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The affected factory retailing returned all cars to all of them. I felt good only that I had a spare. You know, the fact you fired that kind of innocent, you know, that she felt that. All right. Thank you, guys. I appreciate everybody joining us today, Fred Hoffa. Andy, great to have you guys. I am excited about this chat because it's basically the question everybody wants to ask right now is the having going to drive a pump or not?

And there are there's enthusiasm, unbridled enthusiasm on both sides of this argument. So I want to get into it a little bit today. Fred is the CEO of Marathon. They are a publicly traded Bitcoin miner. Hoffa is with Swan and leading their institutional side. And Andy, of course, with Swan as well, and Andy and I, longtime friends. Andy is a fellow CFA charterholder, somebody that comes from the fiduciary world of asset management.

So let's get right into it, guys. Give the give the audience your headline take on if the having is the main driver of price. That's where I want to start. Not are they bullshit or not, but is is that having the main driver of the bitcoin price Fred in this cycle. No, I think it's liquidity. Okay. Have I.

Yeah, I agree. Flow is really what drives the markets. So the having you know by definition there is nothing on it that should impact price. There are other factors, secondary terms that we can talk about and we'll talk about. But primarily there's no reason for that to affect price, right? I think the having the still bullish and we can debate what the magnitude of that effect is.

But yeah, I think it still matters for price. Okay. So I really found this interesting when we were preparing for this that we actually had all three people on the same side here that they're having as we enter it this time is not the main driver of price. And the takeaway, generally speaking, is that the having effects supply, it is less and less material as time goes on and it does nothing to affect demand.

Now, from a psychological perspective, we might be able to play devil's advocate there. And so, Andy, let's start with you. You were the one who said you still think it's bullish. Is it psychological? And is that psychological feedback loop coming into the demand side? And is that why I think that's a good way to put it. Let's do show of hands of the audience, the Civic Bitcoin Festival attendees.

Do you think that the price in dollars and purchasing power of Bitcoin is likely to be higher in the future significantly? Okay, good. You came to the right event. So I agree with you. And I think that if we think that the price is going to be higher in the future, then by extension we are applying a lens of investment.

Right? We're investing in bitcoin. Okay. Even with the tiny probability, we must all admit there are some risks to the bitcoin price and one of them might be intervention by governments. Right. Attacks can happen in the form of unfriendly tax rules. You know, a poor treatment of bitcoiners discriminatory treatment, making it hard to buy bitcoin. God forbid they they mess with the swan by button, but it could happen.

And and so, you know, of course it could extend to something as draconian as seizure of hash power and reverting that hash power to mining empty blocks or trying to, you know, reorg the chain a couple of blocks here and there. So I see myself as an investor, you know, when is such an attack likely to happen? Well, probably if price is already down, but it's hard to predict when prices down.

That's when security is lowest, because the value of the block reward is lowest, relatively speaking. But if you can't mount an attack on short notice and you need to plan for in advance, there's one other time when you could consider mounting such an attack, and that's the having the block reward will be lower at that time. We know that for sure.

There's likely to be more miner hash power on the bubble marginally profitable, likely to be pushed out the network. Maybe there's a higher probability that you get a downward spiral. So for me as an investor, I see this event that even though it's well known, I don't know what the ultimate outcome with respect to net network security is going to be.

And so when I think about do I want to allocate more funds into Bitcoin? And if I'm approaching the heading, maybe I wait for the having to pass, maybe I wait for the dust to settle. And so my incremental demand potentially comes after that happen. Fred, you you we talked a few months ago. You said that as a publicly traded miner, you have to assume that there are going to be down years and that they're going to be up years.

That's in the nature of Bitcoin's history. Now, the cyclicality is not something that you can predict. So how do you go about managing, knowing that the price will be down, the price will be up, but you have to run a business, you know, every single day. So Bitcoin miners don't have control of the price of Bitcoin. We don't control global hashrate, we do control the price of our energy, we do control the efficiency of our miners.

So the only thing we can really focus on is being the most efficient operator and being ideally in the bottom quartile cost wise of operators, because in the event of a having and let's just say Bitcoin price doesn't move from where it is, it's $25,000 come time to having a lot of miners that would be on the bubble will either unplug or they're just going to say hell and our nation, I'm not going to give up and I'm going to go until I burn out.

If you're the lowest cost operator and you have a strong balance sheet, you can survive. Hashrate will eventually come off. Price of Bitcoin will eventually go up because again, we all believe eventually Bitcoin price will go up. So it becomes a game of last man standing. So we believe you have to be prepared for that event, but you also have to be prepared for an event where Bitcoin price does run.

And so you have to have this balance of belief that you can survive a bear market for an extended period of time. You have enough cash on your balance sheet, you have enough hashrate deployed, your energy costs are in check so you can operate, curtail under clock, do whatever it is you have to do as a miner to survive.

And then when the good times roll, you're ready to hit the accelerator pedal and potentially consolidate an industry, do all the things you have to do to really grow and be strong. So it's really about just being prudent and having a little bit of a commodity industry mindset. Unfortunately, it's not just number go up, it's win number go up, be ready to accelerate.

And just to be explicit for everyone with that strategy, it's not hinged on a single date in time, Right? You're not saying that. Okay. Because we estimate next April, we're doing it this way, right? You're saying generally that's how you have to approach the business? Absolutely. It's you know, we can't time markets if we get time markets, believe me, I wouldn't be running a Bitcoin miner.

I would just be investing my money. So it's really more about the definition of luck, which is opportunity meets preparation. If you're prepared in an opportunity presents itself, you can react to it, take advantage of it. We were very prepared in the last bull run and we're able to grow a huge amount of hash rate, just like we are very prepared today for either a bull run or a bear market or something in between Alpha Let's talk about paper trading in Bitcoin.

This is a hot topic now as well that the idea there, that spot is not driving the price that derivatives and paper trading of Bitcoin is the leader of the price. Here you have a background in Wall Street in financial engineering products. How do you see the Bitcoin ecosystem evolving from the side of the street, the derivatives side?

And is this how much of a concern should this be or is it a bunch of FUD? Yeah, so let me start that. Tell you a little bit about first off, the having and then I'll end up with that. So to address little some of the points from from Fred and Andy, so people that know me know that I love to run numbers.

So whenever a query asked me so I feel, what do you think about this? My first reaction is that I don't know. Let me run the numbers. So we run the numbers and we come back. So two months ago we were thinking about, okay, so what's the impact of the having, you know, should we be looking what's going to happen if the price with difficulty.

So we ran the numbers right. And that the reality is that first of all, there are the data points that we have in terms of having they're not enough to come to pretty much any conclusion. But if you look historically at Bitcoin price, right? So we've got the whole dataset of price and you try to find patterns of distribution of how, you know, returns really work very quickly.

You see that there's a lot of out of correlation, which means that, you know, price depends on time and depends on past price, right? So whenever you have price moving up, price tends to move up again. And the other thing about Bitcoin, which is super curious and I think, you know, I don't think there's any other asset class like this out there is that most of the times Bitcoin is moving either sideways in terms of number of days, it's either sideways or down, and that makes it really, really hard to hodl right?

Because what means is that they're going to have months and years of pain and they're going to have days of glory, right? So being a hard worker, by definition, by the by distribution of resources, as you see historically, it's extremely hard, Right. Why do I throw all of this? Because when you talk about derivatives, the first thing you're going to talk about is probabilities.

And to get a sense of probability of what's going to happen in the future, you know your best bet. It's not perfect, right? But it's looking at the past and seeing what has happened. Right. It's impossible to price Bitcoin really predict what's going to happen with Bitcoin price. That's the first thing that you you conclude by looking at historical returns.

Right. But the other thing which goes back to having the fact that it actually out of correlates a lot means that sometimes, particularly in periods of low liquidity, a small move, you know some small news that bump the price up you know the the marginal seller out there would actually go through the short term sellers and then the price jumps up significantly.

That feeds on itself. Right. And this explains I think this is kind of like the psychological part that explains why price moves up very, very quickly. Right. I'm very bullish. I think that, you know, we are going to see that soon because liquidity has been drying down. Right. So we see that these things are starting to happen and it's not going to take a lot for us to see a very big move.

Now, going back to your original question, I address a little bit about this this morning, but I'll talk about in a little bit more detail. So when we talk about Bitcoin pricing, Bitcoin is the first asset also that had taken delivery of it. At the end of the day, it's very, very easy. It doesn't cost anything, right? When you think about when you look at all, here's an example.

You look at the IO ETF out there U.S. So right when you buy U.S., so you're buying it with the expectation that you're going to receive the returns of oil, right? Doesn't happen. In fact, it underperforms by a significant way. Why? There are a lot of reasons I can explain it all, because you have to look at the cost of storage, insurance, transportation, delivery, all of that.

Right. But the reality is that when you portrayed all of that, future prices are going to incorporate that. Right. So people talk about, I'm look at the future curves and it's showing that price up is higher. Slower has nothing to do with expectations. It has everything to do with all of these factors that I mentioned. Otherwise there is an arbitrage vehicle by which they sell the future, right.

And just make free money because of these things. Right. When you look at the U.S. So it should underperform the underlying Bitcoin doesn't have this problem here because at the end of the day, it's an asset that the cost of storage is 0% transportation, it's zero cost of insuring, you know, if you want to buy insurance, you may pay something.

But most of the cases, you know, it's also zero. So at the end of the day, the only thing that really matters on future prices for Bitcoin, it's interest rates. Why? Because when you buy a future, not putting cash down, right, you're respecting the price should go up in the future. And then there's the exchange of that. So that's all that matters at the end of the day.

So when people talk, I hear this a lot about the future. Prices are up or down, Bitcoin prices going up and down has nothing to do with that. At the end of the day, it's just a matter of interest rates. And that said that why we can arbitrage that that market. Right. So there's a lot of speculation around of if futures drive the price up there and the real because it doesn't right.

It's another vehicle where people can get access to liquidity and they can they may be able to move a little bit of the prices outside of that arbitrage level in the short term. But if you look a week, a month, it's impossible to do that. What really happens in the Bitcoin, Mark, and this is a very long answer, sorry, but I'm right beyond the zero arbitrage.

Pure finance bro answer. It really hits me in the heart, so keep that. So yeah, well, just to wrap it up, I think on Bitcoin, what we have seen that people confuse with being derivatives actually moving the price is pure fraud, right? It's people that hold bitcoin that it's not their bitcoin and they're selling that bitcoin and they're putting pressure on the price down.

Right. But eventually is also gets wiped out one way or the other because the bitcoin needs to be delivered or either you're going to have an FDX that you know appears that doesn't have the bitcoins that they were supposed to have, right? Or the Bitcoin needs to be delivered and they need to buy the bitcoins somewhere. The risk needs to be offset somewhere.

Right. Andy, you talk about the having as a fundamental event. What does that mean to you? Explain to people why they're having matters from that perspective? Yeah, I think it gets back to the concept I was talking about before, which is, you know, when is network security weakest and when would an attacker choose to attack it? So people talk about, okay, everyone knows the heaven's coming.

by the way, we've been through a few of these before. They were non events. But as an investor, I ask myself, well, did the network security dynamic change from the moment before to the moment after? And the answer is yes. And so it's a little bit like it's a little bit like investing in a company where, you know, the annual reports coming out, you know what date it's coming out on.

You have an expectation about how things will go, about what you'll learn about competitors to the company's products, just like we might learn something about competitors to this future, the monetary assets and the actions those competitors might take. And you just don't know what actions they will or won't take until the event occurs. So until I get the information that this having was same as it ever was, smooth sailing, no problems.

I could tell you, by the way, from experience without without citing specific people or individuals. You know, in a prior having I was pitching Bitcoin to an investment committee and we were approaching the having date and the conversation was something along the lines of, yeah, Eddie, we get the thesis, we're bought in on this. We think it's a good long term investment, has a role in the portfolio, you know, likely to accumulate value over time.

and it has good diverse diversification characteristics, but you know, what, what's going to happen to the hash power and the network security? It is going to change, right? Like the miners are going to be making fewer coins and all else equal, there's going to be less block reward. Maybe we start our accumulation after the heavy date, maybe give it a few months for things to settle out, maybe make sure everything's running smoothly.

And look, this may be as far as network security is concerned. This may be a minuscule risk. And so to your earlier question, Nick, of, you know, does the having any more really drive price cycle? I'll concede the point that it may not be the primary driver, but I will not concede the point that remains still a driver.

and by the way, some investment committee members and professional investors who are making that asset allocation decision about Bitcoin now or soon or into this next cycle, they don't have as much, you know, personal experience. They haven't felt the pain of the fact that Alpha was mentioning, which is that Bitcoin's always going down, except for sometimes it goes up.

Yeah, everybody in the room should give themselves a small pat on the back for basically now two years removed from the all time high. But as you go through more bear markets, it almost feels more normal. Fred, you talk about efficiency. If the having if the having timing can't be an input, then efficiency. Efficiency, efficiency has to be the driver of your business strategy.

So tell the audience about what is the cutting edge Bitcoin mining efficiency that you can share with us? What are the projects that excite you? What are some of the new ways that machines look today versus maybe three, five years ago? Sure. So if you think about Bitcoin, miners, the rigs, they've primarily been shoebox machines with fans and you run them with air cooling.

More recently, immersion cooling has become very popular amongst a lot of miners. Immersion does two things. It increases the reliability of the miner because air cooled sucks a lot of dust into the machines. They have to be cleaned. Fans break down the very high replacement rate on fans. When you go in immersion, you remove the fans. You're sitting in a liquid that's averaging a similar temperature so the chips aren't cycling in temperature and everything is a much better environment.

So you get better reliability if you add on top of that customized firmware where you're now able to under clock a miner. So if the price of Bitcoin is low, you can slow down the amount of energy that you're using. The miner becomes really efficient. You can still mine Bitcoin maybe with a tiny profit, even though the price is too low.

And as you get into having cycles, what's important is you want to have the maximum amount of flexibility and optionality in how you operate your operations. So we spend a lot of time developing our own firmware stack that grows on our miners that lets us under a clock overclock. We designed a lot of immersion technology so we could operate our miners in consistent temperatures regardless of the environment.

Those of you who are familiar with the Middle East, we're operating miners in Abu Dhabi where it can be 125 degrees. Ambient temperature, and we're only using half the cooling capacity on our immersion systems. So we are able to operate with very high uptime in conditions that maybe require us to operate super efficiently. On top of that, we deploy the most efficient miners.

The bulk of our fleet have an energy efficiency of around 2423 joules per hour, a hash which is amongst the most efficient. And we're continually looking at next generation machines. Some of you may be aware we invested in a company called Aldine, which we helped co-found, which is a US based mining rig manufacturer, one of the key things what their miners are is that they're designed so you can tune the performance of each basic on each hash board based on a price of bitcoin, a global hash rate and a cost of energy.

So you can optionally maximize your profit per basic running in a miner. And I think that's the level of sophistication you have to have to be able to be in that lowest quartile cost and be the miners that survive no matter what having whether it's this one next year or 2028 when we go yet another level down. Now, when you are exploring projects around the world, is it just where you feel like you can get the best energy cost and infrastructure?

Or is there a large driver here from the government or the regulatory side or maybe even the power company grid side? How much of that is actually driving the location strategy? So there are a number of factors. In places like Texas. You have an environment where you can work together with the folks at ERCOT Power utility, such that there are economic benefits to be able to curtail and help them load balance their grid.

Here's the problem you have 40% of energy generation in Texas is renewable. It's intermittent energy. It doesn't run baseload. It's not 24 seven 365. If the wind stops blowing in west Texas, for some reason, they start running out of power. They need people to shed load. And so bitcoin miners can shed up to two gigawatts of power like that.

And now they have energy in Abu Dhabi. We have a similar relationship with the government. They needed a partner who could help them balance that are grid. They're providing energy across the Emirates and they need to be able to balance the grid and they have an asymmetry in their energy use for gigawatts in the summer, one gigawatt in the winter.

They still need to run this energy generation to desalinate the salt water, to make fresh water. They have all these needs and they don't have the ability to all of a sudden turn on more generation because they don't have more than just a few generation sites. So by having our Bitcoin mine operating in Abu Dhabi, they can get access to a quarter gigawatt of power instantly when they need it.

And they actually had an incident recently in one of the Emirates where the local generation system went down, the backup went down and we were able to curtail and keep a blackout from happening. We're talking to governments in places like Kenya where they have hydro dams, they have solar energy, and they have this intermittent energy generation and they have issues balancing their grid.

And also making this hydro dam profitable. And so they need offtake that can shed load when needed. And so we can come in and work with governments because of our experience with what we've done in Abu Dhabi, for example, very successfully. But we're also looking at a totally different side of it, which is Network Generation at the Edge state of California did something really interesting.

They have a program called Net Tolling, which is if you have solar energy on your house and you have batteries, when you put your energy into the grid and then take energy off the grid, you're paying the same price. So the net price, if I put a kilowatt out and I pull a kilowatt, it doesn't cost me anything.

f you don't have batteries, they charge you more for taking energy off the grid than putting it on. Why? Because if consumers put lots of battery storage at the edge, the grid can borrow energy from the consumers. At peak power times, the utility now doesn't have to build battery capacity. It's a very unique model. So we're looking at battery technology, we're looking at energy generation at the edge, things like landfill natural gas.

How do you generate electricity off of stranded methane gas in landfills, get renewable energy credits for it, use that for mining bitcoin. You can use those renewable energy credits to offset your cost of generation. Now you start getting to a point where your cost to generate electricity for Bitcoin is zero or even negative. You could even sell that energy into the grid if it's needed.

But most importantly, what you're doing is capturing methane, which is 80 times more damaging to the environment than carbon dioxide, and sequestering it. So you're benefiting the environment, you're benefiting the communities around who can buy power from you, and you're also benefiting the Bitcoin network by being able to operate regardless of what the price of Bitcoin is. However, we talked about how if the Halvings aren't the main driver of price because it's a supply side issue, then it has to be the demand side.

And where does demand come from? It's coming from Bitcoin adoption. So talk to us about Brazil. Brazil is a country we know that there's a lot of energy around Bitcoin. What's going on on the ground there? What can you tell us about Brazilian bitcoin adoption? Yeah, it's definitely growing up very that and as I mentioned, there's more. I think it's coming from a natural cycle where people start with, you know, Brazilian reais, of course cash.

They of we all know the issues that the Brazilian now has. I mean it's currency that has volatility depreciated in a long time significantly from from the dollar right. So naturally people understand the value of different currencies. Brazilians tend when they can, they tend to save in dollars. I remember like in the nineties, people used to have like dollars at home right there, keep dollars other literally under their mattress.

Right. So we always had this idea of stronger currency than ours. Right. Which is an idea that is foreign for most of Americans. Right. They look at the dollar as being a currency they don't understand is a currency against products, but also other currencies in the world. Right. We saw a huge digitalization of payments and of currencies in Brazil in the last three years picks, which is the payments infrastructure from the Brazilian central bank is probably one of the most explosive adoptions up technologies that we've ever seen.

We have 600 million big skis out there, 150 million users of pigs. And it's the numbers are just ridiculous. Again, the problem with that, that becomes centralized, you know, it's it's very prone to censorship. There are all these problems. So Brazilians are very aware of all of this. And we're seeing we're seeing, you know, more and more adoption with time.

I think we are at the point that people are adopting more stablecoins than they are adopting Bitcoin. But we see the Bitcoin adoption coming next. I think it's natural. It's a natural cycle. Certain you actually see, you know, a circular economy of stablecoins that people are sending that are one to the other locally, which is just crazy to think about.

That central Bank of Brazil on the other hand, is getting very worried for obvious reasons about that. Right. But they can stop it there. Maybe if you have a cell phone. I have a cell phone, right. Maybe I can send you any central bitcoin. You can receive Bitcoin. It's unstoppable. And I think we're going to go through the same cycle that we've seen in other places.

And as I said, I think Brazilians are prone to adoption of technology. And as soon as we see a starting and price drives that we're facing and this is why goes back to my original point that, you know, you pass through that point where it's like the last grain of sand that falls or the last flake of snow that falls.

It breaks the avalanche right. We're going to see an avalanche of liquidity coming in. And this is not only Brazil. I you know, I mentioned Brazil because I live there, but I see this in Argentina. I see this in Chile, I see this in Paraguay, I see this in all Latin America. Right? Bitcoin is truly global and it it spans borders for sure.

Andy, with the 30 seconds that we have left, I'll give you the last question. Talk to us about if having are not the main driver price and liquidity is, as the panel has concluded here, when is the liquidity coming back? When is the Fed actually going into easing mode? Because we we are still at the end of tightening mode.

So it can't be next week. It can't be next month. How long are we looking at? Yeah, it can't be unless it can. You know, when I watch the ten year Treasury creep up to 5% today, I get a little bit worried and I think about the bank failures that we experienced just six months ago, and there's going to be a lot more balance sheets that have long duration government debt sitting on them that are farther underwater than they were before.

And so we'll just have to see that events that is the catalyst for a stimulus from the Fed and a pivot could be closer than we thought. Andy Hoffa, Brad, thank you guys so much. Thank you, Dan, appreciate it. And on that note, the eight that appear to have found nothing, but we're going to go for.