Alongside the stunning rise of over 60% this year in the price of the crypto-currency Bitcoin, to a recent $68,336, is an equally stunning development: the complete collapse of most of the companies that were betting that mining Bitcoin would add up to a great business.

Companies such as Northern Data AG and Argo Blockchain PLC were once an alternative way to bet on Bitcoin, and its sister currency, Ethereum, without holding the highly volatile currencies themselves. This year, their shares are down between 9 and 90%.

Chalk it up to an industry built on faddish business plans whose appeal was the very fact that anyone could fill warehouses with server computers. The economics of that business have since turned terribly sour even as Bitcoin has rebounded in price.

The announcement this week by one slumping crypto firm, Riot Platforms, that it would like to buy another, Bitfarms, at a depressed price, is a sign of a desperate industry, an industry looking to counter bad economics by somehow gaining scale. (Bitfarms rejected Riot’s offer.)

A confluence of factors has rendered far less profitable the business of Bitcoin “mining,” where Argo and the rest use powerful server computers to crunch the numbers that create each new Bitcoin on the global distributed ledger, the blockchain.

This month, Bitcoin went through what’s called a “halving,” a built-in technical feature of the blockchain where the mining companies earn only half as much in rewards as they previously did for every bitcoin they mine. That reduces their payoff despite the currency’s rise in price.

At the same time, as Bitcoin prices rise, more miners join the fray, which they did this year. That rush drove up total mining activity, known as the global network “hash rate,” to an all-time high, which produces more competition to mine each coin, which lowers the fees to each miner.

But the ultimate obstacle is that the cost for mining is heavily dependent not only on the price of bitcoin, and the total competition, but also on the price of power. For every miner that either owns a server farm or rents capacity from a data center hosting provider, and pays that provider the pass-along cost of energy, power is the single largest operating expense.

Rising power cost is the hangover for an industry born during the COVID-19 lockdowns. At that time, energy was suddenly cheap, with oil at $20 a barrel and natural gas a buck and a half per BTU.

As lockdowns relaxed, in mid-2022, oil and gas prices spiked. They’ve since come down again, but nowhere near pandemic lows. The cost of energy is rising again as cloud computing providers frantically build new data centers to run the newest energy hog, generative artificial intelligence. Renewable energy can’t come fast enough to offset that expanded race for power.

An example of just how strangely power affects crypto is the fact that last year, Argo Blockchain made over seven million dollars worth of “power credits” by halting some operations and selling electricity back to the grid, what’s known as “curtailment.” Yes, energy is such a big deal, it sometimes makes dollars and cents for mining companies to just stop what they’re doing.

Argo’s CEO, Thomas Chippas, told analysts last week that with expectations for a hot summer, and high energy costs, he’ll be looking to curtailment in the coming months once again as a savvy strategy to save money.

Despite crafty maneuvers like curtailment, Argo’s cost to mine a single Bitcoin roughly doubled from $16,363, on average, last year, to $31,000 in the March quarter. That has driven down Argo’s profit margin on mining from 43 cents on the dollar last year to 38 cents this past quarter.

All of those things—the network hash rate rising as more parties mine, the dwindling return because of halving, the cost of energy eroding profits—are merely symptoms of a business scheme so desperate it will be the stuff of business school lessons for decades to come.

The rush to profit from Bitcoin’s surging prices during the pandemic fostered a me-too cohort of firms such as Northern Data, Argo, Riot, Bitfarms, Ault Alliance, Greenidge Generation Holdings, Stronghold Digital Mining, HIVE Digital Technologies, Bit Digital, and Hut 8. Capital was attracted by the ease of entry: just set up a server containing either dedicated mining chips, so-called “application-specific integrated circuits,” ASICs, or Nvidia GPUs, and start cranking out code for the blockchain.

That left all the companies with no barrier to entry in a commodity industry, driving up that global network hash rate in a race to the bottom.

All the firms are left trying to make the best of a tough situation. The handful of analysts covering Argo’s stock think it might see a rise in revenue of 15% this year, far below the growth rates of tech companies with defensible businesses. Even that estimated rate of growth has been slashed in the past 12 months, and the company is expected to lose buckets of money for the foreseeable future.

Argo CEO Chippas talks of seeking growth initiatives where his company can find other Bitcoin mining businesses to acquire that may have locked in favorable power prices.

His company has been racing to pay down debt, but the balance sheet is fraught. The current assets of the company, $12 million, including cash on hand, are less than its current liabilities of $19 million, giving the business a “current account ratio” below one, which is not a good ratio for a company to have.

And yet, Argo may be a relative bright spot. The landscape is littered with zombie companies. A mysterious Las Vegas outfit called One World Ventures, the product of a merger in 2019 of a financial consulting firm and a cannabis-growing venture, has seen its share price collapse this year from four cents to a penny.

The current vogue among the shattered firms is to find new uses for server farms. Frankfurt-based Northern Data AG, whose stock has held up better than most, down only 9% this year, told Wall Street analysts in a presentation this month that it expects to reduce crypto mining from 74% of its revenue at the moment to just 20% by the end of next year.

The solution: replace it with revenue from “high margin AI cloud,” said Northern Data, meaning, amassing lots of Nvidia’s newest GPU chip, “Blackwell,” to run AI as a service.

Northern Data’s revenue collapsed last year to $70 million from $193 million in 2022, but now it paints a rosy picture of having perhaps as much as $240 million next year thanks to AI.

Such transitions will be hard, given that the entire world is competing for Blackwell chips that Nvidia says will be sold out through 2025. First dibs will no doubt go not to small fry such as Northern Data but to Nvidia’s most loyal customers—OpenAI, Microsoft, Amazon, Google, Tesla, and research and military outfits.

The final nail in the coffin for the publicly traded shares of mining companies is the normalization of Bitcoin via exchange-traded funds.

The Securities & Exchange Commission in January signed off on instruments created by BlackRock and others that track the price of Bitcoin. A raft of funds started trading on January 11th. Since that time, the average return, 44%, is just below the roughly 46% appreciation of Bitcoin, and, obviously, a heck of a lot better than the mining stocks.

When a market normalizes in that way, in the sense that more mainstream avenues open up for investors in respected vehicles such as the iShares Bitcoin Trust or the Invesco Galaxy Bitcoin ETF, the exotic ways to play a market such as Argo and Northern Data suddenly become far less interesting.

The fact that many crypto companies have few if any Wall Street analysts covering their stock is a sure sign that interest has evaporated. If you can’t get your stock covered, there’s no one to sell your stock.

If they can survive the hot summer months, and high energy costs, maybe some mining firms can dust off their PowerPoints in the fall and convince investors there is a great business in scrounging for low-cost pools of electricity.

For the moment, your better bet as an investor is either the ETFs or the companies that have gained a somewhat more respectable niche. That includes Coinbase, which has convinced Wall Street it has a great software technology business helping run Bitcoin trading. So far, Coinbase stock is up 36% this year, making it a stand-out success in a terrible field.