Crusoe Energy sells bitcoin mining unit to NYDIG to focus on AI

Seven years ago, the founders of Crusoe Energy set out to solve a dirty problem. Their mission was to take gas burned off by oil producers, convert it into electricity, and use that power to mine bitcoin. It turned into a good business.

But then came the artificial intelligence boom, and Crusoe co-founders Chase Lochmiller and Cully Cavness started to see a much bigger opportunity.

As the company focuses on AI and races to complete what it says could be one of most powerful clusters of graphics processing units, or GPUs, in the world, Crusoe is getting out of bitcoin mining. The company said Tuesday that it’s struck a deal to offload that operation to NYDIG, a power and financial services firm focused exclusively on bitcoin. Terms of the deal weren’t disclosed.

NYDIG will take on about 135 Crusoe employees, who will continue operating the business under the new ownership. Crusoe will become a major equity holder in the combined entity — second only to Stone Ridge, NYDIG’s parent company.

The deal includes Crusoe’s technology that captures and converts flared gas from oil fields, and more than 425 modular data centers spread across seven U.S. states and parts of Argentina. Altogether, the operation accounts for roughly 1% of the world’s bitcoin mining, according to Crusoe, which was valued late last year at $2.8 billion. NYDIG is also privately held and valued at about $7 billion.

Lochmiller told CNBC that Crusoe started investing in AI infrastructure it its earliest days, and that the business increasingly became a central focus.

“We’d actually been building this AI business since the start of the company,” he said. “But over time that business has grown to be a really meaningful piece of our focus, our capital allocation and our growth.”

It’s an area with hefty investor interest because of soaring demand for AI processors, primarily from Nvidia. CoreWeave, which also got its start in crypto before pivoting to AI, is scheduled to hold its stock market debut this week and could be valued at well over $25 billion.

CoreWeave provides cloud-based Nvidia processors to companies including Meta and Microsoft, and reported revenue growth last year of more than 700% to $1.92 billion.

Crusoe realized its bitcoin and AI businesses had fundamentally different requirements for things like uptime, scalability and energy sourcing.

From the prairie of Abilene, Texas, Crusoe plans to launch a hyperscale data center campus with 206 megawatts of capacity that’s expected to scale to 1.2 gigawatts by mid-2026. Crusoe says it could set a speed record for greenfield data center development. Construction began in June.

Crusoe is expanding its cloud platform to offer on-demand access to high-performance GPUs and is already running AI workloads in Iceland, entirely on geothermal and hydropower.

“The AI business — it’s become the majority of our revenue,” Cavness, the company’s operating chief, told CNBC. “We see a huge opportunity in front of us, and we have a big advantage and a big head start with what we’ve already announced — and more coming soon.”

Crusoe’s early thesis was that compute should go where power is cheap and abundant, not where internet connections are best. That made it an industry outlier, but its approach caught the attention of big energy companies. It forged partnerships with Devon Energy, Equinor and Exxon Mobil.

NYDIG and Crusoe have worked together for years on flare gas projects and hosting each other’s equipment. Lochmiller first met NYDIG’s Josh Burandt, the company’s head of strategic investments, in person at the Bitcoin 2021 conference in Miami, which he described as “probably the greatest bitcoin conference that probably will ever happen.”

“The bitcoin mining industry is filled with a lot of colorful characters, some more trustworthy and credible than others,” Lochmiller said. “They always stood out to me as someone that I really wanted to be in business with,” due in part to the “highest degree of ethics” and “highest quality standards.”

Of NYDIG’s acquisition, Lochmiller said, “Ultimately, we decided our businesses were better together than separate.”