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Bitcoin Mining in 2024 | Fred Thiel, CEO at Marathon

February 20, 2024

00:00 State of Bitcoin Mining

16:00 The Business of Mining

25:24 Geopolitical and Macro Risks on Power Rates

27:42 Importance of Self Power Generation

33:18 Arbitrum Ad

34:05 Harpie Ad

35:20 How do you Navigate the Complexities of Utilities

41:19 Corporations Acquiring Bitcoin

47:38 State of Bitcoin Hashrate

51:49 Prevalance of Leverage in Mining

59:02 Growth of Bitcoin Mining

Transcripts are autogenerated. May contain typos.


how do we balance the grid when we aren't ever really sure about the input energy we have that's going into the grid remember a grid isn't a store of energy it's simply plumbing and if you try and put more into it than is going out of it Transformers blow up so the grid operators need these large utility scale mining sites in Texas who can shed 100 megawatts 200 megawatts for an hour two hours 3 hours a day whatever it might be um to help balance their grid because otherwise they're going to


Consumers and saying guess what you need to turn off your air conditioner when it's 110 degrees outside consumers don't like to do that hey everyone if you have been listening to Empire you know that Santi and I are fed up with unaffordable fees and frustrating transaction speeds that make the onchain experience basically unusable so the Arbitron team reached out and they showed us the platform they showed us what you can do on arbitrum whatever you're doing you can experience frictionless transaction


actions at lightning speed on arbitrum so head over to portal. arbitrum doio and check it out what's up everyone before we jump into today's episode I'm excited to share Empire's first ever security partner Harpy is the best tool to prevent your wallet from theft in real time Harpy is not just a security solution they are a peace of mind solution but don't just take our word for it Harpy is the only wallet security solution that protected 100% of its users from attacks like The Ledger one


in Q4 which was an offchain signature attack to learn more about Harpy click the link in the show notes or visit Harpy doio Empire what's up everyone before we jump into the episode little plug for digital assets Summit coming up in London March 18th to 20th tickets are pacing so far ahead of schedule that we had to decrease the discount codes so instead of Empire 20 it is now Empire 10 head over to the website digital asset Summit D London March 18th to 20th use code Empire 10 and get 10% off your ticket see you in


London all right everyone welcome back to an episode of Empire uh not your normal Empire episode here instead of talking Defi and eth for soul and all these kind of big infrastructure conversations we've been having we are going back to basics talking Bitcoin mining which after this conversation I think you will realize how not basic it is but we have uh think known better in the world to talk about this than Fred teal who is the CEO and chairman of marathon digital holding so Fred welcome to the show man great to be here yeah


yeah good to have you here so I think the best place to start is actually just with a almost State of the Union of Bitcoin mining so we the last Bitcoin mining episode that we did on Empire was like mid 2022 with um the folks at Galaxy and Foundry and at that point in time the kind of two years before that you had 2019 prices sitting at three or 4K things run up we get a crazy bull market everyone gets levered to the nines on Asic financing um and then obviously and you know and some folks maybe were running their balance sheet


kind of risk on I would say they were holding the Bitcoin instead of selling it they were doing like pretty remarkable amounts of uh Asic financing just getting levered to the nines and then things blow up right uh Market crashes uh financing obviously gets wiped out leverage gets wiped out as6 pulled back in the secondary Market 70 80% and then I think a lot of folks kind of stopped paying attention to the Bitcoin mining space you guys obviously didn't you were headr strong here so maybe give us like state of the and what


has been happening in your world the last 18 months uh gosh uh sit down get a cup of coffee um so you know if you look at uh kind of January of 2023 you know Bitcoins at around 15,000 I think our stock price was at around $3 um and it was Doom and Gloom in the industry um 2023 was spent by the mining industry kind of rebuilding uh you you had a lot of bankruptcies you had the the um core scientific bankruptcy that had H just happened and then uh you had uh you know the follow on from FTX Etc um so basically people were ignoring


Bitcoin mining um figuring it was kind of a dead industry I think um we had decided that it was time to there's no better time to grow than when everybody else is kind of stagnant we had ordered a lot of machines in 2021 that were delivered through 2022 and so we began deploying um our capacity pretty heavily uh you know January of 23 we were at about 7x a hash we exited 2023 at almost 25x a hash of capacity so you know three plus times uh the capacity um we also Focus very much on on Shoring up our balance sheet uh paid down debt you know


ended the year with about a billion dollars in cash and Bitcoin and only about $300 million of debt um and uh you know December produced about 1,800 Bitcoin which was kind of an industry record I think uh for a minor to produce so ended the Year great so over the course of the year you basically had some positive Tailwinds in Bitcoin bitcoin price moved up about 3x uh you know closed out the year in the in the 40 mid 40s um all the minor stocks ended the year very well we were up over 500% for the year so it's was a great year


for us um but the whole sector moved up and people realized wow this is really profitable business again and then you know miners started really investing in more capacity and our industry really is constrained by three things access to Capital because it's obviously a capex intensive industry you know we pay hundreds of millions of dollars for sites and for miners um access to mining rigs because at the end of the day there are a limited supply of mining rigs out there um really you only have three major producers now there are there's a


fourth that's entered and I'll get into that in a minute um but essentially historically if you go back to 2020 2021 uh you know we placed a huge order in 2020 for uh s9j pros and kind of cornered the market I think we ordered like 70,000 machines um and kind of cornered the market on those initially um and so access to Capital Access to Rigs and the last is access to capacity to plug those miners in so think of it is hosting sites uh the longest lead time item is hosting sites if you're going to build them it's you know 12 to


24 months you have to get them permitted you have to get all sorts of agreements with power companies you have to build it order it Etc order Transformers which are long lead time items um so typically it's kind of you got to have sites you've got to have so you have to have capacity you have to have miners to use that capacity and then you have to have Capital to pay for it all um and you know in early 2023 nobody could raise money uh it was a gruesome environment from a capital perspective um there were um an


increasing number of rigs around and capacity was still rather constrained from all the growth that had happened um in 21 and during 22 as the price of Bitcoin dropped nobody was really increasing capacity so over the course of 23 we started seeing um you know opportunities to growth um and so uh we definitely took advantage of that the other thing um that really happened in 22 um and into 23 was we helped uh co-found a company called oradine which is the only us developer of as6 for Bitcoin mining rigs um one of our board


members together with one of the uh founding members of a company called Palo Alta networks founded a company uh called oradine to design uh really a best-in-class mining Rigs and um oradine um was an idea on kind of an envelope if you would the back of an envelope in January of uh 23 and here we are and they're already on their second generation product a 3 nanometer Asic that um in simulation shows that it should operate at about 15 Jews of terahash which is kind of industry leading yeah um plus they've


done some other amazing things so um a lot happening uh in that regard you've started seeing miners move internationally uh you we established a big site in UAE together with the Sovereign wealth fund there 250 megawatts we've expanded Wells into Paraguay now and you'll continue to see miners like ourselves you know move offshore more and more the regulatory environment um is looking uh better you know the ETFs have been approved which is a great thing we're starting to see good flows uh you know there's a lot of


liquidation from gbtc uh which was expected um as people took advantage of the discounts that they bought those shares at um and you're seeing but you're seeing great inflows into the other ETFs which have been really positive um but now you see The Regulators are once again coming you know Senator Warren company coming after Bitcoin with this eia energy survey by the way no other industry has ever had to report on its energy use uh This is highly targeted at Bitcoin miners um you know look at the AI industry they are


going to consume factors of magnitude more energy than Bitcoin miners Bitcoin miners use less than 1% of the energy generated in the US um AI is going to use considerably more than that and um yet this survey is specifically targeting Bitcoin miners versus AI so you know I think the administration is still um antagonistic to bitcoin and crypto uh they had to give on the ETF uh for legal reasons um but I think that the regulatory environment in the in Washington is still generally anti- crypto um and so it's going to be very


interesting because this is actually a very important topic for the election um one in five Americans owns crypto uh a voting Americans a little over 52 million this was in one of the papers the other day um and when you think about that uh obviously you know people don't want to be told that what they're investing in is bad um but the US government's done that before uh in the 1930s the US government forbade Americans from owning gold because Americans were buying gold instead of savings bonds uh so um not that I'm a


conspiracy theorist but uh you know there's precedent um fun fun fact Fred uh the I think it was the state of Massachusetts forbade uh citizens of Massachusetts from participating in the Apple IPO uh and that did not go too well for them know that I did not know that yeah interesting so yeah you basically have an environment where um you know on the one hand uh you know miners have recuperated their uh public Equity values they're able to raise Capital they're buying lots of rigs they're expanding Global hash rates


expanding but bitcoin price is staying relatively flat and this is where as we get into the having things are going to look really um it's going to be very interesting right because uh not all miners are in a position like Marathon you know with a billion dollars of cash and Bitcoin in the balance sheet we have the ability to survive a severe downturn for years that's not the case with a lot of other miners you have miners like Cor that have just come out of bankruptcy um you have miners like um hut8 they're not


really a miner they're an operator of mining sites for third parties but uh you know HUD 8 has uh just had a recommendation from an analyst that was a sell recommendation that's very rare to see andless go antagonistically uh like that after a minor so I I think we're going to be in a period of time where there'll be lots of consolidation we've stated before we'll continue to be a consolidator uh we recently bought um uh a couple of sites from generate Capital um in Texas and Nebraska and


we're going to continue to consolidate both domestically and internationally we think this is going to be a great period of time for growth uh sovereigns outside the US are investing heavily in Bitcoin mining their incentive is not the the Bitcoin they produce but the freedom to transact the Bitcoin that they hold so what do I mean by that if a sovereign holds Bitcoin as a reserve asset they're still um dependent on an ability to have access to places where they can trade that and if they're not mining Bitcoin


they may be locked out of having their wallets transact on pools because of ofac compliance requirements by the US government on large mining pools in the US or other places and so they have to mine their own Bitcoin to guarantee that they can transact their Bitcoin and so that's why you're starting to see a lot of sovereigns look at Bitcoin mining simply from a perspective of I want to own Bitcoin but I don't want to own Bitcoin if the US government can stop me from selling it or using it that's the reason


why you see central banks are the single largest buyers of gold today they are buying more gold than any other buyers out there because central banks uh of non- us central banks don't want to hold dollars because of the risk of the US weaponizing those dollars um and so I think you're going to see more Bitcoin going into balance sheets of sovereigns to see companies start owning Bitcoin uh two big issues that have made that more possible the fby rule change regarding Bitcoin and how you hold it on your


balance sheet you can now Market to Market opens up uh Bitcoin as an asset that U corporations not just Banks and financial institutions but corporations can now carry on their balance sheet um transparently and also the availability of the ETF which really makes owning Bitcoin for corporations Financial instit institutions retirement accounts Etc as simple as buying stocks so I think we're going to see a lot more Bitcoin becoming part of people's um savings retirement uh allocations investment allocations uh cash reserves


Etc um and that's only going to bode well for the price of Bitcoin long term short term I think Bitcoin is going to be in a very choppy environment um I don't foresee an immediate price bump around the having because you think about the supply shock impact we're going to go from 900 Bitcoin produced a day to 450 450 Bitcoin in a day is not a big difference in Supply uh so uh I think there may be a psychological bump because of the having um you know historically it typically moves six months after the having so look towards


October to December sometime um and I think you know end of the year very positive likelihood that you know we'll see Bitcoin at or near the all-time high highs um and then you know it should really move in 2025 once all these ETFs have really started uh bringing in dollars and you start seeing more and more people adopting Bitcoin um so I'm very bullish on 2025 I think 2024 is going to be a consolidation Year and that was a very longwinded answer to your question I look I asked for you for I I asked you for State of the Union so


that was about as good of a State of the Union as I could get there's a lot there there's obviously the regulatory side there's this idea of sovereigns and corporates buying Bitcoin there's this idea of miners pushing more internationally there's this competitive nature of what's going on in the public markets um I think I actually want to start with you mentioned you brought up this interesting idea of you kind of have three inputs to your business there's capacity I think I remember this


correctly uh capacity or maybe it's cap capital rigs uh and electricity I think those were the three yeah no yeah capacity so capacity is a hosting site that has power where you can plug your miners in so okay kind of embodies uh Power those those all right so we've got these inputs for your business what when I think about a minor and I try to simplify it as much as humanly possible and I'm putting myself in you know Fred teal shoes here I'm saying how do I compete my understanding of miners is


that the you've got all these things like regulatory pressure and capacity and Rigs and all this stuff it is it comes down to cost of capital or it comes excuse me cost of electricity how cheap uh what what is your cost of power basically is that the best way to is that the main way that you compete in the mining business and and how do you guys think about like accessing power and cost of cost of power and things like that yeah well you you have to be careful how you use the word compete because we no miners have customers our


customers are really our investors right because we're custodians of our investors Capital you know they're looking to us to generate the highest return and create the most market value um for their Capital uh and you know so you look at our market cap and you look at what people have invested in and clearly in 2023 we were a good bet um up over 500% um so it's not you know we don't compete head-to-head with other people other than we compete for Capital we compete for capacity and we compete for


access to rigs so it's more supply chain competition if you would than um demand competition because you know it's a commodity so just like Oil we're selling our Bitcoin when we do sell Bitcoin uh on the same exchanges as everybody else and so we're really competing for Capital Rigs and capacity um so to compete for Capital uh you know you have to have an attractive balance sheet which I think you know we're most probably the strongest balance sheet in the industry um today um when it comes


to competing for capacity and rigs you have to have Capital to be able to buy rigs you have to have Capital to be able to um buy uh capacity and so I think again strong balance sheet is the key thing there and I think we're positioned extremely well for that uh your cost to m a Bitcoin really is one component so it's your power Cost Plus your hosting cost if you would your cost to operate the sites but your sgna is also very important so think of it this way it let's just say it costs you $115,000 to


mine a Bitcoin yet your sgna is $10,000 it means your real cost to mine AIT Bitcoin um all in your cash cost is you know over $228,000 a Bitcoin um now you could have somebody who has a higher energy cost where their cost to m a Bitcoin is maybe 177,000 18,000 but if their sgna load on top of that is only two or three million they are actually much more competitive one of the things that Marathon was built on initially was acid light very agile we're going to grow really fast quickly because we believe um you have to get the scale very


quickly once you have scale you can essentially amortize your sgna across a much bigger platform you know marathon is just under 60 people so we have when you look at our actual kind of headcount um it's very low compared to a lot of our peers when you look at the amount of capacity we have which means our sgna load is fairly low amongst the lowest in the industry um but because we grew through working with thirdparty hosted Partners um sometimes when people look at our cost to mine uh they look at a number which is energy plus hosting yet


when they compare our cost to our competitors they're just looking at energy cost so it's not quite Apples to Apples comparison um so you really have to look at the uh the Allin numbers when you're doing it and over time yeah it becomes critical uh today we have shifted our business model from being fully asset light meaning relying fully on third party for hosting which was by the way a great way to grow to the scale that we grew to last year um now 44% of our capacity is owned and operated that's a pretty big


swing and over the course of this year you will likely see that number grow considerably so that more and more of our capacity will be owned and operated which will continue to lower our cost of M um the other thing that you don't always uh that people don't always take into account when they're looking at cost to mine is sometimes the energy Arbitrage people do is essentially credited back against their cost to mine which is why you'll see some miners say oh we had a negative cost to mine Bitcoin this month well yeah they did


energy Arbitrage but you know of their 4 five678 ex aash that they had running how much actually ran for what percentage of the month um versus were they just parlaying their low energy cost and selling that so I think that's another area you have to look at but over time it really comes down to your total cost operate so what's your all-in cost operate and um you know can you do that at scale the interesting thing with Bitcoin mining is that um once you reach about three cents a kilowatt hour in cost and


this is not including energy Arbitrage so you know there are a lot of miners who say oh my cost is 2.1 cents well but out the energy Arbitrage and it's really 3o something right solar energy costs typically about 2.2 cents a kilowatt hour wind is there or a little bit more natural gas is typically in the 2.


7 to 3.8 cents there are a couple of places you'll find Hydro sites with lower cost and you may find some old Legacy uh Power purchase agreements that some miners have for stranded energy which could be a little lower than two cents but generally speaking average energy costs across the industry not including energy Arbitrage are in the high twos to low three cents a kilowatt hour and in some cases a little bit higher um that's a floor the you know the gas natural gas prices aren't going to crash to below


one cent anytime soon and uh you know these long-term power purchase agreements that a lot of miners have uh aren't going to change because they're five to 10 year agreements so as the difficulty rate continues to increase and Global hash rate increases all of those miners are under the same pressure their single biggest input cost is energy and that energy cost isn't going down what we're doing differently I think than a lot of other people is we operate similar to our peers utility scale mining sites these are large you


know 100 megawatt 200 megawatt sites where we're acting as grid stabilization Partners to the utilities we can curil whenever they need it we can do energy Arbitrage Etc the other part of our business that is nent is energy harvesting and this is where we are using Bitcoin mining as a consumer of otherwise fully stranded energy like methane from landfills like methane from biomass uh like flare gas from oil fields Etc where there is a benefit to not just the environment but to the industry and to the energy provider of


us taking that methane and turning it into energy plus if we can take the heat generated by our mining systems and feed that back into an industrial process you know I did a presentation some months ago about shrimp farming and heating green houses and heating homes with Bitcoin miners if you are able to do these types of businesses at scale then your cost of energy could potentially be zero which means you're mining Bitcoin for simply the capital cost and so an area we are very actively exploring is energy harvesting and you


know you're not going to build 100 and2 200 megawatt sites doing this you're going to have to build thousands of very small sites and this is one of the reasons we invest so much in technology because we believe Bitcoin mining sit should really be able to operate under self-control long term uh our site in UAE that we built um last year uh the pilot site which ran in the uh kind of the late 2022 it ran for over a 100 days before an engineer had to open a container and look inside wow so if you can lower your operating cost to the


point where you can only have to look at your miners on a planned maintenance perspective then now you can really talk about things like heating buildings you can talk about heat input to Industrial processes you can talk about recycling energy you can talk about all sorts of things that all of a sudden where the Bitcoin mining operation is really just how you're generating heat for something and then you're getting paid for that heat right because Bitcoin miners when designed properly will capture 95% of


the input energy and exit that as heat exhaust that as heat especially in liquid cooled systems and we believe we have some of the most advanced liquid cooled systems out there so we're excited about that do you have to worry about uh geopolitical and macro risks when it comes to power rates things like what's you know Russia Ukraine Middle East like how does that impact your business um so as an example in UAE we have a long-term agreement with our partners for power supply um we're not particularly concerned regarding regime


R you're loing in energy rates years in the future yes okay uh in in Paraguay um and and to be fair you know uh a government can give you contract for multi-year energy providing uh provisioning and there could be a change in government and all of a sudden some Jeeps roll up to your site and people say thank you for building this site for us yeah so that risk will always exist um I think to R to the point on Russia you know Russia has nuclear energy that um is readily available at about 1.


9 cents a kilowatt hour um and Russia is the second largest country for mining in the world today us is number one Russia's number two China's number three and there's a long drop off as you go down the list uh you know Kazakhstan I think is number four way you go down the list um but generally speaking um you know Russia is mining more and more Bitcoin and uh again I think it's for the to ensure the ability to transact Bitcoin much more so than generating profits from Bitcoin mining because I mean let's you know there are


roughly almost 20 million Bitcoin that have been mined to dat there will only ever be 21 million Bitcoin the last Bitcoin will be mined in 2140 so you know investing hundreds of millions of dollars in rigs to mine Bitcoin uh as a sovereign is much more about ensuring your ability to transact the Bitcoin you buy in the open market and that you collect through trade versus originating Bitcoin through block subsidies and transaction so when I uh when you thought about like if you flashback a couple years the like


instit as institutional minors were like becoming a thing and this was becoming like a you know folks were spacking or going public or whatever you want to say uh the I think the two counterarguments to that folks would have is uh this is all centralized in China and it's really bad for the environment it feels like the China counterargument obviously got pushed out when they when they cracked down on mining what is the I guess what when you are in the room with like the institutional crowd what are they do do


they still have the push back to uh you know mining is bad for the world because when I look when when when I look out at the world it seems like the ESG narrative is kind of dying down and not becoming as big of a thing but do you think that's just because we're in a coming out of a bare market and we as you know Bitcoin goes back up that will become another you know that that'll come up become another big thing yeah so I mean there are uh lots of different actors in Industries that either uh you


know are very well behaved and do good things for ESG and then there are others who are just focused on maximizing their profit dollars so when we talk to investors um we talk very much about a sustainable industry so how do you make Bitcoin mining a sustainable industry well for Bitcoin mining to become sustainable it has to generate its own energy for one thing um because the single biggest argument against Bitcoin mining is not that it creates all sorts of carbon dioxide harms the environment Etc it's it's taking power away from


consumers now this is a false narrative but listen to me uh for a minute so you know the Elizabeth Warren argument is well it doesn't matter that you're using stranded energy um because if you weren't using it then that energy would be available to Consumers when they need it and now consumers have to go pay higher prices and yes there are a couple of cases in New England where cities did cut deals with Bitcoin miners to provide them with energy and didn't think about the fact that they may need some of that


energy back in the summer months and so they those cities had to go out and buy energy in the open market which yes was more expensive but if you look at how Bitcoin miners operate in Texas today um because of the fact that there is so much renewable energy in Texas wind and solar I think over 40% of the energy there now is renewable that is intermittent meaning hey when the clouds pass over the sun in front of the sun guess what your solar energy generation drops when the wind stops blowing your wind turbines slow down and stop and so


the grid operators there are stuck in this challenge of how do we balance the grid when we aren't ever really sure about the input energy we have that's going into the grid remember a grid isn't a store of energy it's simply plumbing and if you try put more into it than is going out of it Transformers blow up so the grid operators need these large utility scale mining sites in Texas who can shed 100 megawatts 200 megawatts for an hour two hours 3 hours a day whatever it might be um to help balance their grid because otherwise


they're going to Consumers and saying guess what you need to turn off your air conditioner when it's 110 degrees outside consumers don't like to do that so when you really look at the role Bitcoin mining plays in Grid stabilization it is a key role because you don't have enough Battery Technology out there and if the grid operator would have to turn on a peer plant um to generate excess energy then yes that would be very expensive energy but because they have Bitcoin miners who can shedload those peer plant operators


don't get the opportunity to turn on and if you look at who are the biggest protagonist against Bitcoin mining in Texas it is the operators of battery farms and The Operators of peer plants it is not people worried about the environment um so you know as we look at the ESG narrative what you're going to start seeing is um you know you had this wave of oh we only want to invest in green Bitcoin well the 20 million Bitcoin that exist today aren't green and um the remaining million some portion of those will be green but the


minute yeah they go into a wallet where there's a Bitcoin that wasn't green that Bitcoin is no longer green just so I understand that last part Fred so in in your experience there are some utility companies that maybe specifically in Texas that are actually less hostile because they know that the miners are going to bring a large demand to the network and this could then help them balance their demand on the grid network is that correct yeah yeah it's the demand response mechanism right it's a


it's a guaranteed load meaning you have the demand but that demand can be you have an agreement with the client the minor that you can shut off curtail that load if and when needed and so you remember grid operators don't want to have lots of power generation if there isn't demand because that just drives pricing down and then people go out of business and so by ensuring that the solar and wind sites have guaranteed off take for their energy um they ensure the viability of those projects and at the same time they


ensure availability of excess capacity when and if needed and if you look at ever since the winter storm Yu in Texas um miners have played a critical role in helping balance and stabilize the grid during you know winter events and summer events um and the airod grid has never been more stable so all right I mentioned them in the pre-roll now I'm going to bring them up again it's arbitrum Santi and I are really fed up with these high fees and we're really excited to have teamed up with arbitrum for the next couple of


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the country has different regulations and authorities seeking different outcomes for their very localized customer base localized weather patterns geographies like how yeah how do you how do you navigate this so um you know you build relationships it's like any business which is complicated um and where there are mission critical risks uh it takes time you have to build relationships with the utilities you have to build a trust um that you know hey if we give Marathon access to a couple hundred megawatts of load are they going to be


good citizens and curtail when they're supposed to Etc so part of it is your are you a reliable potential partner to the grid operator um sometimes it's partnering with the energy generator uh so in the case of one of our sites in West Texas we partner with um next energy who owns the wind farm adjacent to the site and so you know we're taking excess energy off that wind farm where otherwise they wouldn't be able to sell it because of grid congestion um and then we use grid energy to balance out


the rest um and so you know it's really you build these relationships of trust where people you know get to a place where they feel comfortable you'll do what you say you're going to do and it's not just a wild wild west anymore and so the grid utility operators uh the energy generators you know they are becoming more comfortable working with the industry leaders a because we're public companies B because we you know have large balance sheets we can afford to do what we say we're going to do um and you


know they have history and track record of you know where we currently operate and that we've been great Partners so um I think it's really more like in any industry as it matures certain parties uh are just more trusted as partners than others but it's a it's a complex process you know you need to have load studies done you need to have permitting done you need to uh you know there are lots of Hoops you have to jump through um and which is why it can take multiple years to get a project off the ground


yeah how many folks work at Marathon we are 59 people I think today 59 nice um how do the foure Cycles play into your how you run the business I know I noticed you said your billion dollar balance sheet is not just cash it's Bitcoin so there's there's a decision that was made there by you or your Finance team that said all right we've got Bitcoin we're going to keep holding this until a date in the future when we think it makes more sense to sell it um I'm sure there's an infrastructure


decision there like right now you said in the bare Market you guys were foot on the gas plugging things in getting the site set up is there going to be a time in two years maybe end of 2025 2026 where you say hey look we think we think it's getting a little toppy right now let's start pulling back how does this impact like you as the operator yeah a great question so we spend a lot of time developing models um to try and predict where we think Bitcoin is going to be and where we think Global hash rate Network difficulty is going to be


so we can understand where hash price is um we are constantly looking at the end of the day at our average weighted cost of capital and so if we're going to grow do we believe that it's time to grow in the marketplace yes how do we want to fund that growth do we want to use cash do we want to sell Equity do we want to use debt do we want to sell Bitcoin and so we look across the Assets in our balance sheet and we look at you know what is the average weighted cost of each of those uh to use them uh as I


mentioned earlier we're Believers in the fact that the price of Bitcoin we think will start moving up towards the end of this year closer near to uh where the prior all-time high was and then in 2025 if we follow the typical historical cycle we would hit a new all-time high that's most probably somewhere between 1 and a half and 2x the prior all-time high uh and then we would go into a bare market now that's only if we follow historical patterns realizing that with the ETFs and institutional investors we


may never go back to that pattern again and Bitcoin May behave as boringly as gold not that I'm saying it will but you know that's the kind of downside scenario if you would so we're constantly weighing where do we think the price of Bitcoin is going to be relative to our capex cycle do we want to use Bitcoin to pay for things or do we think Bitcoin is going to appreciate by more than our average weighted cost of cash debt or equity and if we think that Bitcoin is going to appreciate more than our average weighted cost of cash


debt or Equity then we'll hold the Bitcoin and we'll raise Capital through debt selling Equity or just use cash off the balance sheet yeah um you know if you look at the uh you know today that calcul is you know somewhere in the High Teens low 20ish percent uh when you look at average weighted cost of capital and so we have a very high threshold on new Investments if we're going to do something it has to pencil uh very well and uh otherwise we're you know making pretty significant Investments on our


technology business um I think you'll see a lot more news from Marathon this year especially around some of the advancements we're doing in technology that play not just inside Bitcoin mining but across the full data center Spectrum uh and no we're not going to start Mining and not we're not going to start operating AI data centers um but uh that being said we may very well provide infrastructure to them yeah that makes a lot of sense kind of the Levis genes model right you know sell genes to gold


miners instead of trying to mine gold so um yeah what uh what do you think about what sailor's doing um you know uh Michael's a close friend of ours um you know he really opened up the um people's eyes to the fact that Bitcoin was an asset class that corporations should invest in by you know putting uh action to his own words and building one of the biggest Bitcoin balance sheets out there uh so we're very grateful for him in doing that because that's obviously created um appreciation the price of Bitcoin but


it's also shown companies how you can leverage your balance sheet to accumulate a large amount of Bitcoin and the positive impact that can have uh on uh your market cap uh you know I think the you know uh mro strategy market cap prior to if you net out the Bitcoin is you know a billion somewhere over a billion dollars um but with all the Bitcoin it's you know considerably higher than that so he clearly paved way for a lot of us um you know I think that with the ETFs now there's certain you have to look at from an investment


perspective there different degrees of um beta and risk and volatility uh so for the majority of people who just want to accumulate Bitcoin over the years and have it as a store of value hedge against inflation and just a place to store value uh you know Bitcoin ETF or owning spot Bitcoin make a good deal of sense if you want to get the benefit of how micro strategy leverages their balance sheet and can use debt um and convertible bonds Etc as a way to um collateralize and buy more Bitcoin uh that's kind of a hedge fund


approach uh and so there's a little bit more beta in micro strategy than there is in just spot Bitcoin then you have the miners and this is kind of the Warren Buffett analogy where you know he never want to own gold he wanted to own gold miners because the commodity production cost is relatively consistent but as the price of the commodity goes up a lot of profit is generated that isn't captured in the change in price of the commodity itself and so if you look at Bitcoin miners especially very liquid ones like


ourselves I mean we trade 30 to 50 million shares a day um hedge funds and Traders love our stock because you can move in and out of it very easily with larger amounts of capital um and you get the benefit that when Bitcoin moves 2% we typically will move 4% when Bitcoin goes the other way we go the other way again with the increased volatility so there's more beta as investors call it there and so depending on your risk appetite and how you want to trade it you go for miners or you go for micro strategy or you go for spot Bitcoin or


spot Bitcoin ETF um so I think there's ample room in the market for all of these and you know micro strategy is a great way for certain people to uh get a little bit of extra juice yeah do you really think that corporate should be buying Bitcoin I think that any uh company that is worried about debasement of whatever their corporate fiat currency is you know most companies have an internal currency they you know multinationals are either going to operate in dollars or they'll operate in Euros but they'll


pick a currency to do all their internal Accounting in uh um you know if you're worried about um currency being debased and there aren't assets that you readily can invest in that will hedge against that debasement such as gold or some types of real estate or uh certain Commodities um then you have to look at where you're going to put your money right I mean if um the expectation is that the inflation is going to remain around 3% which is highly likely uh and the US has to service it deficit of 33


plus trillion dollars of debt um then you know longterm if unless the US develops an appetite for fiscal austerity which clearly is not the case then they are going to have to print more money which means they're going to have to increase the debt low which means the dollar has to drop in value and so if you're holding dollar denominated assets then you need to make sure those assets will appreciate as the dollar goes down in value uh and you know the uh politicians love uh when asset prices go up because


people feel wealthier it's the wealth effect right it's why look at China people invested two-thirds of savings in China were in real estate because apartment prices and real estate prices kept going up all the time so in the US if the people see the stock market go up and they see real estate prices going up people feel wealthier in reality they're becoming poorer because the dollar that they earn in salary buys less every day and so I think overtime corporations will view Bitcoin as one of many places


to hold cash uh they may hold cash in certain Bond instruments which are highly liquid um but I think as Bitcoin volatility matures uh which it will over time I think Bitcoin will definitely become someplace that corporations hold a certain percentage of their assets asss on the balance sheet I mean we hold an inordinate amount of uh of of our Assets in Bitcoin but that's because we're in the industry it's kind of like a gold miner holding on to gold right so blockworks is a median information business we have folks who will pay us


in various tokens right whether it's Bitcoin or ethereum we like usdc um but sometimes it's other things and we have to make a call do we buy it or do we I mean do we sell it as soon as we get it or do we hold it and I remember getting Bitcoin at 18 or 19k help me out here with the prices fall in the fall maybe 21k I forget the I forget the actual prices but um yeah that uh there's just no way I mean if someone in the industry there's no way you're selling that so how does hash rate impact your B like what what's going on


with has hash rate these days and like how does that yeah I guess what's going on with hash rate these days yeah more and more compute pow is being applied to the network so hash ratees going up uh it's a combination of people upgrading their uh mining rigs from you know machines running at 30 jewles a terahash to machines running at you know 21 22 Jews a terahash so you're increasing efficiency by a third roughly um and so you know what a lot of people don't realize is if you have a a site that has


10 megawatts of energy and you replace the miners that were using 30 watts per terahash with machines that use 21 watts per terahash you can put a lot more terahash online with the same amount of power right so now remember the equation was you need to have Capital you need to have capacity and you need to have rigs well if you use the same capacity but your rigs are onethird more energy efficient it means you can essentially add onethird more hash power at the same cost of energy um so what you've seen over the


past year is a lot of people deploying s19 XPS for example which are 21 Jews per terahash or 21 watts per terahash versus the J Pros which were in the 30s and so you're seeing some big efficiency increases but it also generates more hash rate uh you're also seeing a lot of sovereigns coming online hash rate growth outside the US is much faster than in the US today um so you're seeing a lot of hash rate coming online in Russia you're seeing a lot of hash rate coming online um in parts of Asia parts


of Africa South America and uh other places and you're going to continue to see that because there's still a lot of cheap stranded energy outside the US um and you don't have to deal with quite the same regulatory risk you have regime risk you have all sorts of other risks um but they're different risks than in the US so I personally think you're going to continue to see hash rate grow until we hit the having you'll see a bit of a hiccup as people realize um you know if Bitcoin stay stays at these


levels um you know a number of miners are going to have to basically say okay how long am I going to be essentially paying to mine Bitcoin versus shutting down and so you'll see the less capitalized more uh shaky balance sheets uh succumb quickly to either bankruptcy sale uh consolidation or just shutting down and waiting to fight a better day when price of Bitcoin returns uh the challenge is not all you think those folks won't just uh s sorry to interrupt you but you you think those folks won't just um they won't die as


businesses they might just like you know quotes around this unplug their power and then plug it back in when the price is higher yeah it all depends on how their power pricing agreements their ppas their power purchase Agreements are written if they have a take or pay their toast they basically are going to pay for the energy regardless so they might might as well mine Bitcoin at a loss in the hopes that the price of bit Bitcoin will swing back and if it doesn't they eventually declare bankruptcy because


they can't pay for their power bills um and so you know the the uh Kind of Perfect Storm for this industry is you see Energy prices move up you see bitcoin price move down and you see Capital become unavailable that will create a uh major consolidation of the industry and you'll see a lot of people in trouble which is why it's very important you know like Marathon to have a lot of cash and Bitcoin on your balance sheet um because it's this is a long game yeah and you've got to be able to survive uh you've got


to be able to survive for multiple years potentially in a worst case scenario and you know we're very focused on longevity and resilience and you know we're we're definitely going to be there to pick up the pieces uh when everybody else falls apart yeah yeah um the last cycle of Bitcoin mining can be categorized by just massive amounts of I I I was going to say leverage but I think all of crypto the last cycle in general not just mining could be categorized as the cycle of Leverage What do you think the


um financing and leverage uh will look like in Bitcoin mining over the next like two years like who who comes back into this world um you know it used to be blockfi blockchain.com uh a lot of these players are I mean blockchain.com is still around but a lot of the big uh financing players Genesis they're no longer around so will new people just take their place what what will this look like um well you know where there's an opportunity to make money in financing infrastructure um some Capital providers


will obviously appear I mean if you look at the last cycle um folks like nid dig and Galaxy ended up becoming very large miners because of the fact they had to repossess a lot of miners all the A6 yeah yeah yeah so they ended up they they're now very large miners um and you know they are the types of miners who will likely not go out and buy new rigs to replace their existing rigs because their existing rigs will not be energy efficient enough to be profitable post having so you know this is where you may


see hash rate drop off um quite dramatically you know there are a lot of people trying to uh you know exit the business now before things get bad because they think there'll be some higher value today than than post yeah the having and we'll have to see but um you know it's it's a very hard uh business to lend on on rigs because um you know it's so dependent on things that nobody controls price of Bitcoin and Global hash rate and so you know so many people have been burned that I think the uh and with interest rates


being where they are today the cost of capital for the financing Partners is very high right I mean you know if you want to go buy a car or leave a car today you know you're going to pay north of 8% um the you know risk-free rate of return today is somewhere north of 5% so that means that you know Capital that's going to go into this is going to be 20ish percent you know interest rate most probably uh and so you may see some people do rev shares where Hey listen you know we'll give you 50% of the cost of


the minor and but we're take 80% of the revenues that this minor produces until such time as uh you know we've been paid back so you may see some crazy deals like that but um you know I think uh you know you can't go public as a minor today you know I think there may be one or two miners that have been trying to go public for a couple of years that may actually get public the question is you know at what cost uh what valuation um you have people like course scientific that just came out of bankruptcy they


still have you know uh hundreds of millions of dollars of debt that they need to service and um you know they are doing deals with people like bitm who are financing machines for them against rev shares so the question is you know at the end of the day is there enough margin left in the business when you look at the old machines they currently have the new machines that bitmain is financing for them and the debt servicing they have to do to survive long term you know I don't know yeah um you know I think the only way to really


survive long- term in this business is to pay down your debt and have a lot of cash on the balance sheet a lot of Bitcoin and then be opportunistic and buy rigs when they're cheap uh which they still are buy capacity when it's cheap and um mine as much Bitcoin as you can there you go if only was that easy Fred uh what is a do you have a dream acquisition oh gosh uh yeah and we don't really talk about it because the minute you talk about it people come to you and say guess what we've got your a perfect


Target and uh but this is the price um so but what I will say is that um you know there are a lot of people out there who think that if they have a site that's mining Bitcoin today um that that that site should be priced for an acquisition based on future cash flows from the mining rigs they have and you know the typical kind of m&a model and that's just not the case you know um there have now been a number of deals done the deal we did uh you know I know clean Spar just did a couple of deals smaller Acquisitions where listen it's


an infrastructure deal you're going to pay a certain price per megawatt of energized capacity and nobody cares about the miners that are plugged in there because they're typically too old otherwise you wouldn't be selling the site and so um and people are looking at these sites for self- mining they're not looking at it to operate a hosting business so the future cash flows that the site will generate don't enter into the equation at all so I think you know anybody who's out there thinking of


selling a site listen the market price is around $400,000 a megawatt and that's just what the market price is uh so uh you know people come to us all the time and say well you know our you know discounted cash flows terminal value is this and when you apply marath founds multiple to it we should be valued X like n it's not how it works my friend it's not how it works uh so you guys are what's your valuation today four four billion three and a half oh yeah it's a little over four billion I think four all right so let's play a


game if you guys if you guys be if Marathon becomes a hundred billion dollar company what will the shape of that business be um so Marathon uh at that scale you'll have traditional utility scale mining will be a portion of the business likely 20% of the business uh you'll have a portion of the business will be energy generation uh of renewable uh energy um so we're not going to operate gas fired plants or coal fired plants or nuclear power plants uh but it'll be some form of renewable energy um you'll have energy


harvesting via about 40% of the business and the balance will be technology uh what what did you mean by the first thing traditional utilities so that's traditional mining large scale sites working with utilities to stabilize the grid so got it you know you look at what we're doing in UAE or what we're doing in Texas you know that's large scale sites multi hundred megawatts where you're balancing the grid and you're acting as a partner to solar energy wind energy Hydro energy uh providers uh and yeah you know over time


the business tends to will tend to morph and vertically integrate around energy generation energy harvesting and then obviously technology so are there bear with me if this question doesn't even make sense um are there players in the energy stack who aren't in Bitcoin mining right now but who you think could be or should be in the same way that someone like uh a black rock wasn't in the Bitcoin game but they realized they have a massive base of customers who are investors and now they're offering them a new product are


there does that is there something similar for Bitcoin mining and the traditional energy players so you I think if you look at how companies like Brookfield were created you know they were energy producers at one point and then they became energy Traders um I think there uh there's a natural fit between Bitcoin mining and energy um and all sorts of energy um I think uh as you look at small nuclear small modular Nuclear So smrs as you look at um other utility scale Power Generation Um and as you especially look at micro


grids and uh Battery Systems you're going to see a symbiosis uh very symbiotic relationship between Bitcoin mining and those Industries in micro grids for example um you have uh you know one of the biggest challenges today in the energy world is transmission you could build a solar farm in the desert to generate more than enough electricity to cover the whole us with power uh cover the whole of Us's power needs the problem is you can't get the energy from that place to the grid because you have to build these


transmission lines it cost $2 million a mile uh the uh utility operators that own those um transmission lines won't build it until you've already built your Renewable Energy site you can't get your Renewable Energy site financed to build it unless you have off take and you can't have off take unless you have transmission line so there's this Loop that is a bit broken in that area and so Bitcoin miners provide that guaranteed oft yeah um so what ends up happening though in micro grids is you're


generating power and consuming it in the same place so there's no need for transmission and California's doing something unique which is where before if you had solar on your home um you had net tolling um where basically your energy from your solar panels went into the Grid at a certain price per kilowatt hour and then when you consumed energy Off the Grid you pay that same price per kilowatt hour so it was net tolling right I put in so many kilowatts uh I take out so many kilowatts um California then adjusted


the pricing effect of this year where if you don't have batteries in your home to store energy you don't get the benefit of net tolling you will be PID paid a lower price for the energy you generate than the energy you consume but if you have batteries you still have net tolling so why do they do that well it's the incentive for people to deploy net Battery Systems because if you deploy Battery Systems the way the uh grid agreements work is the utilities can borrow energy from your batteries when they need it and pay it back when


their cost of energy is much lower and so you think about all these EVS plugged in and all these Tesla power walls the utilities love it because you're generating electricity you're putting it into the grid you're filling your batteries and when the utility needs it they can pull excess energy off your batteries and they didn't have to pay a penny of capex for any of this it's brilliant absolutely brilliant but you as a homeowner or you as the owner of an industrial park or a commercial real


estate facility can also opt to put some Bitcoin mining next to that because you can then do energy Arbitrage around hm am I better off selling energy to the grid just putting it in my battery or should I use the energy to mine Bitcoin huh super interesting and now you'll eventually have battery and storage systems that are connected to marketplaces that are doing energy Arbitrage on behalf of the energy generator I.


E the consumer the you know you and me so everybody could become an energy producer and actually subsidize their costs by trading energy through some form of automated Marketplace so I think the future of energy is around localized energy Generation Micro grids I think Bitcoin mining plays a very important role in that mix um and I think you're going to see Bitcoin mining become a part or portion of all sorts of industrial processes that are energy intensive which allow people to generate Arbitrage off of that so that's where I think the future is


long term I think I'd asked a similar question about the 100 Bill marathon is aund billion doll company what percentage of the business is done in the United States first elsewhere like Kazakhstan or the UAE or Paraguay or elsewhere that you mentioned I think we'll be 50% outside of the US would you be more in the US if the regulatory environment was more friendly um no I don't think there's enough energy you know the competition for energy is going to be hot and heavy um and I think there are lots of places


around the world where there's stranded energy that's cheaper than in the US and we'll eventually figure out how to take advantage of it and you know at the end of the day Bitcoin miners are constantly chasing lower cost energy so um it's you know fast forward 2028 and you know likely Marathon will be generating its own energy harvesting energy from other sources using that to mine Bitcoin um and you know they're places in the world where that's easier to do than in the US uh because it's easier to get these


sites permitted you know there are places in Chile for example in the high desert where you could build uh many many square miles of solar panels uh but there's no off take but if you put a bunch of Bitcoin mining there then all of a sudden that becomes really interesting yeah and as you get more and more energy efficient machines um you know it starts becoming real interesting so uh Fred maybe we could wrap it with just a broader conversation around institutional adoption you mentioned sovereigns buying


Bitcoin at the very beginning we talked briefly about corporates buying Bitcoin what is your like mental model for just Bitcoin adoption in the world and specifically just because your customers are the institutional investors like with that institutional crowd the sovereigns the large pensions those kind of folks so I think uh let's look at a couple things uh there are 52 million holders of Bitcoin in the US who happen to be a voting age so that's one in five voters in the US own crypto some type of crypto um so that tells you that there


is a broad um acceptance and interest in crypto u high percentage of which is Bitcoin U by the under 45 crowd Millennials jenzy and this is actually becoming such a large block that it is becoming politically important for the ele presidential election especially and Congressional elections because these are people who are believers in crypto uh and it is becoming a voting issue um so who doesn't own a lot of Bitcoin today it's the over 45 and really it's the over 60 crowd so like myself I'm a


baby boomer um and if I talk to most of my peers uh who don't work in the industry they would say yeah Bitcoin but you know gosh don't really understand it you know I prefer just a 6040 stock portfolio Etc they do listen to their registered investment advisers and their money managers and you know the Baby Boomers are the single largest accumulated pile of wealth in this country uh and it will eventually transition as Baby Boomers pass their wealth on to their children to the Millennials and genzies and so a


percentage of this wealth is eventually going to transition into crypto secondly most raas today are reading reports that show over the past 10 years no asset has outperformed Bitcoin over the past 10 years a uh risk adjusted portfolio of just adding one or two% Bitcoin to your 6040 stock Bond portfolio mix would have generated a much larger return you know these raas are eventually going to convince some of the Boomers to say you know what yeah one or two% fine put it put it in there if it's going to give me a better return


and if it's going to generate more current income for me and so you're going to start seeing now that the products are available that allow Ras and wealth advisors to put their clients into a safer version of Bitcoin in their mind which is called an ETF where they have no worry about security they have no worry about custody Etc then you know I can only assume you're going to see greater adoption and what that means is price of Bitcoin has to go up because if there's demand there's a finite Supply


and you know Bitcoin is a very thinly traded commodity when you look at Daily volumes and as more and more Bitcoin goes into these ETFs what's going to end up happening is you'll see a shift uh as bitcoin price continues to move up where the long-term holders will eventually liquidate take some profits and then that that Bitcoin will float into the ETFs and the ETFs will become the largest holders uh of Bitcoin essentially becoming the institutional holders over time and that'll provide a lot of stability to the price of Bitcoin um and


I think what you're going to end up seeing is the institutions are going to start essentially recommending more and more adoption of Bitcoin as an asset class now that's in the developed world in the developing World Bitcoin still fulfills a huge role relative to self- sovereignty of assets you know there are uh billions of people on the planet actually the vast majority of the inhabitants of this planet don't have bank accounts they don't have access to bank accounts but you know what a large


percentage of them have access to smartphones so crypto and Bitcoin are ways for them to be able to have self- sovereignty over their assets there are places in the world today where women still cannot have a bank account Bitcoin and crypto provide vehicles for them to be able to have self- sovereignty over their assets there are people who live in um you know uh areas where there are Wars they conflict zones having their Assets in crypto and Bitcoin allow them to be able to essentially keep their assets safe


from confiscation Etc so there are all sorts of reasons in the developing world for people to adopt it as well lastly I think what you're going to start seeing now um and the trend is already there you're seeing more and more developers starting to build applications on the layer two of Bitcoin um because Bitcoin is the most secure network out there and it is the perfect Network for anything having to do with ownership or title because of how it works with the utxos and so you're going to start seeing initially first digital identity


based products where basically um if you have a certain token which is registered on the Bitcoin blockchain you will have a digital identity that is verifiable without anybody having to have access to the underlying documents so think of it as a zero knowledge proof but you'll essentially have a token that you can show to a bank you can show to government official you can show to whomever that verifies your identity uh you will also have similar systems for Health Data you will have similar systems for ownership of other assets


you will have similar systems where governments and corporations will publish data in a way that can't be altered so that there is a source of Truth for that data and I think this need of a common source of truth that is inalterable you can't Ransom where Etc is going to drive more and more applications on the layer two uh and then you'll also start seeing more transactional systems you'll start seeing these AI based platforms needing to to do Commerce with each other uh you know it's one thing when your car drives


through a toll system that it can pay its own toll but as you start developing AI agents who actually execute things like Supply Chain management using an AI based platform those systems will eventually have to be able to transact and write smart contracts Etc you'll see these systems being developed to run on top of Bitcoin um and other blockchains and I see and when you see that level of adoption at that point um you know you'll see the world moving more and more towards these automated digital platforms and Bitcoin just becomes one


of the many ways that things are settled in those blockchains yeah very much so Fred this is a fascinating conversation I appreciate you coming on great thanks for having me yeah wishing you all the best of luck this year and uh yeah I'm sure this won't be the last time you're on the show so thanks again thank you much appreciated hey everyone Jason here thank you so much for watching today's episode wanted to take a quick second to thank today's title sponsor arbitrum we we know you are tired of onchain


experiences that have unaffordable fees and frustrating transaction speeds and that's why we partnered with arbitrum you can experience frictionless trades lightning speed and LaGree transactions all for pennies per transaction explore arbitrum expanding ecosystem at portal. arbitrum doio that's portal.


arbitrum doio see you for the next episode hey everyone thank you so much for watching today's episode really hope you enjoyed it we wanted to take a second to just remind you about our up upcoming digital assets Summit in London March 18th to 20th Santi and I got your back seats are limited if you heard it earlier in the podcast there's a little competition running at blockworks to see who can drive the most number of tickets so when you register for the digital asset Summit make sure you use our code see you in


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