile, and thus stay away. Since inception, it has seen four drawdowns of 70% or greater. These are drops that most assets rarely recover from, and if they do, it takes years to decades before reclaiming those highs.

However, every time bitcoin has seen one of these large drawdowns, it has fully recovered within 2.5 years, on average. This is rare, and I don’t know any other asset that has done this multiple times.

A stock chart displaying a V-shaped recovery pattern, showing a sharp decline followed by an equally sharp rebound.

Source: I/O Fund

Regardless of your feelings toward this polarizing asset, it’s worth asking why it is up so much, and why it quickly recovers unlike any asset the market has ever seen? If it truly were a bubble, then why doesn’t the bubble pop? Instead, the asset comes back stronger than ever and reclaims all-time highs. Bitcoin is here to stay, and it is worth understanding why this is.

Revolutionary Tech That Solves a Problem

Bitcoin was designed to disrupt the oldest and most powerful system in the global economy – centralized banking. It is a global asset that offers an exit from the centralized fiat system. This is a concept that is new to everyone, as all money is understood in relation to personal banks, and centralized banking.

During the great financial crisis, Satoshi Nakamoto released a white paper on Bitcoin, introducing it to the world. In that paper, the intended purpose of Bitcoin was stated:

“The root problem with conventional currency is all the trust that's required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve.”

Bitcoin is a value exchange that needs no intermediary. It sidesteps counterparty risk that is inherent to banking and cannot be inflated through politics and questionable centralized policies. It was designed to be a hedge against another banking crisis, and potential inflation crisis.

Over the last decade, we have been forced into the greatest monetary experiment in recorded history. Central banks held interest rates at zero for nearly a decade, while some held them with a negative rate. In all of recorded history, there has never been an instance where a debtor was charging interest to give them a loan. Yet, this is what we saw in many industrialized nations for many years.

No one knows how this experiment will end, as there is no precedent for it in history. As a result, investors continue to see unsettling stats, like: Global Debt/GDP at 90.8%, U.S. Debt/GDP is 127%, Japan Debt/GDP  268%, $517B in unrealized losses on bank balance sheets while FDIC now has 63 banks on problem list in 2024.

Maybe this gets resolved without any concern. But if it doesn’t, we may actually get a chance to see if Bitcoin’s stated purpose can offer an alternative to what the unwinding of this excess may do to a currency.

Our firm understood this, and regularly published on the bigger picture for our readers since 2019. We publicly established a position in Bitcoin at $7,717 within a month of launching our site following a free article we wrote in 2019 where we predicted Bitcoin will exceed the markets cap of the world’s most valuable companies.

“My prediction is that once the Lightning Network is built out, bitcoin will surpass the market cap of Apple, Google, Microsoft and Amazon to reach a minimum of $50,000 per token. This is because the protocol solves critical needs for global populations, including the reduction of financial fees for 7 billion people, and offers a need to store money during times of inflation…Technically speaking, bitcoin is also the world’s most secure financial network. The transfers eliminate 3% in processing fees and hedges against inflation. This can, and should be, worth as much as a search engine, enterprise software, a social media network, warehouse fulfillment (AMZN) or iPhone hardware.

The problem that bitcoin solves is underestimated (or worse, not understood). Bitcoin offers global populations a digital alternative to centralized fiat currency. The masses have been quite clear, whether from El Salvador, Venezuela, Japan or Africa, — the 7 billion+ people in this world seek a way to sidestep risks that global citizens face by handing over their assets to centralized banks and governments. These people seek a true and secure way out of the centralized banking world, and those who do not embrace this will be left behind by holding only centralized currency without diversification.

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Technical Analysis

Bitcoin has no management team, no earnings reports, and no fundamentals to base an investment decision. The large swings in both directions are seemingly at random. Through technical analysis, we can determine these swings are not random, and instead, get a reasonable means to both establish risk controls and determine buy and sell targets.

From an aerial view, it’s important to identify the direction of the trend. The easiest way to do this is to look for the vertical moves and the overlapping/messy corrections. In other words, which way are the vertical moves – up or down? This is your dominant trend.

A technical analysis chart of BTC/USD showing price movements: "Vertical Down," "Overlapping Correction," "Vertical Up," and "Trend Change" from late 2021 to early 2025.

Source: I/O Fund

In 2022, the vertical moves were down, which were interrupted by short and shallow bounces that were overlapping and messy. These were corrections within the dominant trend, and that trend changed in late 2022. Note how the vertical moves since then have been up, while the overlapping corrections have been down. Today, we are in another overlapping and messy retrace of the vertical moves higher. This means that we are likely in a correction within a larger uptrend.

The Elliott Wave count we have been following since before the 2022 low, which can be found in prior December 2022 Report, adds more context to the upward trend we are currently in.

A technical analysis chart of BTC/USD from late 2022 to mid-2025, showing price waves with numbers: upward and downward channels, and Fibonacci extension levels.

Source: I/O Fund

We are in a large 5 wave pattern, which is targeting well above $100,000. It is an incomplete pattern, and needs 2 more large swings higher to complete the full 5 waves. Like with all 5 wave patterns, we have bought on each dip, and continue to buy as long as we stay above critical support, which is now at $42,750. Above this support zone, and the odds favor higher levels.

Furthermore, all 5 wave patterns are fractal. In other words, a small 5 wave pattern turns into a larger one, and so on, until you hit your target. We see 5 wave patterns (vertical moves) in the direction of the dominant trend, and 3 wave patterns (overlapping corrections) as counter moves, or pauses, within the dominant trend.

If we analyze the current correction and bounce off the low, it appears that we are setting up for the next vertical move higher.

A technical analysis chart of Bitcoin (BTC/USD) from early 2024 to late 2024, showing price waves and projected future price movement with target levels.

Source: I/O Fund

We have a full corrective pattern in place that ended around $54,000 in early July. From this low, look at what has developed. This is a clean, vertical, 5 wave bounce, which suggests we are in the early stages of the next rally.

The next pullback will be where we add our last tranche in this bull cycle. Since this cycle started, we have been systematically accumulating, while raising our critical supports along the way. Below is the history of Bitcoin buy alerts that we have issued to our subscribers in real-time since early 2023.

bitcoin & us dollar daily chart

Source: I/O Fund

While we don’t expect to always buy the bottom and sell the top, through technical analysis, we can safely and systematically play the middle, which offers alpha and diversification to modern day portfolio management.

On-Chain Analysis

For those that are not familiar with on-chain data, it offers unique fundamental analysis within crypto, and is a relatively new field of study. We partnered with WealthUmbrella, a team of machine learning engineers and professors, to provide this level of analysis within the crypto space. According to WealthUmbrella, the underlying strength that our technical analysis is picking up on is also being supported within on-chain data. The below section was written by Vincent Duchaine, CEO of WealthUmbrella.

The Spot Bitcoin ETF approval in January triggered a rare move in Bitcoin that quickly brought us to new all-time highs (ATH) around $73,000. This move also created some of the most overbought conditions we have seen throughout Bitcoin’s history. One of the key indicators we use to gauge these overbought levels is what we call our Metcalfe's law discount/premium model, which measures the value of Bitcoin’s network through the increase/decrease in active users.

At the prior ATH in Bitcoin, this indicator gave us a reading of 3.3 standard deviations ahead of the fair price. For reference, this was in the 99.9th percentile of all Bitcoin readings and is consistent with what we see around cyclical tops in Bitcoin.

mldp z score distribution

Source: WealthUmbrella

In light of this extreme reading in one of our key metrics, we still maintained “that the bull cycle in Bitcoin will likely move higher.” This was the right call, as we have been in a large consolidation since. The current correction has now allowed our Metcalfe's law discount/premium model to cool down to a level that is consistent with a healthy, which we typically see in an on-going bull market.

wealth umbrella bitcoin daily chart

Source: WealthUmbrella

In fact, the last time we reached such a reading was in October 2023, when Bitcoin was trading around $29k. Bitcoin's price then climbed 69% to a price of $49k, before its first large consolidation in the current bull cycle.

As Bitcoin's market cap increases, the chances that we continue to see vertical moves of that magnitude does decrease. If Bitcoin climbs at least $20k, like in the previous run, this would still put Bitcoin at around $90k before the next consolidation. This, we believe, is a conservative assumption.

tradingview bitcoin chart

Source: WealthUmbrella

As stated earlier, while the above metric was flashing a warning, none of our other cyclical top indicators agreed. For example, our primary cyclical top indicator, which we call the Kwiatkowski top/bottom indicator, was nowhere near the reading that we see around major tops.  This indicator measures the different Bitcoin capitalizations, as well as Bitcoin miner revenue to Hashrate ratio, and has a remarkable correlation with significant tops and lows.

More encouraging, this indicator is now finding support in areas that are more consistent with early bull markets, let alone major tops. It recently went to a reading where Bitcoin has always bounced back in a bull market over the last two cycles. This suggests that $52k was likely the bottom of that correction.

bitcoin bottoming zone bull market chart

Source: WealthUmbrella

These specific indicators helped us successfully call the bottom when Bitcoin was around $16k in December 2022, and they kept us on the right side of the recent correction when many were calling for a major top.

This is further supported by the supply and demand equation in Bitcoin that is now back in a healthy relationship. Regarding demand, while the net buying volume in the ETFs is starting to pick up, the amount of newly created accounts with a non-zero balance seems to have bottomed out and is now climbing. I personally believe that the attention Bitcoin is currently receiving in the ongoing US presidential race lends legitimacy to Bitcoin and will continue to attract more people to this asset.

bitcoin chart newly created addresses with a non-zero starting balance

Source: WealthUmbrella

On the other side of the equation, supply is now more scarce following the halving, with now only 450 Bitcoins being mined per day. Following the Spot ETF approval, the number of coins that did not move for more than a year was consistently dropping, indicating that long-time market participants were willing to finally sell. This movement has now come to a stop and, if we exclude one single massive transaction that occurred in June where a huge amount of very old coins moved, this number is now significantly on the rise.

market cap btc dominance bitcoin chart

Source: WealthUmbrella

In summary, we have remained steadfast in our assertion that bitcoin has been and remains a buy. To transparently discuss ongoing buy plans is rare and very few investors offer this level of real-time transparency on positions they already own. We were one of the first firms to offer real-time trades on this volatile asset since 2019, but most recently we offered granular and concise discussions around our buy plans in December 2022, and since have continued to discuss our buy plans in April 2023, December 2023, April 2024. We are now asserting, yet again, that Bitcoin is a buy in July of 2024.

Our technical analysis is suggesting that we are completing a correction within a large and unfinished uptrend. The next dip, we believe, will be the last opportunity to buy before we resume going vertical. Our Elliott Wave analysis is in agreement with WealthUmbrella’s unique on-chain analysis, which sees readings that are consistent with lows, not highs. This is while we are measuring a notable rise in demand, with consistently less supply. This is the basic condition for seeing a good uptrend in Bitcoin. With this information, we are confirming our price target of $106,000 – $190,000.

If you are interested in our next buy plans for Bitcoin and other cryptocurrencies, then we encourage you to join us Thursday August 8th at 4:30 PM EST for a premium webinar with special guest Vincent Duchaine, CEO of WealthUmbrella. Together, we will discuss where we see the crypto market going, and what it will take to end the current bull cycle. Sign up hereSign up here

Please note: The I/O Fund conducts research and draws conclusions for the Fund’s positions. We then share that information with our readers. This is not a guarantee of a stock’s performance. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis.

Recommended Reading:

With Bitcoin at All-Time Highs, Here’s What’s Next for COIN, HOOD

Posted on by io-fund

We said to our free readers in late January following the SEC’s approval of nearly one dozen spot Bitcoin ETFs that it was “widely expected that this approval and subsequent widespread access for institutions and retail investors will shape up to be one of the most bullish fundamental moments in Bitcoin’s history.” At the time, Bitcoin was trading for less than $40,000. Now, Bitcoin has repeatedly pushed above the $70,000 mark, and we updated our Bitcoin game plan and price targets to $106K to $190K in late April as Bitcoin pulled back below $60,000.

While Bitcoin and the spot BTC ETFs have clearly seen strong investor appetite since the approval in the beginning of the year – for example, BlackRock’s iShares Bitcoin Trust (IBIT) reached $10 billion in AUM in less than seven weeks as it went on to notch 71 consecutive days of net inflows. IBIT now has more than $23 billion in AUM, or 305,067 BTC, more than doubling in three months. Alongside strong initial adoption of the new ETF class, we’re also seeing major crypto exchanges and platforms benefit, with Coinbase and Robinhood both seeing crypto trading volumes and transaction revenues surge.

This may cause investors to believe that Coinbase and Robinhood are clear beneficiaries, yet we foresee trouble for HOOD specifically. Our firm excels at using technical analysis to manage high beta positions, which is why our Bitcoin entries and exits have greatly outperformed a buy-and-hold strategy, as we previously detailed here. Not only are the technicals flashing on Robinhood but the fundamentals show concentration risk in Dogecoin, one of the riskiest coins on the market. We spell out what it could mean for our readers, and why Robinhood is (yet again) a risk to both investors and crypto holders.

Coinbase Says Crypto Volatility Ticked Up in Q1

After reaching the lowest levels since 2016 in Q3 last year, crypto volatility has begun to increase, with Coinbase noting that an internal measurement of crypto asset volatility rose “sharply, but remained well below all-time high levels.”

Coinbase measures volatility “based on intraday returns of a volume-weighted basket of all assets listed on our trading platform [which] are used to compute the basket’s intraday volatility which is then scaled to a daily window. These daily volatility values are then averaged over the applicable time period as needed.”

Monthly crypto asset market cap and volatility

Source: CoinbaseCoinbase

Alongside this rise in crypto volatility towards the 5% range, Coinbase noted a surge in the crypto market cap, which “reached a 52-week high of approximately $2.8 trillion in Q1.” This also returned to the peak levels seen in Q3 and Q4 2021, which coincided with both Coinbase’s and Robinhood’s record high transaction revenues and trading volumes. Coinbase said that while it cannot identify a specific singular driver of this increase in crypto market cap through Q1, it pointed to “a variety of factors, such as the launch of the Bitcoin ETFs which experienced over $11 billion in net inflows so far in 2024.”

While we saw the pace of inflows slow to a crawl through April and May, June so far has seen inflows top the $500 million mark once again, recording the second highest daily net inflow since the start of the year at more than $886 million.

Spot BTC ETF daily inflows

Source: The BlockThe Block

Crypto market cap has stayed relatively flat this quarter so far compared to Q1, last reaching $2.68 trillion on June 11, just 7% below its peak of $2.89 trillion in early March. This was aided by the SEC’s initial approval of 8 Ethereum ETFs in late May and a 20% rise in ETH – another possible volatility-spurring event. Overall, Q1 saw very favorable conditions for Coinbase and Robinhood to accelerate trading volume growth and transaction revenue generation with an increase in volatility along with rising crypto prices, and these conditions look to have persisted through much of Q2 so far, albeit with a slowdown in net inflows to BTC ETFs early in the quarter.

Coinbase, Robinhood Trading Volumes Accelerating Significantly

Both Coinbase and Robinhood reported significant accelerations in trading volumes in Q1, with participation from both retail and institutional investors increasing.

Coinbase reported total trading volume of $312 billion, a 103% QoQ increase from $154 billion in Q4, and a 312% increase from Q3’s low of $76 billion. Growth was driven by both retail and institutional customers, though as Coinbase’s largest and primary customer group, institutions drove a lion’s share (83%) of the dollar increase in trading volume.

Coinbase quarterly consumer and institutional trading volume, Q3 2020 through Q1 2024

Source: I/O Fund

Institutional trading volume of $256 billion represented a 105% QoQ increase, or $131 billion, reaching the highest level since Q1 2022. Retail trading volume rose 93% QoQ to $56 billion in Q1, more than 5x higher than Q3’s $11 billion. Bitcoin was the primary driver of the QoQ increase in trading volume, with Bitcoin’s volume rising from below $48 billion in Q4 to $103 billion in Q1.

Robinhood’s crypto trading volume growth outpaced Coinbase’s in Q1, though at a much smaller base due to the lack of institutional investors on the platform. Robinhood reported 224% YoY and 181% QoQ growth in crypto trading volume to $36 billion, or 429% higher than Q3’s $6.8 billion. This growth was driven primarily by a surge in volume in March, where Robinhood reported $23.6 billion in volume, a 263% MoM increase.   

Robinhood quarterly crypto trading volume, Q1 2021 to Q1 2024

Source: I/O Fund

Robinhood also has shared April and May’s crypto trading volume metrics, reporting trading volume of $10.1 billion in April, a (57%) MoM decline but a 173% YoY increase. May’s crypto trading volume slipped (30%) MoM to $7.1 billion; this still represented a strong 238% YoY increase. We’re seeing one primary asset driving this growth in Q1 and this sequential MoM weakness through Q2, which raises one red flag for the durability of transaction revenue growth moving forward.

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Coinbase, Robinhood’s Transaction Revenues Surging

As a result of the rapid acceleration in crypto trading volumes across Coinbase and Robinhood, the two are seeing transaction revenues surge. In Robinhood’s case, crypto is now becoming a much larger part of transaction revenues and thus overall revenues.

Coinbase reported transaction revenue of $1.08 billion in Q1, including $56 million of Base and payment related revenue. This represented YoY growth of 187% and QoQ growth of 103%, an acceleration from Q4’s 64% YoY and 83% QoQ growth. In just two quarters, Coinbase’s transaction revenue has risen nearly 275% due to accelerating growth in retail trading volume.

Coinbase quarterly consumer and institutional transaction revenues

Source: I/O Fund

Retail (consumer) transaction revenue increased 184% YoY and 99% QoQ; in dollar terms, revenue increased nearly $470 million from last quarter on a $27 billion increase in volume. Institutional transaction revenue approached levels last seen in Q4 2021, reaching $85.4 million in Q1. Revenue from this cohort has increased $71 million over the last two quarters, as trading volume surged nearly $200 billion.

Coinbase shared some light on Q2’s outlook, saying that “in April, we generated over $300 million of total transaction revenue and expect Q2 subscription and services revenue to be within a range of $525-$600 million, assuming crypto asset prices stay in the range we have seen year to date.” Extrapolating this across May and June suggests Q2’s total transaction revenues are set to decline sequentially, by approximately (10%) to (15%).

This highlights two major facets of Coinbase’s model – while institutions drive a majority of volume on the platform, the transaction fees are a tiny fraction of what retail pays, meaning that strong growth in institutional volume will barely be felt on the top line. It also highlights that despite increasing fee-based competition from both Robinhood and ETFs, Coinbase is driving revenues higher on smaller volumes than it had seen in 2021. This means that if crypto adoption and volatility brings trading volumes near peak 2021’s levels, revenue is likely to easily exceed those historical peaks. However, transaction revenue growth may have peaked for the short term, given April’s results and trends seen in Robinhood.

For Robinhood, crypto is but one of the many investing products offered on the platform alongside equities and options, with options historically serving as the largest driver of transaction revenue. Crypto transaction revenue was $126 million in Q1, an increase of 232% YoY and 193% QoQ. Compared to Q3 2023, it’s an increase of nearly 448%.

Robinhood quarterly crypto transaction revenue

Source: I/O Fund

Robinhood Has Nearly as Much Doge as Bitcoin = High Risk

Crypto transaction revenue now accounts for 38% of Robinhood’s total transaction revenue, up from 22% last quarter and 12% in Q3. This was crypto’s highest share of transaction revenue since Q2 2021, where it drove 52% on elevated interest and extreme trading volume in Dogecoin, which accounted for 62% of crypto trading volume in the quarter.

Dogecoin remains a critical piece of Robinhood’s crypto business and a likely driver of recent growth alongside Bitcoin – safeguarded customer assets of Dogecoin increased 122% QoQ to $7.37 billion, or 28% of total safeguarded crypto assets. For comparison, safeguarded Bitcoin assets rose just 68% QoQ to $10.31 billion.

It's likely that a majority of March’s $23.6 billion in crypto trading volume can be traced back to Dogecoin, with the same going for April and May. March saw extreme volatility in Dogecoin’s price as it topped $0.20, with daily volumes regularly topping 3 billion, and reaching as high as over 12 billion, whereas in January and February daily volume rarely surpassed 2 billion. Daily volume remained elevated in April as Robinhood reported more than $10 billion in crypto trading volume, while Doge’s volume has dipped in May where Robinhood’s crypto volume declined (30%) MoM.

Dogecoin price 2024

Source: CoinMarketCapCoinMarketCap

This raises a question of how durable transaction revenue growth is, assuming crypto trading volumes decline (30%) QoQ in Q2 on fading volume in Dogecoin, and plateau in Q3. Trading volumes are continuing to slip MoM, as seen in April and May’s results, providing a headwind to transaction revenue growth as this elevated volatility in Dogecoin dissipates.   

Robinhood received a Wells Notice in early May regarding crypto tokens listed on the platform, though it is not clear exactly which tokens the SEC is targeting in the notice. Robinhood CFO Jason Warnick explained in Q1’s earnings call that it is “business as usual for Robinhood Crypto. We're, of course, disappointed to have received the notice. As you know, we've operated our crypto business in good faith. We've been very conservative in our approach in terms of coins listed and services offered. And we're a highly regulated company and have applied the same legal and compliance standards we use for our brokerage to the way we run our crypto business. So, it's disappointing to see more regulation by enforcement here.” At the same time, Robinhood is working on expanding its crypto presence globally, buying BitStamp for $200 million.

Robinhood’s High Concentration Risk in Dogecoin

As a reminder, Dogecoin contributed 62% of Robinhood's revenue in the previous crypto run-up, which did not end well for investors as the high concentration contributed to the stock losing 90% of its value as Dogecoin’s hype and price faded shortly after Robinhood’s IPO.

We can clearly see how Doge’s price and volatility are correlated to Robinhood’s trading volume and transaction revenue growth.

Doge’s price surged to the pennies in Q1 2021 on more than 850 billion in volume, with Robinhood reporting nearly $88 billion in trading volume. Q2 2021 saw Doge’s price surge above $0.70 on extreme volatility with volume of 680 billion, driving Robinhood’s Q2 2021 trading volume up to $233 billion, a 3x QoQ increase. Transaction revenues soared from $12 million in Q4 2020 to $233 million in Q2 2021, a remarkable growth rate in just two quarters. However, this quickly faded to $51 million in Q3 2021 as Dogecoin’s volatility and volume faded quickly.

Trading volume declined steadily hand-in-hand with Doge through 2023 – October 2022’s pop in Doge drove a 16% MoM increase in Robinhood’s trading volume from $15.5 billion to $18 billion, which quickly dropped to below $15 billion in November and continued its trend of declining consistently. Doge’s recent increase again has correlated with increased volumes and transaction revenues for Robinhood in the first quarter, but has led to declining trading volumes and likely transaction revenue for Q2.

Dogecoin price 2021 through 2024

Source: CoinMarketCapCoinMarketCap

Robinhood quarterly crypto trading volume

Source: I/O Fund

Analysts seemed to poke about Robinhood’s heavy concentration and reliance on Doge in Q1’s call, though management’s response was very vague.

Q, Brian Bertram Bedell (Deutsche Bank): “Maybe just staying on the crypto theme, maybe for Jason, if you can talk about just the nature of the surge in crypto volumes in March. And I think you said April was at $10 billion. I appreciate, of course, this is very volatile class, but maybe if you can just talk about what you're seeing that drove that heavy activity in March and whether you think we could see spikes like that again?”

A, Vladimir Tenev (CEO):  “…Our crypto activity does track the broader market. And I don't really want to get into prognosticating what the crypto market is going to do. That's obviously a difficult thing for anyone to do. It's a global market. … But the goal is also to diversify the business so that we're less reliant on volumes anywhere in any one category to drive business results.”

While management vaguely pointed to the broader market as a driver of growth, the comments about diversifying away from one asset again hints at Dogecoin being a primary driver of trading volume and transaction revenue growth, further supported by safeguarded assets more than doubling QoQ.

This heavy reliance on a memecoin raises risks for durable crypto revenue growth outside of Dogecoin, and we have seen cases where companies with heavy customer concentration have failed to deliver for investors. For example, AI lending platform Upstart, which has faced significant macro headwinds recently, had significant customer concentration, with two customers combining for more than 80% of revenue in both 2020 and 2021. Prior to the first rate hike in March 2022 and before feeling the effects of the challenging macro in Q2 2022, Upstart had lost more than two-thirds of its value.

Every Thursday at 4:30 pm Eastern, the I/O Fund team holds a webinar for premium members to discuss how to navigate the broad market, as well as various stock entries and exits. We offer trade alerts plus an automated hedging signal. The I/O Fund team is one of the only audited portfolios available to individual investors. Learn more here.here.

Forward Growth Rates Are Low

Despite strong growth in Q1, both Coinbase and Robinhood’s forward revenue growth rates are forecast to slow to a crawl, with sequential growth barely visible, if at all, with minimal single digit growth forecast for 2025 and 2026.

Coinbase and Robinhood quarterly revenue estimates

Source: I/O Fund

For Q2, Coinbase is estimated to see revenue decline almost (15%) QoQ, likely driven by softer transaction revenues. Sequential growth is limited through Q1 2025, with revenues estimated to hover around $1.4 billion. Robinhood is in a similar camp, with it estimated to see just $1 million in sequential growth in Q2 before a (6%) sequential decline in Q3.

On an annual view, revenue growth for the two is expected to slow dramatically in FY25 and FY26. Robinhood is estimated to report more than 28% revenue growth this year, but in 2025, growth is expected to decelerate 23 percentage points to just 5.3%. Coinbase’s revenue deceleration is much more severe, with estimated revenue growth of 81.1% in 2024 projected to decelerate to below 1% growth in 2025.

Coinbase and Robinhood annual revenue estimates

Source: I/O Fund

This rapid revenue deceleration to the single-digits is expected to persist, with Robinhood forecast to see just 3% revenue growth in 2026, while Coinbase’s revenue is expected to decline more than (2%) YoY, pointing to a revenue plateau in the $5.5 to $5.6 billion range.

Technical Analysis:

Coinbase (COIN)

COIN is in an uptrend that appears to be incomplete. It has been tied to Bitcoin’s uptrend, which is even more clearly incomplete. This means that COIN could be setting up for a buying opportunity on the next drop.

The larger pattern in play is a diagonal. This is a 5 wave pattern that is characterized by lots of overlap, big swings in both directions, and tends to obey a trend channel.  If this is playing out, then Coin base is setting up for a sharp drop into the $185 – $140 region. This drop will be the final swing lower, which will complete wave 4 of 5. We can see a drop as low as $113 and still maintain the diagonal pattern; however, below this level and the odds start favoring that a major top was already struck in March of this year.

If we are accurate, like Bitcoin, this dip would be another buying opportunity in an on-going uptrend. The final 5th wave would be generally targeting the $300 – $400 region, if confirmed. This is assuming we hold $113.

Coinbase technical analysis

Source: I/O Fund

Robinhood (HOOD)

HOOD’s chart is not in a healthy position. Note the drop from all-time-highs. This is a direct drop that best resembles a 5 wave pattern. What has followed is an overlapping and messy bounce, which resembles a correction within a larger trend. If this is a developing downtrend, then the initial 5 wave drop is the A wave, the messy bounce is the B wave, which is setting up for a C wave drop, which I would expect to be about the same length as the A wave drop.

The final move higher is also quite telling. The last leg of a corrective bounce is always a 5 wave push against the larger trend. You can clearly see 5 waves in place, which takes us into the ideal topping zone for this move. In order for HOOD to start invalidating this setup, we really need to see a strong move above $48.10.

On the other hand, if HOOD is in the larger downtrend pattern, then the final leg lower will be a C wave. These are always 5 wave patterns, which appears to be vertical moves. If we see a vertical, 5 wave drop from any high, followed by a messy bounce in the opposite direction, we will have strong confirmation that HOOD is setting up for a larger drop.

This is not one we would play from the long side based on what the technical are telling us.

Robinhood technical analysis

Source: I/O Fund

Conclusion:

Coinbase and Robinhood capitalized on increased crypto volatility in Q1 as crypto prices rose following the approval of spot BTC ETFs in January. Trading volume and transaction revenue growth was stellar for both in the first quarter, but Robinhood’s monthly metrics reflect weak MoM growth through Q2 so far, as Dogecoin volume and volatility subsides.

Robinhood is overdependent on Dogecoin as a primary driver of crypto trading volume and thus crypto transaction revenue, and with crypto accounting for 20% of overall revenue, it’s not something to ignore. Robinhood’s exposure to Dogecoin is unusual, and also a risk most investors probably aren’t aware of. When you couple these fundamental headwinds with the troubling chart, it seems there could be more trouble for HOOD on the horizon. This is not a stock we would play on the long side.

As Bitcoin continues to play out the ongoing bull cycle, we expect COIN to follow. The next high discussed in this writeup is where we will start getting cautious with both Bitcoin and COIN, as both charts suggest an incomplete uptrend. That being said, this drop in COIN appears to be a buying opportunity, as long as the critical support holds that we discussed.

I/O Fund Portfolio Manager Knox Ridley and I/O Fund Equity Analyst Damien Robbins contributed to this analysis.

Please note: The I/O Fund conducts research and draws conclusions for the company’s portfolio. We then share that information with our readers and offer real-time trade notifications. This is not a guarantee of a stock’s performance and it is not financial advice. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis. Beth Kindig and the I/O Fund own BTC at the time of writing and may own stocks pictured in the charts.

Recommended Reading:

Positions Update: Bitcoin, Microsoft, and Nvidia

Posted on by io-fund

Bitcoin

Here is the big picture. The data best fits with a very large degree ending diagonal pattern for the bull cycle that started in 2018. This means that each wave is a 3 wave pattern (A,B,C). If true, then we are in the 5th wave and still in the A wave.

This makes sense to me, and also lines up with equities – high in Jan/Feb, multi-month pullback into mid 2024 (B wave), blowoff into 2025 (C wave). I don't see equities giving a blowoff into 2025, so there will be a decoupling at some point. This lines up with the time factor chart below. We're looking at a 2 week chart, so each time factor tends to be more notable. There are 4 time factors clustering together right now and we are trending up into them. Now, note the huge cluster in June/July. If we see a top in the $50K region and then turn back down, this will be where we look for the B wave low.

This sounds great, and is a solid game plan. However, we have to account for alternative scenarios. If we instead just go vertical through $58,000, then we will invalidate the blue count and red count, and instead be in a direct move toward our target. This would constitute a breakout buy, as we would be in the mid-point of the larger trend higher. This would be the green count below. I would not take red seriously until we pullback from the $50K region in a 5 wave drop. This count suggests that we are still in a large degree bear cycle and topping. Not my primary.

Now, if we zoom in even closer, if we are heading to the $50K region, the 5th wave is an ending diagonal. The problem is that we could also be in an expanded flat correction too! Keep in mind that ETH is not confirming this breakout. So, as long as we stay below $48,500, this is a possibility (orange count). If we do drop in an expanded flat, we'll go below $44,500 in a 5 wave pattern. If so, we'll go heavy in the high $30,000 range.

So, there is a lot going on! My base case is a top soon, followed by a large pullback. If we get this, we'll stick with the plan in the blue count. If we go vertical, then we chase above $58,000.

Microsoft

We now have the 5th wave in. Keep in mind, this is the 5th wave of a 5th wave of a 5th wave, which started in 2009. That $370 level is the major floor. It's where the largest trade in MSFT's history printed. Big money either bought or sold, and considering the price patterns, it's likely a sell. You will know this when a drop below that level does not get defended.

Nvidia

We're in our long-term target zone, finally. This is the 5th wave, and based on what I'm seeing in the above charts, I don't see the green count playing out. However, this is a large first wave off the October 2022 low. This means a deep retrace will be the buying opportunity we have been patiently waiting for.

Advanced Signals Members receive real-time trade alerts for our entries and in-depth technical analysis from the Portfolio Manager, Knox Ridley. Learn more here.here.

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Bitcoin: Setting Up for a Strong 2024

Posted on by io-fund

Welcome to the recent new Essential Members. We have revamped the Essentials Portfolio by including Bitcoin. Stay tuned for trade alerts sent directly to your inbox, keeping you up-to-date with any adjustments to three key holdings. We are adding Bitcoin because we believe it will be advantageous for our Essentials members to receive real-time trade alerts for one of our top convictions in the upcoming year. What we emphasize is that it’s not a stock tip that generates wealth, rather how you manage the position. One of our most valuable value-adds has been our Bitcoin trades, which you can read about here. By initiating Bitcoin for Essentials Members, we will be updating you in real-time on our Bitcoin trades via email alerts.

The harsh truth is that many stocks look to be topping in their charts given the strong rally in tech this year, yet Bitcoin looks as if the chart has room – perhaps substantial room, which we will monitor and update you with real-time trade alerts as we hit key price levels.

Certainly, the asset is facing one of the best moments for institutional adoption, which is the approval of spot Bitcoin ETFs and a clearance for central banks to own up to 2% of assets in crypto. Couple this ramp in demand with the Bitcoin halving that is set to take place in 2024, which will further restrict supply, and we think this is the perfect recipe for Bitcoin to lead in 2024.

Bitcoin Backdrop:

It’s important to understand that some of the brightest minds in technology (and by far, the best investors in technology) believe bitcoin is a viable form of currency, as well as one of the recent marvels within tech innovations. Venture capital firms such as Khosla Ventures, Union Square Ventures, Lightspeed, and A16Z have been funding bitcoin projects for some time (circa 2013 and 2014).

On the other hand, one of Bitcoin’s hurdles is multigenerational adoption. To date, bitcoin is predominantly a retail dominated asset. Late Charlie Munger and Warren Buffett both criticized bitcoin as worthless. In fact, Buffett went so far as to claim Bitcoin is “probably rat poison squared.” In this article, we would like to highlight the unique benefits of Bitcoin.

Economic Uncertainty in Lower GDP Countries

The populations that rapidly adopt Bitcoin are located in lower GDP countries. Imagine not having enough confidence in your government and federal-backed insurance to put your money in the bank. Yet, this is the reality for billions of people globally who do not trust their governments – primarily in Latin America, Africa, Asia and the Middle East. There are ongoing conflicts in these countries, civil dis-rest, cartels often run the government behind the scenes, and the domestic economies can become crippled overnight.

Regardless of how you feel about your own country’s government and banking system, it’s important to acknowledge that the best technology solves issues for global populations. You do not need to personally use Facebook to acknowledge the social network is popular globally with 3 billion users. You do not need to personally use Salesforce to see it solved a real need for sales and marketing teams. Similarly, you may feel quite confident in your country’s government and banking system – but it’s important to acknowledge that the majority of the world does not have this confidence and these populations do not use a bank. We call this the “unbanked” and this is a key demographic driving Bitcoin adoption from the bottom up.

For example, Venezuela saw record Bitcoin adoption during a period of hyperinflation when the price of a cup of coffee rose to 2,800 bolivars up from 0.75 bolivars within one year, representing an increase of 373,233%, according to Bloomberg data. Essential goods such as toilet paper and medicine were also very costly, and many Venezuelans fled the country. Despite market volatility, bitcoin helped Venezuelans make money at a time when inflation threatened their livelihood and also their family’s survival. Cryptocurrency offered the lower GDP country accessible protection and the ability to escape an autocratic government.

Notably, the government in El Salvador has adopted Bitcoin as their national currency. During the transition, the government provided $30 in free Bitcoin for citizens who signed up for a digital wallet. Within weeks, the number of digital wallets in El Salvador surpassed the number of bank accounts in the country. This is clearly demonstrating the distrust many global populations have with their banking system. Although many consider countries with the most dominant GDPs as the countries who set the world’s stage for economic conditions, the emerging markets play an important role as the unrest in these regions can lead to disruption.

Apple, Google, Microsoft, and Amazon crossed market caps of $1 trillion because their products scale to global populations and are required on a daily basis. Bitcoin not only scales to the global population, but it also protects and diversifies their livelihood – a necessity rather than a convenience. In fact, we see populations who are not necessarily tech-savvy most enthusiastic about bitcoin, and this was part of the I/O Fund’s thesis in 2019 as to why Bitcoin would cross a $1 trillion market cap. 

Notably, Bitcoin is also the world’s most secure financial network. The transfers eliminate processing fees and hedges against inflation. Due to these unique features, the I/O Fund believes Bitcoin should be worth as much as a search engine, enterprise software, social media network, warehouse fulfilment/data center (AMZN), or iPhone hardware company. Bitcoin is more secure than 10,000 banks combined due to its decentralization. This level of security solves a genuine need for the financial system as the financial system cannot be automated without a decentralized blockchain solution.

The United States Has Its Fair Share of Financial Issues Too

Economists have discussed the effects of going off the gold standard during Nixon’s presidency, yet this has been a futile conversation in the past as there has been no alternate method of transacting other than centralized cash. Gold and precious metals are hard to transport and cannot be used to transact daily in the modern age, despite having a store of value.

During the Nixon Presidency, the United States fiat system decoupled from gold, and this is why the cost of living has gone up exponentially while wages have stagnated. This has forced many households to work two jobs with little to show for their efforts.

Currently, the United States is at debt levels of about 119 percent of gross domestic product (GDP) whereas the average since 1940 has been in the 70 percent range with the exception of World War 2 when debt-to-GDP was at 106 percent. There has been a steady rise in the level of national debt to GDP due to decreased tax revenue and increased spending, especially on health care. The debt load is being passed onto Millennials, which is a demographic rapidly adopting cryptocurrency.

Source: YCharts

The United States is unlikely to see hyperinflation to the extent of Venezuela (at least, let’s hope not). However, trust in fiat currencies is eroding as debt continues to climb.

Japan is an excellent case study for an economy that is struggling due to quantitative easing. The Japanese debt-to-GDP ratio topped 260% last year due to its quantitative easing. Government debt to GDP in Japan averaged 137.4% from 1980 to 2017. Easy money policies from Japan’s central bank harmed domestic asset returns by suppressing local interest rates. Ranking as the world’s third largest economy, Japan resorted to negative interest rates in 2016. In April 2016, it was reported that a “Japanese bank buying 5-Year U.S. Treasuries with perfectly hedged currency and duration risk would (lose) 0.9% a year.”

Consequently, Japan is a thriving bitcoin market and has seen a continuation of crypto activity despite regulations. For example, 39% of investors aged between 18 and 30 years have invested more than ¥10,000 in cryptos. Also, 49% of young crypto investors between 18 and 30 years trade cryptos multiple times weekly.

During the Ukraine-Russian war, the use of crypto once again took prominence as the Ukrainian government accepted crypto donations during this crisis. According to Alex Bornyakov, Deputy Minister of Ukraine’s Ministry of Digital Transformation, “In times like these, response time is crucial. Crypto is playing a role to give us flexibility to respond really quickly to deliver the army’s required supplies.”

The lack of financial access might also increase the use of crypto in both countries. The Ukraine central bank had suspended electronic transfers and reduced cash withdrawals with Ukrainians turning to cryptocurrency.

In the words of Alex Gladstein, Chief Strategy Officer at the Human Rights Foundation, “The fact that it can’t be frozen, the fact that it can’t be censored, and the fact that it can be used without ID is very, very important,” He further added, “And they are why bitcoin is such an important humanitarian tool.”

Institutional Adoption

Most people can imagine a world that runs on digital financial transactions as money today is exchanged digitally and cashless. The United States has digital financial apps, such as Apple Wallet, and Venmo is a popular method to exchange money between friends without fees.

One of the biggest hurdles for institutions, however, is not the idea of a world run on digital currencies, but rather the decentralization concept and the need for reliable and safe cryptocurrency custodians. Institutional investors need to know the assets are secure, insured, and under the care of a trusted third party, per SEC rules, which requires advisers to keep client funds with a qualified custodian. ETFs solve these major hurdles. 

Custody solutions safeguard cryptocurrency, and go beyond private keys or wallets, which are subject to hacks or the misplacement of hard disk storage. The word “custody” refers to a third-party provider of storage and security services for cryptocurrencies. These services are aimed at institutions and hedge funds, and incorporate a combination of storage online for liquidity and storage that is disconnected from the internet.

According to Fidelity’s Institutional Investor Digital Assets 2022 Study, 58% of the surveyed Institutional Investors had an investment in digital assets, up 6 percentage points from 2021. 74% of the total surveyed investors had plans to buy digital assets in the future compared to 71% in 2021. 81% of the surveyed investors believe digital assets should be part of the portfolio. Asian Investors had about 69% invested in digital assets, though a 2-point decrease from 2021. While European Institutional Investors showed an 11% YoY jump to 67% of the investors surveyed, US Investors showed a 9-percentage point increase from 2021 to 42%.

How I/O Fund traded Bitcoin in the past – What You Can Expect

Here is an example of how the I/O Fund has traded Bitcoin in the past. The goal is to be directionally correct.

Similar to this, you will receive notifications via email when we buy and sell Bitcoin moving forward. We often cover a stock in our free newsletter, but this is a small percentage of the work involved with smart investing. Our real-time trade alerts are invaluable for knowing how much of a position we own, and when we are buying or selling.

Bitcoin Buy Plan

We use a blended approach of technical analysis to determine our portfolio entries and also to pre-determine our risk management. Risk management is a key part of owning tech stocks. In the below video our Portfolio Manager Knox Ridley outlines his bullish outlook on Bitcoin, citing on-chain and technical data to support his prediction of an upward trend.

Currently, we have an 8% allocation in Bitcoin. He anticipates the next buying opportunity to arise within the $38,000 to $40,000 range and advocates for making proactive moves in the cryptocurrency market. Additionally, he maintains that there are no plans to sell Bitcoin prematurely. The only levels to closely monitor are the breakdown below $28,000 or the range depicted in the video above $50,500, if a five-wave drop is followed by a three-wave retrace. Short of those two things happening, the I/O Fund will not be selling Bitcoin right now – rather we are looking to be heavy buyers.

You can read more here, and please whitelist us to ensure you are receiving the trade alerts when they occur, which will be sent via email.

Royston Roche, Equity Analyst at the I/O Fund, contributed to this article.

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