« Back

Bitcoin Mining After the Halving with Fred Thiel | EP 140

January 19, 2024

Join this insightful discussion on Bitcoin mining and its future with Fred Thiel, the Chairman and CEO of Marathon Digital Holdings. This video delves into topics such as the impact of recently launched Bitcoin ETFs, the importance of energy efficiency in mining, Marathon's expansion plans, and the growing interest of nation-states in Bitcoin mining.

00:00 “Swan Signal” Intro

01:39 Introducing “Fred Thiel”

02:00 Bitcoin ETF & Rotation of Mining Stocks, MicroStrategy

05:04 Investors Getting Exposure to “Bitcoin”

08:37 FASB Accounting Rules

10:45 “Marathon Digital” Acquiring Additional Mining Sites

15:58 How “Marathon” is Positioning  for the “Bitcoin Halving”

19:15 Energy Efficiency with Miners

22:27 Will Miners Continue to Get Exponentially Better Per Cycle?

26:46 Responding to, “Bitcoin Waste a Full Swimming Pool of Water”

28:40 Decentralization in Bitcoin Mining

34:16 Sovereign-Nations Interest in Mining Bitcoin

39:14 Bitcoin Mining-Pools

43:01 A.I. & Bitcoin

49:30 “Bitcoin After the Halving” - A 12 Month Outlook for Bitcoin

55:52 How to Connect with “Fred Thiel” and “Marathon Digital Holdings”

57:11 “Swan Signal” Outro

Transcripts are autogenerated. May contain typos.


hey everybody welcome to another episode of swan signal live I am your host Sam Callahan I'm the lead Market Analyst at Swan Bitcoin a Bitcoin Financial Services firm before we get started with another great episode of swan signal live I want to bring up Pacific Bitcoin which is the festival that Swan puts on every year in beautiful Santa Monica if you use the promo code signal you can get 10% off your tickets today and if you use Bitcoin you can get an additional 21% off that's a total of 31% off if you go to Pacific Bitcoin right


now those tickets are fully refundable by February 1st and so if you're just on the fence about whether you'll be able to to go there isn't that much risk just buying in those tickets right now and locking in those uh cheaper prices it's a great Festival so check it out this show is brought to you by our partners powered by Marathon digital Holdings the most technologically advanced publicly traded Bitcoin minor and the second largest of Bitcoin out of all those publicly traded companies in North


America marathon's primary mission is to enhance the Bitcoin Network by sustainably increasing the amount of computational power or hash rate that helps make Bitcoin the most decentralized and secure monetary Network in the world and on this episode we got a very special guest we actually have the chairman and CEO of marathon digital Holdings Fred the is coming back on to the show so Fred welcome thank you for joining us great to be here yes so I wanted to open up maybe um the most top of Mind item right now is


these ETFs that just launched and um you know one of the things that I've noticed is you've seen kind of other uh investment vehicles that might have been used for Bitcoin exposure kind of start to suffer a little bit as there's been a shuffling around like you see this in micro strategy some of these publicly traded Bitcoin mining stocks and these ETFs grayscale how are you looking at some of the performance right now and how do you see that kind of playing out in the coming weeks well I think you see partially


some reshuffling you're seeing people who had bought into grayscale at the discount whether it was 40% or 8% or anywhere in between um they sold out of grayscale and rotated their money into other lower fee funds grayscale is still charging about one and a half um points uh and uh so 150 basis points where others are charging you know either free for the first six months or you know somewhere between 25 and and 50 basis points so you're seeing some rotation um I think you haven't really seen institutional interest start yet um


that's most probably going to start coming towards the fall once people see these ETFs stabilized people are still trying to figure it out you know normally there is a launch of an ETF for a particular commodity here you've got all of a sudden a whole graduating class if you would of ETFs and people are still trying to sus out um you know the pros and cons of each one obviously black rock is garnered um you know a large percentage um as as Galaxy so I think what we're going to see is some balancing out over time uh I don't think


it's really taken a lot of people who were before spot holders um I don't think necessarily coinbase has lost a lot of uh customers to these ETFs at this point yet the whole real objective here is to attract a new class of investors to bitcoin people who are you know either raas or customers of raas rather um you know institutions um Pension funds 401ks and the like who don't want to have to deal with custody Bitcoin they don't want to have to deal with all of the issues of holding uh Bitcoin on exchanges or trading it they


just want to be able to buy it through their normal broker so I think this is something that's going to take a little time what has been very positive though is the volume of trading was very substantial it's one of the most successful launches of uh an ETF category um in history and if you just look at the sheer volume uh it definitely exceeded you know the launch of uh of gold ETFs uh it's taken away also some obviously uh funds from the Futures ETFs but you're also seeing a whole slew of new participants uh


applying for things like uh short ETFs so to be able to short Bitcoin to be able to do uh leverage on bitcoin to be able to do sell calls on bitcoin things like that so you're going to see now a whole family of funds come that will allow more and more people to essentially paper trade Bitcoin uh without having to actually hold it and all that bodess well so you think that bodess well I was going to ask you do you think that's a pro or a con that we're seeing these kind of derivative products start to come out in the


Woodworks after these ETFs well people are looking to generate yield in different ways right you have the Joe consumer or Boomers like myself who may be in their retirement account want to have some exposure to bitcoin if you were to go out and talk to um Ras many of them would say hey once they're the right um types of instruments out there yeah 1% allocation to bitcoin makes sense you you can look at whether it's stuff that Fidelity has written or stuff that other investment advisers have written um then as you start going


kind of down or rather up the risk curve you get people who want to trade so you know they don't want to trade in and out using an ETF they want something with a little more juice so they might want to use micro strategy because of how uh micro strategy uses their balance sheet to buy and hold Bitcoin or they may want to invest in miners or they may want to play the Futures markets you know whether it's Perpetual future so the more variety the more options people have the more interest there is in the


market and the more liquidity there is in the market the more investors it attracts and so this is only just going to add to the liquidity the other important factor here is it's going to make Bitcoin kind of the unsalable king of cryptocurrencies it's going to be really hard for any other cryptocurrency to get near bitcoin's um attractiveness as an investment asset I think and it's really just going to start snowballing on itself over time but it's going to take time it doesn't happen overnight


you know these things um take a while take a while to um kind of get into systems you know you still see some Brokers uh haven't quite got them in their systems you know Vanguard has said they're not going to offer these ETFs if you go to uh JP Morgan for example uh you have to have a conversation with somebody to get them to kind of enable this for you but over time what you're going to find is more and more of the traditional Brokers uh are going to let you do the Char Schwab Fidelity they already let you do it so you know it's


it's very much um Open Season I think for these things um but what you are seeing is as relates to the price of Bitcoin you know there was a run up in bitcoin price leading up to the um announcement then it's kind of been selling off on the news uh part of that is also people rotating you have some people rotating out of Bitcoin into eth because now they're trying to you know run up the eth uh ETF rumors and see where that goes I personally think that uh eth is going to have a much harder schlog becoming approved as an ETF just


due to um Gary gensler's perspectives on eth not being as clear as they were on bitcoin plus there's no lawsuit driving him to do anything there so I think that um you know Bitcoin is going to be the king here it's going to take a while but I think that clearly towards the end of this year we'll see the real impact of the ETFs I I kind of agree I think ethereum might have a little bit more of a struggle ahead just because there's more uncertainty around its classification whether it's a security whether it's a


commodity there's much more clarity with Bitcoin and still the SEC had to be taken to court to approve these things so um you know and you mentioned these different broker dealers it seems like Vanguard was more of like a philosophical stance against Bitcoin whereas these other ones like you said it just takes time for them to offer a new ETF product and a lot of them just they need to see several months of performance before they uh solicit it to their clients so it just takes time like you said another thing that might take


time to really see the true impact was the newly approved fbe rules but I know that you're um kind of bullish on their impact at least long term um for anyone who doesn't understand you know right now the way bitcoin's treated from an accounting perspective it it creates a lot of U you know uh impairments to their balance sheets the way that it's treated does do miners have to deal with that too I assume just because you guys are Corporation you guys have been impacted by these accounting rules um


what do you think is kind of the long-term impacts of these changes well I it's only good um historically the marathon has always had to impair its Bitcoin if the price of Bitcoin has dropped and we've never had the opportunity to re-evaluate it upwards um when the price has gone up so we are were one of the early backers of this fby chain change uh we're definitely going to be one of the early adopters here uh and uh start using it this year uh as a way for reporting how we hold our Bitcoin which also makes it very more


attractive um for institutional investors because institutions need to be able to mark to market the assets that they're carrying on their balance sheets and Bitcoin previously wasn't uh an asset that allowed them to do that now they can so I think you're going to see institutions who want to hold spot Bitcoin on their own balance sheet do it this way um yeah the ETF obviously adopting those new rules like as soon as this year I know they're supposed to go into full effect like uh late December


but can you guys technically do that sooner or how does that work exactly yeah my my understanding is we can start doing it uh effectively this year um there may be an ability to report your 2023 full year numbers using this type of accounting methodology but don't take my word for it because that's not my area of expertise but definitely this year awesome well that's just another kind of Tailwind potentially for the institutional adoption of Bitcoin I would say uh as these ETFs kind of help reduce the


barriers of Entry as well as these fby accounting rules um let's kind of change a little bit to what you guys are doing at Marathon yourself because you had some exciting news you had a couple large Acquisitions you acquired two operational Bitcoin mining sites uh over 390 megawatts of capacity added from subsidiaries of generate Capital um congratulations on the acquisition I guess and but like why did you guys decide to do this what was the strategy behind it and and why now well part of our strategy has been


to shift from our asset light model where we only use third-party hosting to go to more of a blended portfolio approach where we have kind of a mix of self- mind and third party hosted uh using the third party approach is great when you're growing quickly because you don't have to invest any of your capital in structure you're just investing it in minors and that's how we were able to scale from you know under 3x aash to 23x aash very very quickly uh that works great also in an environment where the


price of Bitcoin is constantly growing because um you're not really worrying about your hosting cost as much um going forward though we want to be very optimized in our cost structure and so part of that has to do with lowering your operating cost um on a per Bitcoin mind perspective because energy cost is energy cost it's hard to control that other than through the efficiency of the miners that you use and Marathon today is already one of the most energy efficient miners there is out there you know our um Fleet on average is about 24


Jewels per terahash which is considerably lower than the industry average which is over 30 but um our operating costs at the sites because we were using third-party uh operators uh you know they were earning a margin obviously on our operations and we needed to have the ability to really um optimize how the miners are run on a daily basis and as you look at kind of the tail end of 2023 you can see how our monthly performance and our efficiency at the sites where we were able to go in and tweak how operations ran


dramatically increased the amount of Bitcoin we were producing you know in December we produced over 1,800 Bitcoin as an example you know by far the largest amount of Bitcoin ever produced by a publicly traded minor so um in doing these transactions we add essentially 390 megawatt of uh owned capacity uh we're currently using about 60 megawatt of that capacity at the um uh site in Wolf Hollow um and um we have used historically some of the capacity at the kery site but most importantly this gives us net essentially 330


megawatts of additional capacity um which we will over time fill with our miners there are other people mining there currently um and as those hosting agreements roll off we will take those uh shelves if you would and uh make them our own so this is all part of our road map to getting to 50 Ex ahash of capacity by the end of next year um and we believe that now is the time to consolidate the industry um many miners you see are out there buying miners the problem is they need to have shelves to put them on yeah and if they're


developing sites those sites can take 18 to 24 months to develop you know look at Riot they're still developing in Corsicana um and you know that is a huge site it's going to take them a couple of years to develop it um some of our other colleagues in the industry clean spark they've ordered lots of machines they need to have places to put those machines our belief is that you have to own capacity first and then you can go get machines and so we're very focused on buying capacity that's what this deal


was all about 390 megawatts of additional kind of um capacity and you're going to see us continue to consolidate and acquire more capacity here um especially after the having when we think a number of miners will be in trouble because the price of Bitcoin is clearly not at a place where post having um miners are going to enjoy a good profitability and that strain that low Bitcoin yield is going to put on those miners balance sheets are going to mean some of them are going to have to find options as to how they're going to


survive and part of that is going to be selling the sites that they're running their miners in possibly yeah and if there are attractive deals out there will be an acquirer we're unique in that we have you know close to a billion dollars of cash and Bitcoin in our balance sheet that we can go and use to go acquire things before we have to dip into our Equity so uh I think we're in a very good position to consolidate the industry Our intention is to you know continue to grow you know we've stated


50x aash is our goal for the end of 2025 but that doesn't mean we have to stop there yeah you mentioned like a lot of these miners are buying these these Asic machines the most efficient on in preparation of the having and you mentioned your Fleet efficiency is one of the best in the industry already it's surprising to me that you said like now is the time to consolidate because like you mentioned I figured that would happen after the having where you see a lot of of you know these miners in trouble they get distressed like you


mentioned but um you're kind of getting ahead to see to get the capacity first um and in preparation and I actually did there was a great report from caner fritzgerald um a couple months ago that looked at uh you know all the different mining minor is kind of comparing them and I did notice that Marathon had a substantial amount of cash on hand and so is that kind of a strategy like to prepare for the having um is that you guys want to be in a strong position to be an acquir and you just see that as an opportunity so you're kind of getting a


lot of cash now in preparation for that is that the idea well so we run our business from a perspective of we need to be resilient meaning we need to be able to weather whatever storm comes at us and if the price of Bitcoin let's just say it drops to 30,000 at the time of the having not many miners are going to be able to operate profitably and how many miners have enough cash on the balance sheet to be able to survive six to 12 months maybe 24 months before um it becomes profitable to mine again when Bitcoin


has moved back up uh so you need to have a lot of cash on your balance sheet to do that because if the price of Bitcoin drops the Bitcoin you have on your balance sheet is going to lose value as well right and if you've just placed big orders for miners you're going to have to have cash to pay for those orders at a time when um you know you will be uh not having a lot of cash on your balance sheet so we believe that now is the time to buy capacity because these deals take time to close and this generate deal uh


was a deal that we did very quickly very efficiently you know we started working on this just before Thanksgiving we closed it last week um you know that's a speed that you need a very seasoned m&a team to be able to execute with and thankfully our team has a lot of experience in m&a um that doesn't mean we're going to stop doing deals post to having we're just getting started the question right now is you want to buy quality sites you want to buy sites that have all the attributes that make them


attractive so for example if I have to go and buy a site um no matter how low cost that is fully occupied with somebody else's Miners and those contracts are going to run for four years and those miners are going to be in economic trouble and let's just say the power cost that that site isn't very attractive then you know I'm not going to want to own that site regardless and I certainly don't want to buy people's machines that are running at a site because all those machines are old marathon is known for always buying


machines at the bleeding edge of the technology curve you know we're very technology focused we're technology fully vertically integrated even to the extent that we helped um and fund it you know oradine which is the US designer of uh Bitcoin mining asay um and full disclosure I sit on the board of the company um you know the idea there was to design a minor that was built for industrial scale miners like ourselves where you can tweak the performance of individual as6 where you can overclock underclock where you can


manage them to profitability points and do things you can't do with these standard shoe box miners built by people like bitm and others and so we think it's all about being at the bleeding edge of the technology curve but you have to be able to do that while paying you know reasonable prices but it by no means might in the market to go buy s9j Pros for example today no matter how cheap because come to having they won't be profitable to operate yeah and so it's all about you want to buy the most


energy efficient machines so you get the advantage of running them um while everybody else is still on the old generation so let me give you an example if I have one megawatt of power or let's just say 20 megawatts of power which is kind of the 1X aash of capacity today using um s19 XPS right operating about 21 Jews per terahash um if I all of a sudden replace those machines with machines running at 15 jewles a terahash which is essentially what the new oradine 3 nanometer machines that'll be um available at the end of this year


we'll operate at I can increase my capacity by a third without using any more energy right that same 20 megaw is now yeah because it goes from 21 Jews per terahash to 15 yeah right so now I've got an extra essentially six megawatts of power that I can use which is roughly a third right yeah so right so now I can grow my capacity without increasing my energy consumption which means my cost basis isn't going up in my Mining and so you know a lot of people get this wrong they think I'll just buy the lowest cost machine and


mine with that it's not how it works you need the most energy efficient machine that you can get out there and um you know we're seeing a whole generation shift think about it the s9j pro 30 jewles per terahash came out in 2020 2021 right was available for shipment then the XP came out it went from 30 Jews of terahash down to 21 the XP started shipping Marathon was one of the first buyers of that we placed an order for $70,000 machines at the end of 2021 those are now all fully deployed um now you have the t21 the s20


ones that are you know operating at 19 or 17 jewels per terahash those will be delivered to people over the course of this year well the oradine machines will be delivered towards the end of this year and they're at 15 Jews per terahash and at the end of the day in a tight environment it's the miners who have the um who are in the bottom 25% of cost to mine a Bitcoin that will always survive and so our goal as a miner is to be in that bottom quartile cost-wise because our technology is so good we're


able to optimize things by running our own pool and our pool outperformed all of the fpps pools in December um and we don't bring in third parties to that and you know it's running our own firmware all the way down to the bottom of the technology stack so if efficiency is the name of the game is what you're saying in in Bitcoin mining and um how how you know those machines turn over quickly and part of that like Mo's law and some people think it's kind of slowing down as it's getting harder and


harder uh to fit these transition transistors on there is a double them every single time um do you see that slowing down over time in terms of the new M new powerful machines more efficient machines coming on the market or is that not what you've seen in the last couple years like you mentioned like how do you see that playing out well so you use the numbers I just mentioned so the s9j pro was 30 jewles a terahash uh two years later the XP came out that was at 21 jewles of terahash so that's a 30% reduction right then the S21 came


out which is 17 Jews of terahash so that's you know about a 15% reduction U now you have the oradine machine at 15 jewles of terahash right that's a further 15% reduction um so you're starting to get to a place where the there's kind of diminishing returns and what becomes more important then is the total cost of ownership and this is where the oradine machines um and I know it sounds like I'm touting their horn but I am um are so good it's you can run these machines and Target a profitability point right so you can


essentially um Say Hey I want to maximize my profitability the operating system of these machines will then take into account the current price of Bitcoin your cost of energy and the global hash rate and will tweak ASC by Asic the underclock overclock so that it maximizes profitability all without the operator having to do anything wow now that lowers your cost of ownership other benefits you know the um miners that we deployed for example in our UAE site in Abu Dhabi this is a full immersion system um that's running


in 115 120 degree Fahrenheit average temperature during the summertime it's very humid 95% humidity how do you operate efficiently there well when we did our pilot we had one megawatt worth of miners running for over a hundred days before an engineer had to open a container to go look at them just completely it just ran all by itself so that means that you need very few people at these sites to run them so that's two two important takeaway there one you can run very large sites with very few people and more importantly you can also


run very small sites economically because you don't need any people and so that opens up Alternatives that let you operate and grow Your Capacity without having to look for utility scale hundreds of megawatts right it's hard to find sites that have two three 400 megawatts of capacity they take time to build they take time to permit they take time to get approved by the utility but there are lots and lots of sites that you could run that are 10 megawatt 20 megawatt and then when you start looking at energy harvesting which is another


thing that we're doing where we're taking methane gas we're taking biomass converting it into electricity converting that electricity into Bitcoin then using the heat from that Bitcoin production and feeding it back into an industrial process now you start getting to a point where you have nearly zero cost energy and this becomes really interesting now gr it's a lot harder to scale a bunch of 1 2 3 four 5 megawatt sites into a gwatt of capacity but over time it makes you the lowest cost operator in the industry and so I think


that's what you're going to start seeing in the Bitcoin mining world is you'll see the utility scale guys operating these very large sites and then you'll start seeing more and more of these energy harvesting Solutions where people are heating buildings with Bitcoin miners they're heating factories they're pre-treating parts of industrial processes using the heat um and then getting paid for that and that subsidizes their energy cost which makes their cost to mind Bitcoin even lower so


I think it's a very exciting time of transition in the industry we're going to see much more real industrialized machines being built not these shoe boxes anymore but blade based machines where you have tanks that are uh have high density and uh it's really exciting what we're going to see over the next two or three years sounds like it sounds like a ton of innovation and just get I me I get excited thinking about these things running by themselves with basically no labor costs and basically


free energy what that means uh if you just kind of think far out it's it's mind-blowing honestly what that could enable I uh I wanted to bring up something which you know you brought up the the site that you build You're Building at the UA UAE uh was 02 backed by Abu daab Sovereign wealth fund largest uh first large scale emmersion Bitcoin mining operation but there's been some fud out out there recently that the average Bitcoin transaction wastes a full swimming pool of water and from my understanding water is pretty


scarce there have you seen that uh new fud come out from that research report about Bitcoin waste water and what would you say to that well for one thing for that to be true you have to use water in your Bitcoin mining we don't use water our systems sit in in self-contained tanks of oil the oil isn't lost or consumed in any way right it's a fluid that um is pumped around so think about how an automobile radiator works right you've got a sealed closed loop system where radiator fluid is floating around


the engine cooling it and then it goes into a radiator that you know um essentially cools the Heat and then it goes back into the engine that's the way immersion systems work we don't use water we don't use water cooling at all in these systems this is 100% self-contained closed loop oilbased systems um traditional aircooled mining sites don't use water either unless you have a water wall and we don't use water walls in any of our sites so you know we have no water consumption at our sites


other than the drinking water and uh the water in the potties that the um the people on site use so um you know you can't measure that on a transaction basis right so yeah for anybody who was wondering about that fud I thought that'd be a good uh answer to look look back and maybe we'll clip that I uh um I wanted to bring up the concept of decentralization mining I think it's the most important um one of the most important topics to discuss we just saw actually the Texas grid um come under pressure from some kind of storm and 25%


of that the hash rate actually turned off a lot of them have these power purchase agreements where you know they have uh with the utility provider they have contracts in place where they turn down their miners give the power back to the Grid in times where the grid needs it um but 25% was kind of shocking to me about just how much of that hash rate has moved to Texas and it's better you know after the China ban I I I think it's better because like property rights are respected in the United States of


America and there are benefits but still 25% seem like a large number um are you concerned at all about the concentration of hash rate um in the United States or just in general um you know what are your thoughts around this topic um so handful of things for one thing I don't think it's 25% of global hash rate came off it's 25% of us hash rate possibly got it you got to realize the US in total represents under 40% of global hash rate so what you would be saying if 25% of global hash rate came off almost over


half of the us would have shut down and there's a lot of mining outside of Texas I mean as a miner we're pretty Diversified we have Texas we have North Dakota Dakota we now have Nebraska we have UAE we have Paraguay as well um I don't think there many US based public miners that are as uh Diversified in their locations as we are either domestically or internationally um and that's by you know uh on purpose we're purposely diversifying our locations uh yes there is a lot of capacity in Texas


but that's because Texas is a very attractive Market because of how it works that you can bid for power that you can get paid for shutting down all of those benefits you got to realize the alternative for the grid operator when they have a lot of intermittent power which is solar and wind you get these winter storms when it rains and there's wind the water freezes on the um propellers of the uh wind turbines and obviously the sun doesn't shine so they have huge power drops because you know upwards of 30 plus percent of the power


in Texas comes from these sources so they need a demand response system that works well the alternative would be that they either have to turn on a bunch of peer plants and oh by the way I believe Berkshire hathway is an owner of very many peer plants in Texas or you'd have to have huge Battery Systems the peer plants only are in business when they can charge $5,000 a megawatt for power um which is what happens in these peak times and Battery guys you know if you're investing in batteries you're


spending almost as much on the batteries as you do to build whole solar farm uh which is upwards of you know $2 million a megawatt so Bitcoin miners are the ideal solution for the grid because the grid operators don't have to pay anything for the ability to turn off the miners other than they provide a subsidy in the form of a lower cost of energy uh and so as a minor if you agree to curtailing then you're most probably you know entering into an agreement where you're most probably curtailing up to a


Max of 20% of of the time and in return for that you get a lower price of energy um and what that gives the grid operator is hey I can shut off a gigawatt of demand instantly I mean within 10 15 20 minutes and get keep my grid balanced um because my generation capacity is falling off and then as that generation capacity comes back on or excuse me or as demand drops you now can come back online so it is a very unique model and in UAE we do the exact same thing we have a relationship with ewick which is the primary energy


utility and they have this asymmetry in their demand summertime they need four gws in the winter time they only use one gwatt but they have to keep using the power generation because of how they desalinate water it uses heat from the energy generation and so in the summer time when they've had peak times they're now able to call us and say hey we need you to curtail they operate a nuclear power plant and they operate gas fired plants neither of the two are easy to regulate the amount of energy they produce on a short-term


basis if you know days in advance yes you can increase or decrease the power generation but if you all of a sudden have a Transformer somewhere down the line that goes and now you have an imminent power outage the only way to increase Supply quickly is to curtail demand somewhere and so we provide that curtailment in UAE um which has been very helpful to the grid operator there so you know Texas has that unique nature the way the power markets work um in Nebraska um there's you know limited need for curtailment when it there's a


requirement we curtail in North Dakota where we're operating primarily on wind energy um same thing you know we curtail uh when and as needed and uh you know I think any minor who is a good corporate citizen um is going to do that um but we do provide a very valuable service to stabilizing grids that's you know the key message here got it I always it was a cool use case yeah the answer the second part of your question um you know the second largest mining country in the world is Russia Today and growing why they have lots of


nuclear capacity with no off and so um Sovereign Nations today are very interested in mining Bitcoin why the US weaponized the US dollar and so if you as a sovereign want to hold your reserve assets you don't have many options the US dollar historically has been the reserve currency of the world because it's a safe haven and you could trust the us to not mess with your dollars that's not the case anymore if you're a commodity producer in the Middle East for example there's risk that the US may put you on a NOA list


and then what do you do now you can't move money they may take your reserves uh like they did with Russia and I'm not saying they're going to do that with the Middle Eastern country country necessarily but um you know you can look at all these central banks that have been buying gold as a way to hold their reserves instead of dollars am you go Google This Record amounts and so now you also have Sovereign Nations looking at Bitcoin as an alternative to the dollar the problem is if you're not mining your own Bitcoin and you don't


have your own pools then the us through its ofac process could block you from accessing markets and getting your transaction mind you know look at what some of these pools out there are doing now where they're being rumored of uh filtering based on ofac compliance and you know full disclosure Marathon had a pool operating three years ago where we had that capability uh which we shut down um because there was such an outcry from the industry so the risk for censorship is very high and so you see Nations uh like UAE who want to operate


their own Bitcoin mining who want to have their own custody who want to have their own pools Etc because it gives them sovereignty over their assets just like most Bitcoin owners today want to have sovereignty over their financial assets and so one of the key driving purposes behind Bitcoin is self- sovereignty well nations want that and so now you're starting to see nation states want to mine specifically for that reason you know Bhutan 200 megawatts of power right and growing you know Middle East lots of countries there


very interested in it Russia is doing it you're now starting to see countries in Africa looking at it you're starting to see nations in Central and South America uh so I think what you're going to continue to see is more and more um diversity in who's mining you're going to continue to see hash rate grow because there are people who don't necessarily have a financial profit interest in Bitcoin mining but have a strategic interest in Bitcoin mining and they're going to continue to invest in


mining plus they control oftentimes their own electricity cost so they can essentially um mine for free so I think you're going to continue to see global hash rate grow you're going to see capacity growing on a global basis you'll see the the US share of global Bitcoin mining decrease over time um the other thing you're going to see is a growing um number of micro Miners And this is gets back to the energy harvesting thing I mentioned earlier you know the ability to mine Bitcoin and heat a building at the same time mine


Bitcoin and grow shrimp mine Bitcoin and heat hot houses you know it doesn't need a lot of mining capacity to do that right you're paying for the energy anyway why not mine Bitcoin about 95% of the heat that or energy that you buy to plug a miner in is converted into heat when you mine Bitcoin if you can capture that heat and use it for something else you know think about it people pay a lot of money to heat buildings people pay a lot of money to heat green houses there are industrial processes that need


low-grade indust industrial heat for food processing other things like that um so there are lots of opportunities for people to use small capacity Bitcoin miners uh to heat things and so you're going to see a growing number of a growing amount of hash rate it'll be very slow at first but over time you'll see it grow um to be a significant share of mining that is microm miners doing simple things like heating where mining Bitcoin is really a bu product of what they're really doing and that's


something I'm super excited about because that that there you can really talk about decentralization of Bitcoin mining yeah micro miners I like that there was that reason TV documentary I don't know if you saw it of the the bath house in in New York I don't know if you saw that yeah so that heat reuse I mean the the possibilities there are endless like you mentioned I you know I love what you just said in terms of these nation states beginning to get into Bitcoin mining and how they control their


electricity costs it's not doesn't really bother them uh to Min a loss when they're doing it for geopolitical reasons um to protect themselves from you know seizure and and um you know their assets getting confiscated essentially and and I I just think about are we seeing is that the kind of the answer to some of the centralization at the pool level is like should we see more pools start to develop uh from these nation states who want to use their own pools is that kind of one possible outcome here that could improve


the C the decentralization at that mining pool level and and why haven't we seen that already where we see these like you know larger like Russian pools and other things come online so um you there are lots of reasons for you know one is you as a minor need to have enough capacity um such that you're evening out the luck effect if you would uh of mining uh to operate your own pool why do you point your miners at f2 or at Foundry or one of those pools well because they pay you just based on your contribut contribution of hash rate


right it's an fpps pool so I point an ex aash of capacity at that pool I'm going to get whatever my Pro a share of the winnings of that pool are the problem is you're sharing with everybody else and so if you're a big enough minor you actually want to have luck um Factor into your winnings so if you think about when all these ordinal transactions happened in May and then again in November and early December when we Min all these Bitcoin because we operate our own pool we got to keep 100% of the odd


blocks that had all of a sudden six Bitcoin in transaction fees seven Bitcoin in transaction fees in addition to the block subsidy had we been in an fpps pool we would have been sharing that across the pool oh okay and so it you know in our case our pool outperformed um you know Foundry or F2 by a considerable percentage in the case of many miners they want the cash flow because they have to pay electrical bills so they want a check essentially they want to get Bitcoin every day from their pool operator so they can you know


know exactly what they're going to get so they can pay their bills as you look um under the covers a little bit more what you'll find is there are miners who essentially got their operations financed uh and then pools who got their operations financed by Deep pocketed um operators in the space uh and if you look at kind of the flow of Bitcoin from many pools you'll see that ant Financial for example has been financing many of these pools because fpps pools have to pay out based on prata share uh regardless even if the luck Factor runs


against them and so for many pool operators it's a very Risky Business to be a third-party pool operator so that's kind of the reason why I think that you know you're going to start seeing more and more people start mining with their own pools but they have to have scale to do it and so you know how many people have more than 10 ex aash of capacity uh up until recently there weren't very many people that had that type of capacity yeah yeah makes sense I mean when I think about the consolidation


that might occur over the coming year too I think even less people will probably be able to have it right um so it's interesting I think it's like a a topic that should be talked about a lot in terms of uh you know how do we further decentralization decentralize this network at every single level I mean you brought up you know being at Asic manufacturer in the United States that's another kind of choke point in terms of centralization at the Asic manufacturer level and so it's a good thing it's a good thing to come up with


these Solutions I guess is what I'm saying I was wondering um you know you brought up how you you know acquired those uh new operating sites and as a way to kind of diversify your operations um I've heard other miners kind of try to diversify their revenue streams by going into other things like Ai and and other sources of computation um are you guys planning to do anything like that uh over at Marathon or are you just strictly you know Bitcoin focused so um we our philosophy at the high level is we're asset allocators


right so we have uh Capital provided by our shareholders and we need to be really good custodians of that capital and so we need to invest in the things that we think are generate the best return for our shareholders um we have studied AI um and uh you know uh being a boomer here uh you know I've been in tech for 40 years um I started my career writing software on Punch Cards in Banks uh on Old IBM 360 main frames which gives you an idea of how old I am um granted I was in high school at the time but um and I


have developed technology that was U you know ethernet technology that was core for the original internet buildout and the buildout of all these PC connected LS and WS uh built token ring technology built switching technology um saw the internet grow was involved in adte game Tech all these industries as as they've grown W and the one thing uh and was a big you know contributor to some of the early iot stuff over 20 years ago um the one thing I've learned is never invest in the first generation and what you have going on in


the AI space relative to Data Centers today is you have this race to build capacity to do llms large language models um and inference and what people are doing is they're taking the state-of-the-art processor and building these data centers around these gpus so the h100s typically the Nvidia uh product and so the challenge with um these HPC sites is that the gpus need to be interconnected so if you have a cluster of gpus every GPU needs to be connected to every other GPU for it to work properly it's the way


the brain works right you have neurons that connect everything and that means that you can't build a field of containers that's flat because the distance from one container at one end to the container at the other end is going to be longer than the two containers next to each other and so you need symmetrical connections same length and so you want to build these data centers almost like spheres and so it's like a three-story building that's three stories wide kind of right that's the ideal way to build they're very


symmetrical yeah so building a data center for AI is 8 to 12 times more expensive than building a data center for a Bitcoin min the only thing they have in common is they both need lots of energy period end of story right the other thing is the h100s now let's talk about the technology curve h100 was the hot machine you know 128 months ago everybody's ordering them right what does Nvidia do they launched the h200 right look at what the hyperscalers are doing they're not buying H2 200s they're on to the next Generation a lot


of them are developing their own systems so if you're going to operate a data center for AI you've got to be thinking about 99.99999% up time 59 right you've got to be thinking about how do you cool these things you can't immerse an h100 or an h200 in oil you've got a liquid cool them by cooling the individual chips now you are using a lot of water by the way um if you then start looking at the operation of these sites you know it's very it's very people in intensive this stuff breaks all the time and you've got


to have a really fat internet connection right because you know it's big data this is high velocity high volume high resolution data that's got to get connected here it's not a couple of starlinks on a remote site somewhere that's burning methane you know these are totally different businesses and so I think any Bitcoin miner who says we're going into Ai and we're going to be the best at this um it's going to be a flat in the pan because they don't have the capex to be able to finance machines


where the obsolescence is going to be every 12 18 months for the next five years so I you know I wish them luck I wish them luck but uh you know I've been in this industry long enough you know the tech industry long enough to know that uh if you uh get involved in the hype curve you're going to crash into the trough of disillusionment before the business really starts working and we're going to see so many improvements in Vector databases which increase the efficiency of these systems by a 100 fold which means guess what you need a


hundred times less compute power all of a sudden to do the same thing and as this technology curve continues to advance look at what happened to PCS right what was the way that Intel built their business they invested in software companies that made software that needed CPUs to be more and more powerful because other otherwise there was no need to buy new CPUs what is nvidia's business model it's selling chips and software how do they sell more chips and software or they find new ways to sell new chips and software which


means the people installing a lot of this stuff it's not going to last them five years it's not going to last them eight years they're going to be obsolete in 18 months yeah and the capex like I said it's 8 to 12 times more expensive than Bitcoin miners so I think that you really need to be careful um as a Bitcoin miner about going down the rabbit hole of HPC because uh it's going to be a very short-term project for you I think yeah I didn't I didn't know any anything about like the differences


between the businesses or you know those details so thanks for sharing that that's fascinating so um I I wanted to just end with just some general like Bitcoin uh over the next 12 months I mean you mentioned that that mea is one of the largest holders of Bitcoin itself so I have to think you guys are at least um partially positive on the future direction of the price um what do you think about what do you think about the 12 months because I I mentioned fby mentioned ETFs um there's there's a macro backdrop


that one could argue is is supportive of asset prices If the Fed does cut rates what what are you looking at over the next 12 months with just bitcoin's price so I think think um you got a number of really good Tailwinds you've got obviously fby you have the ETF um you have the having which granted it's more of a psychological shock than anything else uh you know as a supply shock you're talking about going from 900 Bitcoin a day to 450 Bitcoin a day um you know there are millions of Bitcoin traded a day so that Supply


change isn't going to really do a whole lot but it's the psychology of it um but it's there are only ever going to be 21 Mill Bitcoin we've mined almost 20 million the amount of Bitcoin actually in circulation today liquid on exchanges um you know is somewhere between 1.8 million to three million depending on the day and what's going on with the ETFs that liquidity will increase likely But realize a lot of these ETFs once the Bitcoin goes in there if somebody's buying shares and somebody is selling


shares of the ETF that Bitcoin doesn't have to circulate anywhere on the blockchain it's just going to stay in the ETF like in a corporate wallet at an exchange and so you know there will still be very tight Supply so between all of those Tailwinds there will be demand increase and price will go up and as you start getting sovereigns who want to hold more Bitcoin you know we talked about they want to mine Bitcoin so that they can get their transactions processed but you know listen there are only about a million Bitcoin left to be


mined between now and 2140 so no Sovereign is going to build up a whole wealth fund by mining their own Bitcoin they only want to M Bitcoin as a way to transact and be able to transact Bitcoin and process transactions they are going to have to go in the open market and buy Bitcoin so I think as you add up all these things there's reasonable uh you know logic that supports an argument where by the end of this year we should hopefully and this is my personal opinion it's not marathon's official opinion and this is


not Financial advice um my personal opinion is that I think we will exceed the prior all-time high High by the end of this year there'll be a selloff uh profit taking um and then you'll see by the end of next year will exceed that all-time high by potentially 2x uh and after that who knows what's going to happen you know Bitcoin May repeat its traditional cycles and go into a bare Market or we may be done with bare markets and it's really a macro environment where it's all about global liquidity to your point you know Global


liquidity will increase this year year um I don't think we're going to see inflation fully tamed this year I don't see the FED doing Max maybe three rate Cuts uh you're not going to see recession across the broad economy you'll see pockets of recession you know the PMI is down for example but consumers are still spending uh you're seeing housing coming back now as interest rates are you know real interest rates are dropping so I think the economy is going to be a mish mash of signals uh but Global liquidity will


increase China is about to do a trillion uh Juan uh liquidity injection you're going to see Europe cut rates faster because their economy is in much worse shape than the US's economy is uh and you're going to continue to see uh disinflationary um areas of the economy energy sector for example but you also have geopolitical risk right you got all the craziness going on in the Middle East you've got stuff still going on in Ukraine and Russia um and you have the risk for China Taiwan so all of that


means that the US fiscal spending is going to have to increase you know there's nobody putting a you know look at what Washington the um you know the the Senate just approved today a spending bill that the house will likely approve uh that is 1.6 trillion I think it's a stop Gap measure uh you know the F fiscal spending in the US is out of control and when you've got $33 trillion do of national debt that oh by the way in Bill Clinton's day he was the last president to have a surplus in the budget the national debt in Bill


Clinton's day was $5 trillion right it's $33 trillion today right General Accounting Office estimated at the end of Bill Clinton's term that if that budget surplus continued the national debt would be paid off in 15 years yet today it's ballooned to 30 3 trillion right there is only one thing the US can do to control that debt and that is either stop spending which doesn't get anybody elected or do something that lowers the value of the dollar that lowers the cost of servicing that debt and what does


that bode well for that bodess well for Bitcoin both well for scarce assets and nothing's more scarce than Bitcoin I agree completely like the idea that you know one of the biggest be cases for Bitcoin is this austerity measures it makes me even more bullish because it's really hard to see these politicians Sunday like waking up all of a sudden and saying oh my gosh look at these deficits that were this is crazy we got to cut this back it's actually the opposite that we're seeing that they're


continue to run multi-trillion dollar deficits it's hard to have a recession when they're still keeping these liquidity conditions like this and it's only you know it's probably likely going to increase we just saw Christine lagard actually just say she expects to cut rates by summertime um the Market's now expecting six cuts by the fed you know the Market's been wrong before on that stuff but you know it just seems like the messaging has changed over the last about month so I think you're right I


think you're right I think we're in for a couple wild years price predictions are you know impossible to uh you know be accurate with but um it is exciting to think about where this goes and it's hard not to see Bitcoin reaching all-time highs over the next couple years given these conditions Fred um thank you so much for coming on the show and and sharing your expertise with this stuff especially on the energy side uh it's always helpful for myself and the listeners to kind of hear from experts


like you um where can they find some of your work or they want to learn more about Marathon digital Holdings uh what do you want to point listeners to so um for marathon it's mar.com m.com and by the way uh keep a lookout we're about to release a a short film called path to 23 ex ahash which kind of tells our story in video form which uh was a lot of fun to put together and I think uh the audience will uh appreciate watching that so that'll be released on the 23rd of January um so keep a lookout


for that you can reach me on Twitter at FG Tel or on telegram at the same address at FG thel awesome well thanks Fred thanks again um I guess have a wonderful uh hopefully you know weekend coming up I know you got another day left here but uh thanks for coming on really appreciate it and I will hopefully see you soon absolutely look forward to it thank you very much thanks well I always love talking to Fred uh he always brings a very um you know intelligent approach to his his uh perspectives on the markets as well as


you know he's an operator he's in he's on the ground he's building he's a he's a leader of a one of the largest publicly traded Bitcoin mining companies and you don't get there without uh being an experienced operator as well as leader you know he talked about his pth through you know the technology industry through decades and so to have him in Bitcoin I think speaks volumes to this technology to have somebody like him who has worked in all these different groundbreaking Technologies and he's


decided to spend his time and energy on this new monetary technology that is Bitcoin so thank you Fred for coming on I hope you guys enjoyed it like subscribe comment let me know what you think another uh really exciting episode lined up we're going to we're we're going to look at the Bitcoin Venture Capital world with a couple VCS next week so I'm really excited about that and so tune in at the swan signal live next week I was your host Sam Callahan and I am out thank [Applause] [Music] you [Music]


w [Music] w