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Bitcoin Frenzy: Exploring Massive Demand and Miner Sell-offs | Fred Thiel, Marathon Digital

March 10, 2024

Marathon Digital Holdings' CEO, Fred Thiel, discusses the increased demand for Bitcoin, with the cryptocurrency's price nudging $70,000. Thiel explains that Bitcoin's appeal lies in its potential for nation-state security and treasury management. The criticism of Bitcoin miners for their environmental impact is shifting towards AI, which is expected to have a much larger energy footprint. Thiel also touches on the challenges and opportunities for Bitcoin miners, including the upcoming halving event and the competition for energy resources. The conversation highlights the evolving landscape of Bitcoin mining and its implications for investors and the environment.

0:00 Intro

1:10 This halving is different

2:25 iTrustCapital

3:27 How Bitcoin ETFs affect mining

5:37 $50 Billion of BTC trading a day

7:22 Why miners are selling Bitcoin

9:11 The future of mining post halving

11:35 AI demand for power

13:10 Energy harvesting

15:02 Sovereign nations & Bitcoin

17:24 Bitcoin as a reserve asset

19:15 Bitcoin blockchain development

22:25 AI will use way more power than Bitcoin mining

24:47 Sustainable energy use

26:52 Mining Bitcoin in Teslas

29:17 Wrap up

Transcripts are autogenerated. May contain typos.


uh over 16,000 Bitcoin now and will continue to run you know our Bitcoin hudle is over a billion Dollars January of last year Bitcoin 15,000 uh you know here we are sitting at Bitcoin nudging 70,000 so this is all about nation state security and treasury management new Boogeyman the US government holds 1% of all the Bitcoin sounds like you're a few Cycles ahead in you're thinking the criticism of Bitcoin miners that they're just destroying the planet boiling the oceans using more electricity than Sovereign


Nations has seemingly slowed down I talked to Fred teal the CEO of marathon about what's going on in mining what they're building and what the future of mining looks like but also about how the environmental impact narrative is likely about to shift to a much much bigger industry and that is AI you don't want to miss this conversation that's [Music] dop [Music] and Bitcoin mining is a Hot Topic right now because we got the having coming and we're at alltime highs so it's a rare situation that we really haven't had


before is it different this time uh it's certainly different um I mean last time when you think about it having came dipping price of Bitcoin scramble and then Bitcoin went on it's kind of its progression upwards the ETF has thrown everything kind of all the rules out right because you have a vacuum cleaner that's just sucking up all the available Bitcoin right now and between the ETF and Michael sailor um you know if you look at how the market has responded I believe and you may know this better


than I do but you know the AUM uh held by Bitcoin ETFs right now is somewhere approaching 40ish billion dollar which is approaching 50% of the gold it's higher yeah I think I think it's actually yesterday was 53 and we're recording here on Friday so it went up even slightly it's probably in the 5455 including gbtc so pretty pretty wild yeah yeah so gold is at 90ish plus billion of AUM in their ETF so here we are took gold 20 years to get here we're going to do this in 3 4 months maybe crypto investors in the United States


face some major challenges one of them is that there's almost no way to get exposure to the asset class inside of your traditional investment vehicles the other thing is the taxes they are absolutely atrocious what if I told you there was a way to solve both of these problems well there is and it's with a self-directed IRA from I trust Capital guys not only can you open a new self-directed IRA and fund it with the limits each year but you can actually convert over from your 401k your Roth IRA any other Ira that you already have


and you can do that tax free just transferring over the balance and then you can go to cash buy as much Bitcoin and you want and not pay taxes when you sell it you absolutely have to try this if you are in the United States use the link down below it's bit.ly itrust dscott that's bit. litr us- seot you have to try this now yeah it's a sounding so what does that actually mean for miners as you sort of hinted at before and we know I guess miners who are a bit weaker or a bit underprepared generally have to sell off


quite a bit of Bitcoin just to remain solvent in advance of that slow period awaiting all-time highs in past Cycles right you like you said you sort of have the having it's a non-event and then six or seven months later the actual Supply reduction starts to matter and prices start to go at all-time highs and we have our cycle now they're probably under less pressure to sell if prices remain where they are well there there's another Factor you know in our industry it's about Capital capacity meaning


where you plug your miners in and compute which is the mining rigs uh the mining rigs have been it's been a glut Market you know people are still able to buy miners uh all of the big three miners we all have orders with locked in pricing locked in Supply well into the future um you know capital for the public miners has been easy to raise uh the private miners have had a harder time still because they you know there's no equipment lending like there used to be in the in the raw raw days you could go to Galaxy you could go to nid you


could collateralize these machines you can't do that anymore um so that favors the people who have access to Capital uh but capacity is a constraint right so there's a lot of orders out there people have a lot of um machines on order and now they're scrambling to kind of find places to plug those in so the actual hash rate increase will lag but with the uh Bitcoin at these levels what you're seeing is you know many miners not Marathon but many miners are selling every Bitcoin they generate because they


just don't know when the shoe's going to drop and because they don't have access to credit lines uh or the public markets they're having to sell so um you know I think we're even seeing some old mining wallets and there was a note somebody wrote you know a 10-year-old wallet you know yeah 2010 wallet sent a thousand Bitcoins last Tuesday right when it hit an all-time high and sold effectively yeah and and you know this week or the end of last week I believe somebody reported that there had been eight


transactions of over 500 Bitcoin each you know that's pretty large volumes considering uh a normal day in Bitcoin is $20 billion of trading you know we're now trading close to 50 billion a day of Bitcoin um you know I think there's a lot of uh because the ETFs are cash settled t+ one I think there's you know a certain amount of uh potential Market games that are being done by you know hedge funds and others where you know they can go in by ETFs and then the um market closes on Friday the ETF has to


buy the Bitcoin on Monday bitcoin price is going to rally over the weekend right then you short that Bitcoin so it it's I think the market is learning about it um if the uh cftc would allow Futures that were commodity settled uh I was speaking with a Trader yesterday and he said you know Bitcoin would just run because people would just buy Futures sit on the Bitcoin take delivery of it right uh and it would just run so I think we're in for a very volatile Market you saw the swing uh the other day you know was a


10% swing I think we're going to see a lot of that as you get this kind of demand that needs to be fulfilled and then all of a sudden a bunch of coins come on the market you're going to see a lot of OTC desk doing a lot of trading the exchanges are still going to be tight I know we get frequent calls from the institutional desks at exchanges just saying hey where can we find Bitcoin and so I think uh you know the Market's running right now and um fingers crossed when kind of the demand kind of abates will settle at a good


level for everybody um and then we will Sally Forth and see how the rest of the bull market goes yeah and I think we all believe that there is the a further continuance of this bull market coming based on on past Cycles but as you said a lot of miners are still selling just in case right what if this is the top that that's sort of the mentality there correct yeah yeah I mean you know just think about things uh you know January of last year Bitcoin 15,000 uh you know here we are sitting at Bitcoin nudging 70,000 uh you know


65,000 for a minor like us you know our sgna and our operating costs get covered by because of the high price of Bitcoin by not a lot of Bitcoin so our huddle keeps growing you know we're uh over 16,000 Bitcoin now and will continue to run you know our Bitcoin hudle is over a billion dollars you know these numbers are kind of you know quite staggering I think as you look at it going forward um and you know not to mention you know how the success that micro strategy has had you know with their market cap almost


doubling recently so it's um I I I think people are looking for all sorts of ways to exposure to bitcoin there was a rotation out of the miners into ETFs uh because of the having coming up and I think post the having people will go back and see the beta advantages of investing in the miners and you know it'll be back to the kind of traditional model of one asset CL one of the assets playing off against the others that's exactly my thesis people were so surprised that with Bitcoin running this High miners were sort of bleeding right


but it does make sense if people were buying miners or micro strategy or coinbase or any of these proxies effectively for a spot ETF that they would rotate into the spot ETF once it was approved yeah so you know may you live in interesting times as the proverb goes so do you think that we're going to see sort of one of these mass extinction events post having of you know a culling of the weaker the weaker companies and the individual Miners and sort of a further consolidation into the larger companies or do you think that the high


price could fix that or save them um I I think it's just putting U an inevitability pushing it out a little bit further out um you know this allows miners to continue to mine uh you you still have a large percentage of the mining fleets that are s19 pro or older those machines are profitable at a hash price somewhere north of seven or eight right now hash price is running in the double digits um post the having the hash price will come down to kind of 5ish most probably and what we might even see is uh you know if a hash right


di to four then all of a sudden those miners stop being profitable yeah and it's a question of attrition how long can they last before um they have to shut things down there's a lot of new hash rate coming online still um and I think uh you know as more hash rate comes online the difficulty will continue to increase those marginally profitable miners will move to break even and to a loss unless Bitcoin runs to Triple digits and then again even old machines people will plug them into kitchens run it off you


know the garage uh utility line but um they way to hit your house it's yeah I I think you know the one word of warning I would make is that you know the um people think that just because demand for the ETFs is so high that this is the new normal uh I don't think that's the case I think we're seeing pent up demand I think we're seeing this transition um we're only now seeing the early parts of these Pension funds looking ating these assets you're seeing black roock offering the ETF to


their broader funds you're seeing conservative uh you know money managers like Mar Lynch Vanguard now saying okay for inbound res you know requests we'll sell you ETFs but we're not going to go out and promote these instruments yeah we have to get through kind of this period uh of normalization don't know how long it'll last but when the demand does normalize and it will at some point uh at that point volatility will change and we may see a decrease last time we spoke I believe you guys were almost ready in Abu Dhabi um I


believe that has come online since correct and that is the largest Mining facility on the planet is that correct so talk about uh that coming online how that's affected you and then I guess future plans to continue to scale at that level yeah so um we think of our business as kind of in three buckets today uh you have utility scale mining where what we're doing is we're like the Abu Dhabi project like what we do in West Texas we have hundreds of megawatts which we are able to curtail um whenever


the utility needs it as a part of a demand response mechanism um and these are projects where you're helping the grid load balance um and that if you look in the United States today miners um are beginning to compete with AI companies the Google the Amazon of the world right now they're looking for access to you know uh reliable power has to be available 247 uh and a high-speed internet connection and so if you look at certain parts of the US and Amazon just did AWS just did this deal for $650 million for a data center by Talon


energy where they went out and they you know locked up um uh a project where they could get 650 megawatts of power um so the miners are going to be competing against AI companies for these types of sites the good thing is miners don't need access to high-speed internet we can go into stranded locations and use satellite links uh very efficiently that's one bucket the next bucket is what we've talked about is energy harvesting this is where we're doing things like landfill methane gas biomass


um that is going to be a uh growing part of our business over the next four years these projects take a long time to turn on so um you'll start seeing some reports this year progress in that area but it really starts turning on uh in the outer years and then we have our technology business which is where um we sell firmware we sell um immersion technology and those products are just really starting to be sold now we have our first early revenues of some of those products um and those provide Miners and data center operators with a


lot of efficiency gains and Cooling and other things like that so we believe that's a good diversification play internationally we're looking at a lot of our large-scale projects um the African continent uh we recently co-sponsored um a power Africa conference in Washington DC where we had uh heads of the power companies from the African nations come in and uh we talked a lot about what we're doing in Abu Dhabi and how we could help do that in their countries and so we're very proactively going out uh and we've


gotten actually quite a lot of uh very positive support from the um foreign Commercial Services arm of the US government where they are obviously very interested in plementing us inbound investment into African nations because of the China competitive threat so that's been very good um you we will expand in Latin America as well and you know we're expanding our abui facility uh with additional hash rate and uh so yeah we're going to continue to see all these things growing um and based on the uh pipeline of machines that we


announced on our earnings call you know we have the ability to get to about 70x a hash just based on what we have coming in which is incredible sounds like you guys are taking over the world um interestingly I mean we you know you're talking about Africa it seemed wildly underreported recently that Ethiopia I believe is mining Bitcoin correct I think in the past there's reports Bahrain I don't want to say say the wrong country but I believe Bahrain we know that Qatar now is meeting with naib buuk yeah


potentially talking about these things doesn't seem like anybody's talking the fact about the fact that Sovereign nations are now mining Bitcoin or that they always work yeah I mean I've been talking about this issue for a long time it's the sovereigns are the single biggest competitors to the large miners because they're really not interested in the cost to mine they're looking to mine Bitcoin because they want to hold Bitcoin as a reserve asset and if you hold Bitcoin as as a reserve asset you


need to be able to ensure you can transact your Bitcoin the only way to be able to ensure you can transact your Bitcoin is to mine it yourself so you know there's a million Bitcoin plus or minus um left to be mined between now and 2140 uh no Sovereign Nation is going to syn a billion dollars into infrastructure to go mine Bitcoin because they're think thinking they're going to mine that million Bitcoin because you know their PR share will be much smaller piece of that so this is all about nation state security and


treasury management and I think what we're going to see is um you've seen a huge amount of gold being purchased by central banks these nations because they don't want to be dollarized uh or they want to reduce their exposure to the dollar you're going to continue to see that with Bitcoin now people are going to countries are beginning to you know allocate to bitcoin uh as a way to hold a certain amount of Reserves there's a lot of testing going on you got to realize that with only 21 million


Bitcoin and uh the actual trading venues for Bitcoin are fairly limited still you know you have binance outside of the US which is the biggest exchange um you have coinbase in the US Gemini Etc you know if you're a sovereign and you happen to be sitting on 10,000 Bitcoin and you happen to need to go buy a battleship or something these are large chunks of Bitcoin that may or may not go on and off the market so I think people are a little little wary they're going to want to test uh you've certainly


started I've certainly seen some stress testing going on on some of the ETFs there were some hedge funds that were doing High Velocity tests uh 10x the volume does it work or doesn't it and it seemed to work fine so I I I think this is a developing Market the demand is going to continue to develop but it's going to be very volatile you talk about Sovereign Nations adding Bitcoin to their Central Bank effectively everybody's the few people who are telling the mining story are not in that part right we don't hear we we it's


talked about as this future theoretical narrative that might happen far down the road that some Central Bank somewhere is going to add Bitcoin to the balance sheet and you're basically saying that that's exactly what's happening here yeah and you know let's face it the US holds the US government holds 1% of all the Bitcoin it's not a reserve asset I don't think Senator Warren would admit that certainly um but the US government because of what they have essentially confiscated from uh you know criminal


activities sits on 1% of the available Bitcoin you know what's really amazing you look at gbtc you know a lot of the selling currently in gbtc is still bankruptcy related sales and liquidations um it's not people saying oh my gosh the fees are too high and I'm leaving there's some of that but um I think generally speaking um you know once those bankruptcy sales are completed uh you know the net inflows number will grow potentially and it's not abating right now I don't think people are jockeying for position with


fees at all to your point I think that there's the Forst selling of those bankruptcies and then there's the people who were trading the discount and they sold when it closed and that's what we saw early but yeah I think gbtc will actually they've done the math right they they didn't accidentally keep the fees exactly where they were they've done the math and they know what they're doing and have clearly calculated how much believe and for what reason so I tend to agree with you and I think that


these are going to grow massively now there's always this uh idea that one day there'll be no more Bitcoin left to mine and miners will uh go out of business and Oho is me who will be there to secure the network how much have uh ordinals and brc2 tokens and all this other activity now happening on bitcoin alleviated that fear I think there was great proof last year uh in may we had the big bump with ordinals the first time around um you know transaction fees ran up over the block reward so in other words transaction fees exceeded six


Bitcoin in a block in addition to the six and a quarter Bitcoin that the subsidy was in December we had another month where that happened you know we were mining some blocks that had over seven Bitcoin per block in transaction fees what you've now see is kind of the interest has Abad um transaction fees have come down they're still much higher than historical numbers but they're not as high as they were in May and December but we recently launched for example a a product called slipstream this is a


block reservation system so you know imagine all these financial institutions who are trading Bitcoin traditionally you put your transaction in the men poool you pay a fee to try and prioritize that further up in the queue if you would um with our reservation system people can now essentially reserve space almost like a seat on an airplane if you would in blocks and it's kind of use it or lose it and um when people do that they pay us a fee over and above what we get in the way of transaction fees and block subsidies and


so between that we also launched our L2 uh Enduro platform which is open source to the public well it's we've given it to the community um and there's already a side chain on that which allows you to essentially have uh function use functionality of the evm but secure it on the Bitcoin blockchain um and that's a side chain called Al and Enduro lets you build any side chain you want and it's secured on the Bitcoin blockchain and you know where people like stacks and others issue tokens and


charge for it again we've given this to the community we think um the more we can remove the friction from enabling applications on the Bitcoin blockchain the better but longer term for us our energy harvesting business is all about generating energy getting paid to generate that energy we convert the energy into heat and we sell the Heat back into an industrial process um because the vast majority of electricity used by industry is for heating things and it's low-grade industrial heat in doing that that business in theory um


based on our estimates the cost of energy to mine Bitcoin is zero which means we can continue to mine Bitcoin even if the block reward is a few SATs and um transaction fees are you know moderate so we're here for the long run you know we view Bitcoin mining as a necessary part of securing the blockchain we're going to continue to grow continue to secure the blockchain even more and we're going to continue to develop technologies that allow people to leverage the Bitcoin blockchain and make it even more useful uh which means


more transaction fees which means you know more revenues for miners more reason to keep the uh blockchain secure a year ago we were using more electricity than the country of Argentina and we were boiling the ocean and senica lake and New York was on fire seems like the environmental attacks have subsided I mean not from the Elizabeth Warren of the world and such although she's moved on to false stories about terrorist financing instead um have you noticed at all that there's a little bit less criticism about the


environmental impact of Bitcoin or are we just not hearing about it as much on on our end I I I think the power argument uh has academically been proven to be false uh regarding that you add Bitcoin mining more fossil fuel comes online so that narrative has been debunked are there places where um Bitcoin miners are competing for energy uh with other people yeah it's when the AI guys come in I think you know AI is going to use much more power than the Bitcoin mining industry globally uses and it's going to


use many factors of magnitude more um and the problem is they need the energy 247 unlike Bitcoin miners who can shut down when the grid needs the energy AI wants to keep running and they want clean energy so they're trying to take the nuclear energy which is base load energy now that does impact Energy prices because now the grid has to use higher levels of energy that's more thermal related um so I think if you were to you know have an ear in the boardroom at some of these large hyperscalers I think you would


hear them say you know we want renewable energy but if the only thing we can find is coal let's go turn on a coal plant you know I you don't hear Bitcoin miners talking about that at all so I think that whole narrative is going to shift to the AI guys and plus the a the AI companies use a lot of um water in what they do and Bitcoin miners typically don't use water spec you know we especially don't use water at all because our immersion Technologies are closed loop and they're not water-based


at all so yeah I think the narrative is going to shift to the new Boogyman a new Boogeyman new Boogyman but they have a they have a lot of money and big Lobby and you know I I wouldn't be surprised if the AI guys partner with the battery companies to try and make Bitcoin still look bad so they can take the power but uh it'll be an interesting Market they'll find away I mean we know that when the bulk of the hash rate was in China that Bitcoin wasn't necessarily the cleanest mining in the world I mean


what what percentage would you say now that things have shifted so massively over the past few years what percentage would you say of Bitcoin mining is using Renewables or cleaner energy I don't know exactly what the metric or terminology being used now is but obviously the trend has been in that direction yeah sustainable energy which um includes nuclear uh is but not natural gas uh and it's not net of carbon credits so it's gross use so you know no no funky accounting it's about 56% uh for the industry globally that's


a very high number oh absolutely I mean you we were in the 30% range two years ago uh so no industry has transitioned as quickly as you know the Bitcoin mining industry and again you know we need and want stranded energy um and there's a huge amount of stranded renewable energy available because there's lack of transmission the single biggest Factor limiting the US uh and its ability to transition to clean energy is lack of transmission and that's because how the utility model is created the utilities have no incentive


to add transmission because it's hugely Capital intensive and they don't get paid enough for it so to be clear you're talking about lost energy as it travels over long distances from the plant to where it eventually ends up being used is that correct well partially that partially the fact that if I go build a solar plant today a solar farm I can't get it connected to the network I can't get it connected to the grid that's interconnect and transmission 84% of the projects there was a firk report that


was published late last year 84% of the project for renewable energy in the United States will likely never come to fruition because of lack of transmission that's crazy that's crazy three trillion dollars is needed to get there so and bitcoiners can go right to the source right so you don't have to worry about any of that well then I look forward to a time when uh the the environmental fud dies completely I have to ask you as we kind of run towards time here what are you excited about moving forward in in


the coming years I mean obviously you guys are scaling but is there anything we may have missed that's really on your radar you know I think it's this combination of um the energy harvesting business and what I call the longtail of Bitcoin mining eventually intelligent devices and I have a big background in the iot world um intelligent devices like Battery Systems like EVS um things that store electricity uh in volume or things that consume electricity in volume will have intelligence added to them so they can make decisions


regarding do I use grid energy do I use battery energy do I use my excess energy to mine some Bitcoin what am I going to do with my energy and you're going to have essentially distribution of decision making regarding demand response go down to the device level and there will be very interesting marketplaces that will sit and trade this energy um because at the end of the day it's just electrons when you get a little bit of Bitcoin mining in every single battery every EV things like that you now have a hugely decentralized


Bitcoin blockchain where the cost of energy to mine is not a factor in whether you're doing it or not necessarily and so now you have the long tail you'll have utility scale miners like ourselves and then you'll have this long tail of uh you know space heaters sitting in a home a battery power wall uh you know these are very interesting potential new businesses for the Teslas of the world and I think you know we're going to see this orthagonal competitive competition for hash rate which is going to be these tiny little


devices it's the it's like you think about the internet you know the long taale you know we're about to see the long taale of Bitcoin mining start over the next four or five years it's going to take the technolog is not there we're obviously driving a lot of uh innovation in that side but I think where you're really going to start seeing this appear is kind of 2028 and Beyond sounds like you're a few Cycles ahead in you're thinking I'm a futurist so that's a good thing somebody has to be and that's


probably how we've ended up debunking a lot of these myths and actually fixing the things that were broken so you know rather than just Towing the line and continuing with the same old processes that uh did have some problems right I mean it's it's not like Bitcoin mining's always been perfect so it's good to know that it's advancing the right direction Fred thank you so much where can people follow you after this conversation and check out everything marathon's doing uh I'm on Twitter form or ex formally known


as Twitter uh FG t h i l uh same place on telegram or just uh you know mar.com is our website so thank you so much great to catch up I wish we had more time so we're going to have to do this uh run this back sooner than later if that's okay with you absolutely anytime love talking to you thanks so much Fred [Music] that's