'Just Like Malls': Crypto Data Center Owners Scramble For New Uses

After a crypto-driven building boom, the rapid decline of digital currencies has operators of bitcoin-mining data centers scrambling to find new uses for their increasingly distressed real estate.

Crashing bitcoin prices and spiking energy costs have crypto mining data centers fighting to stay afloat. A sector that was growing exponentially less than a year ago is facing a wave of bankruptcies and liquidations, and now owners of buildings and properties that host crypto miners are trying to figure out how to shift away from crypto and find alternative uses that can drive revenue on these sites.

Some mining hosts are already pivoting toward niche markets within the colocation and cloud industries, providing high-performance computing needed for a growing number of applications like artificial intelligence, machine learning and rendering digital animation for the film and video game industries.

And while traditional data center builders have shied away from these properties, experts say looming changes in the digital infrastructure landscape will have cloud and data center providers taking a closer look at crypto sites. Those changes can’t come soon enough for property owners who had hoped to cash in on the crypto boom and are now sitting on digital ghost towns. 

“In this environment, a lot of landlords are probably thinking about alternate uses for those spaces. It will probably be just like malls where you’re going to have to come up with alternate use cases for some of that data center space,” said Barry Kupferberg, managing partner at Barkers Point Capital Advisors.  “Potentially there’s a lot of space that will have to be repurposed.”

As of July, the inventory of U.S. crypto mining facilities built by the seven largest operators could consume as much as 1,045 megawatts of power, roughly enough electricity to power every home in Houston, The New York Times reported. 

The crypto mining sector is now in free fall. The collapse of FTX in early November drove the already discounted price of bitcoin down even further, cratering confidence in all things blockchain and ensuring that the end of the so-called Crypto Winter remains far in the future.

For bitcoin miners, a year in which digital currencies lost more than a third of their value coincided with a global energy crisis that has significantly driven up the cost of power, by far their largest expense. For many operators, mining crypto now costs more than the digital coins are worth.  

Experts predict contraction and consolidation across the bitcoin mining sector, with a wave of bankruptcies and liquidations looming in the near future.

The casualty count has already started: Compute North, one of the world’s largest miners, filed for bankruptcy in October, while other miners have simply shut down their equipment instead of mining at a loss, defaulted on loans or had their equipment repossessed. 

With the distress cycle underway and confidence in crypto’s future waning, operators of crypto mining data centers, and their investors, are searching for new use cases for their land and facilities to pivot their holdings away from crypto. 

Although these mining facilities are effectively just primitive data centers, with many of the sites directly connected to the kind of inexpensive power the colocation and cloud industries so desperately crave, the companies building data centers in places like Loudoun County, Virginia, and Arizona aren’t looking at the crypto bust as an immediate opportunity.

The mining facilities themselves aren’t mission-critical, lacking the redundant power and backup systems needed to host workloads for colocation tenants. And while the sites have tons of power, they lack other crucial infrastructure that traditional data centers need, like the robust fiber connectivity and proximity to population centers needed to provide fast processing time — called low latency — demanded by customers.  

“Their sites tend to be more remote in nature, so they don’t have the connectivity we need because they really don’t care about that as much,” said Andy Stewart, CEO of colocation provider Evoque Data Center Solutions, speaking at Bisnow’s DICE South last month. “We haven’t seen much competition from the crypto guys in terms of land.”

But some within the digital mining sector are looking to repurpose their real estate themselves.

Some operators are looking to push into a submarket within the cloud and colocation industry known as high performance computing. This sector provides cloud services focused on specific, data-intensive computing tasks like rendering films and video games, scientific research and artificial intelligence.

This requires a massive amount of power fueling specialized high-performance processors but doesn’t require a mission-critical facility or the kind of low-latency connectivity provided by traditional data centers. It’s OK if the power goes out sometimes, or if data takes a little longer to travel back and forth to the client. 

Canadian miner Hut 8 has increasingly pushed resources away from cryptocurrency and toward HPC, acquiring data center firm TerraGo to expand its capacity.

Dallas-based Applied Digital has perhaps been the most aggressive in its pivot toward HPC. Structured more like a traditional colocation data center firm than a crypto miner, the company changed its name from Applied Blockchain earlier this year to reflect its move away from crypto. 

Applied Digital CEO Wes Cummins says providers like Applied with unusually low power costs and digital infrastructure designed around the needs of blockchain and crypto mining offer greater efficiency and are more cost-effective than those designed for the traditional colocation market. 

“Our greatest asset is our ultra-low-cost power and the ability to build near the source of power in more remote locations,” Cummins said.

“In the past, data centers were built to support high-speed, ultra-low-latency communications applications, but these new HPC applications such as machine learning, artificial intelligence and others require a large amount of compute power rather than ultra-low latency communications," he added. "This means the digital infrastructure should be built differently, and Applied Digital’s homogenous-style data centers can streamline and significantly lower the cost for running these applications.”  

Applied Digital announced this week it is further building out its HPC facilities at a site initially acquired for blockchain, with construction beginning on a specialized five-megawatt “processing center” next to an existing 100-megawatt facility in Jamestown, North Dakota. The 16,382 SF building is expected to go online next year, hosting HPC tasks like natural language processing and machine learning. 

The HPC market continues to grow, with the industry’s $34.85B in revenue expected to nearly double by 2030, according to Verified Market research. 

That is significant, but hardly an answer for most landlords looking to rebuild revenue on sites that seemed to print money during the crypto boom. Yet growth in demand for HPC is indicative of a broader trend that some experts say will push cloud service providers and data center providers toward sites like those hosting crypto. 

Simply put, the amount of data in the world is outpacing the digital infrastructure needed to support it, and the flow of data is only going to get faster as technologies like 5G, AI and autonomous vehicles gain widespread adoption. Data centers aren’t being built fast enough to keep pace with this projected demand, particularly in markets like Northern Virginia and Silicon Valley where they are needed most. There is just not enough land with access to power in close enough proximity to the users these companies serve. 

Because of these constraints, data center providers and cloud service giants are putting more thought into where specific types of data “workloads” need to be stored and processed. Amazon Web Services, Google and Microsoft certainly need data centers in Silicon Valley to deliver low latency services to their customers, but some that capacity is being consumed by workloads that are rarely accessed or for which latency doesn’t matter. 

A gamer cares if a cloud-based video game lags, but they won’t notice if it takes a few extra seconds to load a three-year-old email. Those workloads don’t need to live in the same place, and companies are increasingly exploring how they can free up capacity in vital markets by moving less critical workloads elsewhere.

“It really does come down to understanding the workloads, and I think we’ll eventually evolve to where we have specialized buildings by workload,” said Shannon Hulbert, CEO of Opus Interactive. “We're at the point now where you have data in what’s called ‘hot’ and ‘cold’ storage. Some of these more remote or older buildings can be utilized for cold storage for data that’s sitting unused in an archive. You’re gaining efficiency there, and that’s already happening across the industry.”

As the amount of data grows and capacity becomes more constrained, some see crypto mining sites becoming a more appealing option to house this kind of less critical or latency-sensitive data. While these colocation and cloud providers haven’t been rushing to snap up these properties, experts suggest they may well be a crucial part of the data center landscape in the not-too-distant future. 

“Do emails from 10 years ago really need to be stored real time in major markets? They can be stored out in the Midwest somewhere where there's cheap power and lots of land,” Digital Bridge Managing Director Peter Hopper said. “I think you will see some of that happening.”