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Fred Thiel, Chairman and CEO of Marathon Digital Holdings

June 22, 2022

This podcast episode delves into Fred Thiel's journey and work experiences. He had previously led a project called Sprocket, a cryptocurrency exchange based in Liechtenstein, which faced regulatory changes that altered its trajectory. Thiel then shifted his focus to leading Marathon, which has emerged as one of the largest Bitcoin mining companies globally, among the largest publicly traded Bitcoin mining firms. The conversation covered various topics, including Marathon's unique strategy in the Bitcoin mining space, the company's evolution, and the broader landscape of energy markets, nuclear power, renewables, and grid stability. Thiel's insights also touched on the transformation of Marathon from a physical mining business to a patent troll (acquiring patents related to Siri and Alexa) before its current role as a Bitcoin miner.

00:00 Introduction: Fred Thiel, Chairman and CEO of Marathon Digital Holdings

02:39 How Marathon Started and the Restructuring

04:01 Being Involved in Crypto and Banking Industry

05:05 Starting Sprocket

06:48 Getting the License and How much it costs

08:31 A Difficult Experience

09:51 The Regulation that force the Crypto Project to banking space

14:43 The Government Regulations for making the Crypto Space Safe

19:17 Aftermath of the '08 Crisis

25:12 How further Bitcoin Cycle will perform

26:56 Public Market Mining Companies

28:16 Asset-Light Business Model

30:21 Hashrate Growth

32:50 How the Business Model works

35:09 Focusing on the Return of Assets

36:00 The Ideal Energy Provider Partners

38:04 Cryptocurrency and Consuming Energy

39:26 Stranded Energy

41:13 The Grid Energy needs stable energy

47:24 Transmitting Energy and how far can it goes

48:18 Shifting to Microgrid Energy

49:48 Policies and Regulations on Renewable Energy

55:07 Fusion Reactor Plants

58:57 Hydrogen fuel cell technology

1:00:46 Short-term, Mid-term, and Long-term Planning Horizon

1:03:48 Advisory Boards

1:05:06 Bitcoin and Mining

Transcripts are autogenerated. May contain typos.

today's guest is fred teal the ceo of marathon digital holdings fred is leading a public company that had been valued at 8 billion at their peak with 16 employees today valued at around million which is astonishing uh previously he led a project company called sprocket that was building a exchange uh for cryptocurrency that they incorporated in liechtenstein um he went there and established this business and then the laws changed and he tells the story of how he went from that experience to now leading marathon


which is one of the largest bitcoin mining companies out there one of 14 publicly traded uh crypto mining companies we talked about his specific strategy at marathon and how it stacks up to other strategies in the bitcoin mining space we talked about how public companies shift and change buy and sell over time marathon was had many different lives as a publicly traded company prior to what it does now and we talked about that evolution a lot of the conversation we talked about energy markets nuclear the role of


renewables how germany has changed their strategy how the us is looking at germany with respect to the change in their nuclear strategy taking down the nuclear power plants they have how nuclear plays into the future of energy production and also just understanding the nuances of the different types of energy classes and how the grid operates on a prioritization of stability and how different energy classes or energy types play into that stability fred really has become an expert in energy as one would when they're leaning


at bitcoin mining company so very much enjoyed the conversation learned a lot and i hope you do as well here's fred teal [Music] all right well just like that fred we're live recording and i'm excited to chat with you uh i i was digesting all the different projects and companies that you've been involved in and i thought it'd be appropriate to start with where you are now uh with marathon digital holdings which has been public for a while and now is focusing on bitcoin or at least crypto mining um what was it that got


you excited about this and and maybe walk me through a little bit of the the restructuring of the company to focus on mining and where things generally are today sure so um in kind of reverse order uh you know marathon uh used to be called marathon patent group and before that it had other names like many public companies they go through a life and then they kind of go idle and somebody takes it over and does something else with it repurposes the entity marathon was originally started as actually a mineral by mining business


extracting vanadium as a metal and then was in the oil and gas business for a while it was in the real estate business for a while um and then it became a patent troll effectively marathon patent group and acquired a bunch of patents one of which interestingly enough is related to the functionality of siri and alexa and um so marathon had some success in prosecuting some patents um but then in kind of going after some of the bigger targets uh you know they burned through a lot of money and eventually the shell kind of was uh idle and a group took


over the company and decided to repurpose it for crypto mining and a good friend of mine um the former ceo maricopa was brought in to kind of head the business in 2017 and i joined the board in 2018 as part of kind of a restructuring of the company and um he then stepped into the ceo role in late april of last year but i got involved in crypto um uh through a former colleague of mine who kind of uh went down the rabbit hole uh many many years ago very early in the crypto uh in the bitcoin days and sort of had followed his kind of


adventures down the space and uh you know by way of background i come from a family that was very involved in the banking industry my dad was a banker my stepmother was a senior economist at the oecd and so very familiar with kind of banking regulation and i had run fintech companies before and done a lot of had to do a lot of work uh relative to technology and financial regulation and really viewed bitcoin and crypto as a way to facilitate uh international payments and as a great asset class that took you out of this mode of having to be operate


within these highly regulated financial markets and allow international trade to operate much more freely and um started really studying the space looked at starting a company in the space and wrote a white paper uh for a company that would essentially be an exchange that sat on top of all the other exchanges such that you could have a unified order book you could trade across markets times a day out of one wallet because if you think it back five or six years ago it was really hard to move money into a crypto wallet um you know


the banks made it very difficult for you the exchanges couldn't take ach or wire transfers typically and then more importantly if you wanted to trade in new york and there was a 10 price difference in tokyo how did you get money to tokyo and you know alameda research and sam bankman freed's kind of first company made a lot of money doing that trading that arbitrage between international markets and so the goal with the the company that the white paper i'd written was you know build a company that could


essentially eliminate that uh friction and um make it very easy to take advantage of those arbitrage opportunities um tried getting it licensed in the u.s and very quickly realized that was never going to happen uh went to switzerland um had extensive discussions with the swiss authorities on it and ended up building it actually in liechtenstein where uh the law firm that we used that helped craft the original crypto laws in that country um and built that operated it for a while and then they changed the laws in liechtenstein it was essentially


required the business to be licensed as a bank and at that point um the capital requirements and the legal requirements were just too owners and so uh wow and that was spring got out of that business that was sprocket correct yeah wow up until that point how much time or how how much capital had been deployed into that project um you know it was a lot of time um but not a huge amount of capital because you know having been in the startup space for a lot of years and then you know general partner in a venture firm


uh you know you want to keep kind of startups starved a little bit um until you can really validate the use case and um you know the focus initially was really licensing and once you had the license then it was a question of operating and uh what we quickly realized was that the kind of you look at between the the full building out the full tech stack and getting the full licensing done with the banking license and all that was just it was going to cost hundreds of millions of dollars and just making sense at that point yeah i mean


you you need a basic capitalization of at the time it was 120 million dollars or swiss francs uh lichtenstein uses swiss francs as a currency just to be able to operate and then on top of it you have to have a lot of people you have to have a lot of processes because you have to have a banking license so and it takes years to get and so when you look at kind of the speed at which the market was moving and what was going on it just you know as a venture capitalist it was like you know i don't want to take this risk


um but uh needless to say uh great experience did you move to liechtenstein to do this or did you have to move if you were to do it no i spent a lot of time going back and forth now by background i was born in france and my parents are both swedish so i spent a lot of time uh my life living in europe and so uh i sort of commuted back and forth on a pretty frequent basis um was that a difficult experience like emotionally to have the effectively the rug pulled out from under you when they made the regulatory change after you had


already sort of set some roots in liechtenstein you know it's it's always difficult right i mean emotionally you're vested emotionally in any project you're doing and you're excited about doing it and then all of a sudden that kind of you know something happens that uh you know makes it not work it's kind of like imagine if you know with marathon if the government were to suddenly prohibit bitcoin mining it's like oh you know not a lot you can do other than try and move it offshore


um but the life of an entrepreneur is constantly dealing with risk of failure and the emotional issues related to that and um you know you learn from all your lessons and it kind of becomes another knowledge set that you add to your kind of quiver of of uh facts and experiences that you then use uh for your next venture you know there's this old saying to have good judgment you have to have experience and to have experience you've had to have had bad judgment yeah you learn from your mistakes right so yeah


yeah there's another good saying that's uh a fool uh doesn't learn from his mistakes uh a a wise person learns from his mistakes and a genius learns from the mistakes of others which hopefully is something i try to think about did um i was going to act to ask you another question on the sprocket oh uh the specific regulatory implement in implementation that was forcing you to become a bank was it holding customer funds abroad or what was it that was core to the business model that you just couldn't get away


with doing without becoming so the the original crypto law that was um put in place in liechtenstein essentially treated bitcoin and ethereum as currencies so you could trade them as currencies so you only needed a foreign exchange bureau license that's what made it feasible to operate the business and so essentially what you're doing there is you're you know buying on one side of the market and then selling on the other side and you operated like an otc desk essentially and it was taking it from that step to a


full-blown automated exchange and market maker that would require you to then go into the banking space and uh essentially have a banking license and then they shifted the kind of how they viewed anybody trading crypto as saying okay now if you're going to trade crypto then you now need to have a banking license and that's what kind of put the nail in the coffin and was it custody specifically as a company if you're controlling customer funds that would make you eligible so a couple of things you know in an otc


model uh essentially customer wires you money you do a purchase and then you send the coins effectively and vice versa on the other side of it so you're never holding customer funds so again you know to become the automated market maker in exchange we were going to have to custody funds we were going to have to hold deposits and uh while you can hold deposits for a limited period under the license we had you know we could hold customer funds for 90 days you can't essentially you know have an open account where they


just them funds sit there um and people are actively traded so yeah again it's all kind of you know early days in the industry um you're out there ahead of regulation and yeah it was like in the us when we looked at doing this in the us originally it was uh you know you're going to have to get money transfer you know money transfer licenses you're going to have to get all these other licenses and you know in a regulatory sort of high-risk regulatory environment uh you are taking a very big risk when


you're trying to do something uh and dealing with the regulators that haven't yet created rules it's different if the rules exist and you're trying to get kind of you know whether no action letters or whatever it might be it's always a bit of a challenge in that regard but you know that's the thing with the financial markets and um you know regulation is a game of whack-a-mole you know new technology comes out oh we need to regulate this what are we going to do and it takes time you know just look at the crypto


market in the u.s today look at how far behind the u.s is compared to some other countries and the regulatory frameworks that we have here um and it'll eventually get all sorted out but it's just it takes time and the companies that kind of are on the wrong side of the regulators you know get penalized for it and i think you know this washout we've seen with the you know the crypto winter we're going through right now is actually been you know unfortunate for investors uh and the people who traded on on some


of these platforms that were impacted but it's very healthy for the industry overall because it washes out this kind of you know success at all cost and you know hunt for yield that existed for a while in this marketplace and that you take that speculation out of the marketplace it deflates the market initially but what it does is it creates a market that's much safer afterwards because now the regulators know what can go wrong and they know how to build regulation frameworks that will function around it that'll


make the market safe and at that point the real institutions can come in and actively get involved in the market so um while it was a very bad thing for the investors who lost money and you know the employees of companies that have lost their jobs and all that um like any evolutionary marketplace uh you know when you start with revolution it then shifts to evolution and as it evolves it gets better and you know you got to realize that the equity trading markets are hundreds of years old but most of the regulation around equities


trading have only happened in the last 100 years uh you know really since the great depression and so you know the crypto market's still very early it's you know 13 14 years old um based on the age of bitcoin and we've got some ways to go but i think it'll be much healthier coming out of this uh so over the next five years i think we'll see a lot of good progress yeah do you think it's specifically healthier when the government regulations come in to like make things safer to effectively


try to outlaw some of the pyramid scheme projects that were going on or by contrast i wonder if the retail market is just more sophisticated now and understanding the um you know the effect of these organizations that when they manage people's money well you have to now be a detailed thorough investor to look at well how do they manage money where is it sitting whereas you kind of don't have to think about that in the traditional fintech market because you kind of have an assumption that maybe the banks are underlying all of the you know


uh the gui interfaces like venmo like ultimately there's some bank that holds custody over your money and that's probably fdic insured whereas in the crypto world clearly things can go wrong i i'm wondering if if there weren't regulations that were reactionary in this today today you know as we sit here in july a month after everything just kind of shut down would do you think things would just kind of naturally evolve to become more sophisticated and prevent that sort of thing from happening again or is it


really going to take regulation to protect people yeah it's so i think a way to look at it is anything new has a lot of excitement around it and there's this uh there's a technology analyst firm called gartner who for decades has been kind of giving companies the view on the implications of new technology and they have a concept called the hype curve which is this chart where you see this huge slope upwards people are all excited about a new technology and then they go into this thing called the trough of


disillusionment which is when you realize uh it might not work quite the way everybody thought it's impractical you know web 3.0 is starting to go through a bit of that now where people are saying well what's the real use for it and how does it really differ itself from web 2.0 so crypto's now gone through that we're now in that trough of disillusionment uh in the depths of it and when you come out of that you come out into this phase where it's real commercial implementation and the you know the


financial markets really take it on because now it's safe there are guardrails so regulation is important because um institutional investors want to make sure that they're protected both from the government coming in and making a sudden change but also from people doing things that they shouldn't do so for example um there is no amount of due diligence you can do reasonably to validate that somebody like a celsius or uh you know three arrows or somebody like that is doing everything as you expect they


should be doing it with that level of prudence and and you know safety and risk averseness um now i think most people if you were to say hey i've got an investment idea it'll generate 18 annual yield most people who are reasonable would say um yeah that's most probably a scam and you know if you think about how a lot of these companies were generating yield they were taking somebody's bitcoin or somebody's ether they were then staking that and then they were being able to get a liquid version of that and then


investing it somewhere else and getting some more and they would make two or three percent on this kind of stack of yield that was happening and but that can only go on as long as the market is in a growth phase so again it takes somebody with a lot of experience and the ability to distance themselves from the excitement and hype to think about you know is this really reasonable what people are saying and doing and can it last and i know uh for example you know a lot of um companies approached marathon because


you know marathon holds a lot of bitcoin and um said god you know you guys should really invest uh take your bitcoin uh give it to us we'll generate a yield for you it'll be great and some of those companies that approach us are companies that no longer are uh solvent and we didn't you know uh we were very conservative we said we don't want to have risk of uh you know counterparty risk um now i've lived through the 08 crisis i lived through the dot-com bomb uh so you know from that perspective we're very


conservative in how we manage our assets uh how does this compare just a quick question on that just the consensus view on the emotional reaction after the bomb i i wasn't i was born in 87 so 13 around the turn of the century uh certainly remember the 08 crisis but it was much more directionally in real estate than in tech how does this compare i mean this feels to me pretty bad because companies just collapse it wasn't like i mean they collapsed effectively due to fraud i mean the ceo celsius tried to


flee the country how do you what's your sense of the aftermath in this situation so you know um from a tech industry perspective this is like a combination of the 08 crisis the madoff yes yeah and and the and the dot-com bomb because you know think about it the last two years uh companies in this industry were able to raise capital at amazing amounts i mean marathon raised a lot of money as well um but companies had easy access to capital and when there's easy access to capital um people get sloppy and um you know you kind of think that


that access is not going to end and they don't operate their businesses uh very prudently and then all of a sudden you know if you're competing against somebody and you're offering 10 percent yield and somebody else is offering 12 it's like okay i've got to offer 14 now and you know the this competitive aspect uh in the up market um and their counterparties willing to do those business deals you know there were companies that were lending money to celsius and others um at rates that were very reasonable and


so they could you know literally pile on the money on these steals so you've got this greed factor that kicks in and you know not unlike gamestop you know look at all these retail traders who went and ran the stock of a company that really had no reason being valued the way it was um the greed factor kicks in and you know while people think about the crypto market as you know it's this you know multi-trillion dollar market you know compared to the equity markets in the world you know the trading markets it's still very small


and um there it doesn't take a lot of people to move uh the numbers in the crypto world um and so you know you saw this huge wave of people getting into it and everybody was seeing dollar signs and you know bitcoin was doing nothing but going up ether was doing nothing but going up all these other coins were going up and it was like you could buy into an altcoin and flip out of it within two or three weeks make 100 on your money it was easy money people get sloppy and they get careless and they get greedy and so i think you know it's this


combination of companies raised a lot of capital now you've seen you know it's very hard to raise capital for a crypto business today that's not available interest rates have gone up so debt's very expensive uh you had people invested a lot of money in entities that were insolvent so that's the 08 crisis right where bear stearns lehman brothers disappeared um and then you have you know actual crime uh or fraud if you would by some individuals um and you know it's this combination of the three what is amazing though


is to think about all of these things that have happened the macroeconomic environment you know the fed raising interest rates we're entering getting ready to enter into a pretty bad recession most probably um you have you know the equity markets you know dropping uh by you know 30 to 50 percent you know the i think the mean nasdaq stock dropped 60 percent most probably while the nasdaq overall hasn't dropped 60 percent if you look at the you know the median stock a decline in the market it's mostly 60


um the crypto companies dropped um a fair bit more than that um so you have all this money that's been essentially lost and evaporated in the marketplace and it's happened in a very short period of time and you know people have you know i'm not going to say people have learned lessons but i think a lot of lessons have been taught hopefully people will learn from them and what you're going to see is a much healthier business going forward uh you know you're going to see people more prudently capitalize their business and


not over capitalize them you're going to see people take risk that is more measured you know there are companies in the mining space who went and raised money used all that money to buy infrastructure and put a deposit on miners saying i'll go back to market and raise more money to pay for these miners and now they can't and they're in trouble um that was not the model we used uh at all when we built the business we built it much more prudently but i think you know it has to do with how experienced


management teams are you know how many times have you been around the block and do you know how to properly diligence deals diligence providers things like that so but you know listen we're all learning lessons every day i mean i certainly learned lessons uh on a daily basis um still yeah and i've been in the tech industry for gosh 40 years at this point yeah yeah do you feel yourself get caught up in it you know it's if we were to have this conversation four months ago i i it just would we have the wisdom to recognize the


inflated valuations and overzealous attitude that people have across the industry or we're like hey this is this is great you right you recognize that things are going growing quickly but there's also i i find it just it's very difficult in those moments to know how long it'll last you know it's it's hard to make a conservative bet like let's say let's let's get out of this deal whatever it is and play a more conservative role and then you know does it last another six months or a year or


a couple years i don't know yeah you know i think the you know the counterparty risk issue relative to the yield the hunt for yield that was going on i think that uh i know certainly i was very skeptical of it because it just it didn't pencil for me oh you could do it um and um so i i think if you were to go back a year ago um you know we were all very caught up in in you know the price of bitcoin continuing to go up and you know where does it stop is it going to go to 100 000 is it going to go to 200 000


are we gonna have another crypto winter and um you know i think the general expectation was that you know the cycle would not be very similar to how it had been before but there would be some similarities to it so you know at what point you know how far down would bitcoin drop if it did drop and you know we had a couple drawdowns last year and um uh you know if you look at kind of when we did our last capital raise last year which was in november we did a convertible bond offering that was most probably right at the peak of the market


um so it was you know uh serendipitously well-timed uh not yeah and we didn't know it was the peak of the market but we felt that you know gosh market can't go much further than this so now's the time to do this yeah well that's a good move yeah now you know at the same time you know we're a hodler most of our peers have gone and sold you know a lot of their bitcoin holdings uh you know we haven't we haven't sold any bitcoin since 2020 so we're still long-term believers and you know


uh the markets are behaving nicely today so uh yeah yeah it's a nice update for us all but we'll see how it plays out yeah and uh help me paint the landscape a little bit of the public market mining companies like how how many of them are uh how many of them are out there what's what's the sort of distribution of sizing and mining power and what do you see is the uh competition is it purely on who can acquire the most capital to buy the most machines or is it on the specificity of the type of energy


usage that different miners have or are there other strategies that seem to be promising sure great question so you know at this point i think there are 14 or 16 publicly traded miners at least in the u.s you have some others that are traded in other international markets um and most miners have a business model where they invest in infrastructure so they essentially uh find an agreement to get power from a power provider they then find a site they you know uh either lease land or they buy land and then they build a facility and then they go


order miners to put in that facility and you know that takes a lot of capital um if you look at your typical installation your data center um and you know once it's stocked with your miners about typically 60 to 70 percent of the capex in that are miners and the balance is infrastructure uh our model is very different we believe in an asset light model so we don't like to own the infrastructure at all so it gives us a couple of benefits one is we're agile meaning because we're not dependent on one's physical site


where we're going to operate as we grow we can pick and choose wherever we want to operate if regulation changes if states have better rules if power is more readily available at a lower cost in the location we have the ability to kind of chase the best deal because we're not sitting on a lot of real estate or physical plant assets that we're developing and all our capital goes to just buying miners and operating and that's why you compare us to like a riot for example or a core who have hundreds of employees and have


physical sites that they're operating and managing and that they're having to you know borrow money to go fund to invest and build the cap the the infrastructure we don't we have 16 people and we operate in a very lean model and we're able to work with a variety of hosting partners uh and you know you could say in a very tight market while being vertically integrated like a riot or core you control your costs more you also create rigidity in your business model it's very hard to change kind of where you operate and how you


operate because you have all that some cost um if in a market where the bitcoin price is going up you know our model clearly is superior um and we'll just we'll have to see kind of you know which model plays out as being a better one but the vast majority i think there are only one or two minors that really operate using our model of the public ones um now you know part of the challenge is that you know core riot ourselves were kind of the top three of the publicly traded guys and then you have kind of argo hud


aid hyde et cetera and a bunch of people below that so what you're going to see over the next 12 months is you know who continues to grow and who doesn't and um while i can't comment on riots or course growth plans i don't know them i do know you know we're deploying you know 23 extra hash of of hash rate we're effectively growing six fold you know in these 12 months um and because you know those miners are predominantly fully paid for at this point so we're just tying up the hosting arrangements


so we can deploy them as they get delivered whereas for core riot they're still paying for infrastructure build out um and so their requirements for their capital is uh not just for minors but it's for core infrastructure also and some of those companies have debt that they need to service and um while the price of bitcoin has been down they've had to liquidate bitcoin to pay and you know use for paying uh for uh debt servicing or for you know paying for their infrastructure build-outs um and you know this is all publicly


available information based on kind of announcements they've made so i i think it's the models are different um i think there'll be a shakeout there'll be a certain amount of consolidation of the smaller players there are a lot of miners who invested in infrastructure and put deposits on machines who now can't complete the payments on those machines um so they're you know that's why you're seeing mining rig prices dropping so low in the marketplace today um and you're being a large volume buyer of miners you


know we have bought most of our fleet um using arrangements with the vendors where either we have price protection so as the price of mining rigs drops then we get our price effectively drops um you know and we get credited back for that or um you know we just bought it very low prices and so you know if you look across our fleet um the average cost of our machines is quite low actually compared to the the over market so it really depends on how you operate your business but you know i think more important question you look at the


global hash rate growth you know bedudas forecast originally had 2022 ending somewhere in the 340 to 360 exahash which would have been an 80 increase over 2021 and now it looks like we'll be flat to kind of the end of 2021 um this year maybe 220 i mean maybe 275 2022 right higher yes correct yeah um so you know the numbers substantially taken down from where the estimates were expected um and then we'll have to see where 2023 goes um but i think the growth in in hash rate is going to be slower than you know what people were estimating


last year and your model is specifically that you are you said you own the hardware but you have hosting providers that manage the hardware they're separate companies that you'll lease out the hardware to that then manage it or how how exactly does that work think of it as a data center operator right we work with people who operate bitcoin mining data centers got it and so they tie up the power they make the investment in the infrastructure meaning the transformers the containers the buildings if you would and then you know we


contract with them to host our miners and then they operate the miners on our behalf or we will send people on site to do the kind of day-to-day operations as needed but um you know we're not building sites ourselves we're not you know contracting for power um buying transformers doing all that build out stuff and so what what the key strategic goals of of marathon for instance taking this model will be to find the locations and set up the contract agreements with the both the local energy providers and the uh


like the bitcoin uh mining management companies is that right yeah yeah think of it as we're either partnering with a company that is doing that on their own so they're contracting for power they're building a data center for bitcoin mining and then you know they want a large uh tenant if you would uh like us so no different than a real estate developer is building them all they need an anchor tenant for the anchor tent uh so they're building them all they need retailers to come in and you know essentially drive traffic and


uh and you know make it a place where other people are gonna wanna be a lot of times we'll go into sites as the only tenant because we're so big so for example our site in texas that's currently being finished uh you know that'll be 280 megawatts um you know we'll have nearly 70 000 miners at that facility um then there's an another site that we're going to deploy another large number of miners to uh as well so it's it's a business of kind of um specialization you're either really good


at sourcing energy and building a data center and uh operating kind of your miners or you're really good at raising capital and deploying that capital in smart way we focus really our efforts on return on assets so our whole goal is to be the best custodian of our shareholders assets and generate the best return on those assets um as opposed to having a lot of real estate and a lot of data center assets et cetera because you look at that and this is maybe just because i you know i spent time in the private equity


world i spent time in venture capital i had this kind of return on assets mindset but um we just think it's a it's a better model yeah yeah and so does effectively do you end up having more locations where you have more smaller locations or does it does it play out where you're targeting certain types of power plants or electric or other types of energy providers or does it is it completely agnostic to that that i guess what would be what's the typical type of uh energy provider that you would partner with like a landlord to


your tenant example yeah great question so um we ideally want to situate ourselves uh what's called behind the meter at a facility that um is uh drawing uh power from some renewable energy source so for example the site in texas is built on the grounds of a wind farm and we're drawing energy off the wind farm and then supplementing with grid energy when the wind's not blowing and so a it's renewable the wind is renewable obviously and b we have the the grid as a redundant backup if you would um that's kind of


the ideal situation for us in some cases you know we'll sit just on the grid because um it was an attractive opportunity the power price was right there was capacity sufficient for our needs but as you look across kind of the spectrum of our hosting sites you know there are small sites there are big sites they're located in different states and we believe that you want to have diversity a lot of miners uh you know you can look at riot for example um you know they will be 100 in texas and be really uh dependent on aircop who's the


the the grid operator there for their power and their power pricing and all that um we believe that's risky yeah you know you get a storm like the one that happened you know a couple winters ago and you know you could be out of business for a while and you know we had that experience ourselves in a small way our facility in montana uh the the storm that took out part of yellowstone took out part of the power plant oh wow our site in montana and so you know we've been down for a period of time and it's now being repaired and we'll be up


soon again but you know it's those contingencies that you know if everything is in one location those are the risks you suffer so you know we're very focused on site diversity partner diversity and you know vendor diversity it's super interesting yeah i would think i've heard a lot of the counter narrative to the criticism that bitcoin miners get around energy usage you know just with it with this makes sense right it's it's a it's a concern that gets voiced in the media which is why use crypto why


use a cryptocurrency that consumes so much energy when you could use proof of stake or other consensus options and it seems to me that a good uh counter to that narrative is that you as a bitcoin miner can develop your infrastructure in places that are under populated or remote locations that wouldn't have any demand for them anyways like somebody was i had some guests on about a year ago that i forget the name of the company but they always an investor in in this business that takes the excess natural gas burn


off in texas and uh harvest that with these little you know bitcoin mining rigs that sit on top of them and it makes perfect sense right they're they're wasted it's wasted energy it's there's no there's no other use for it currently today and i mean do you see that kind of being the the competitive landscape as well where you're just trying to target energy sources that are cheapest and they're effectively cheapest because there's no demand because they're off the grid or far away or


some other reason yeah so you have this concept of stranded energy yeah so west texas is a perfect example of this so the grid was designed originally the energy grid was designed to transport electricity from point a to point b so where it's generated to where it's consumed but it was really meant to load balance so you build a lot of energy generation where you have customers and then you use the grid to load balance meaning if you need some extra energy you could take some from somebody else or if you have excess


energy you could give it to somebody else when they need it what ended up happening with the build out of renewable energy and the incentives around that you know wind energy the wind was very you know prevalent in west texas so a lot of energy companies went and built a lot of capacity the problem is there isn't grid capacity to transport all that electricity and so you have a lot of stranded electricity so people say well you know bitcoin miners are taking all this energy and it's not available to consumers well that's not true because


that energy can't be transported to the consumers and if you want the energy generating company that operates the wind farm or the solar farm to invest in more renewable energy you have to make it profitable for them somehow they have to be able to sell that energy and so you know we come in as a base load customer we consume energy at the point of power generation so there's no transmission uh issue and then uh you know we'll shut down our miners if the grid needs the energy you know we're absolutely happy to do that


and you know that's the way our most of our arrangements work that we can curtail our miners you know if the grid needs energy but what we do is we provide these energy companies with a base load consumption that allows them to operate their businesses profitably because otherwise they weren't selling their energy and you know there's a unique foible if you would to the energy markets which is the grid needs stable energy and so it prioritizes based on stability and you know uh dependable energy generation so the


energy that primarily goes into the grid at the bottom layer if you would the foundational layer is nuclear because it runs 24 7 365. then comes coal and you can't turn coal on and off very easily so you run that consistently then you use natural gas which you can turn on and off periodically as you need it and last of all you use solar and wind energy and why is that important well grid demand is not constant during the day you know grid energy consumption is peak between 4 pm and 9 pm at night well why


well people come home they turn on their air conditioning or their heating they're cooking they're doing their laundry etc during the day you know we don't consume that much energy and you know by the way in this country for the past two decades we've consumed pretty much the same amount of energy day in and day out and it maybe goes up by one or two percent a year wow that's it so yeah so where's the incentive to build new energy especially if that energy being renewable that's being built gets


shut off first thing right because if you're not in peak consumption period they're not going to shut the nuclear off they can't shut the coal off they may shut the gas off but they're going to definitely shut the solar wind off and so you're in this you know it's this kind of um not paradox but it's this challenge where you know okay you want me to build more solar and wind i need to sell it to somebody and so that's really the role i think you see bitcoin miners playing now granted there are also hydro facilities


in appalachia that you know don't have a lot of customers um but hydro facilities are really expensive to build and operate and um i think what you are seeing if you look at the kind of energy uh you know analyst data you know uh basically coal facilities are being shut down um and uh you know people are building a lot of solar and wind but the problem comes down to how do you get this dependable energy because you know wind in some places blows during the day and other places at night texas it happens to be late


afternoon and evening solar is only available from kind of nine to three during the day and again peak energy is four to nine pm so solar doesn't really help that so until you have energy storage and batteries and ways to store energy uh it's going to be very hard to make all this renewable energy very profitable longer term without a customer like us yeah to suck up that energy and use it so yeah we fulfill a public service if you would in that regard i like that now if you look at you know proof of stake


versus proof of work and granted we could do a whole podcast series of multiple episodes on that if you wanted to um but i think you know high level proof of stake especially the way it's showing to be operated you know there's a huge amount of concentration and proof of stake and i don't know if you follow the stuff going on in the ethereum world now but you know the number of key people in the ethereum world are saying you know listen we need to limit the amount of staking certain companies can do because they're getting


too much concentration and proof of stake is really not too different from the existing banking system where your bank vouches for the fact that your money's in your account right in the proof of work world nobody vouches for because you control it and it's in a wallet you can see it on the blockchain so consensus by proof of work is a much superior system i don't disagree with people in saying that you know the energy consumption of our industry is large however we are getting much more efficient at using


that energy uh and over time i think uh we're gonna find that that energy um consumption uh will not have a very big impact on consumers and at the end of the day the argument about the energy consumption is you're either talking about carbon emissions and if you're using predominantly renewable energy that's not an issue and so what's the argument well you're taking energy away from consumers well if you're only using stranded energy and you're using excess energy because by


the way bitcoin miners don't want to pay retail friends yeah yeah so we're not gonna we're not gonna take energy from consumers so i think there's been some misguided you know the media and press have kind of colored the industry with a a very uh dark pencil if you would and uh i think over time people will realize that um you know you compare bitcoin miners to financial institutions and financial institutions use much more energy than we do uh you know look at amazon look at you know uh facebook google they all


operate data centers that use huge amounts of electricity nobody's complaining about that yeah yeah i i think you're right i think there's also the need for media companies to draw up a drama you know make it like ooh there's a good and bad guy out there and like the yeah and it may just be a progression more like an evolution and it's simpler than what is described and there's not as much of a debate it seems to me because you're not incentivized like you said to purchase retail energy costs so you're always


going to go to the places that are less desirable and it does i agree with you i mean i certainly by the viewpoint that you're effectively funding the early prototypes and the early development of renewable energies and remote sources i want to ask you what's the current state of transmissibility so if i have a massive solar farm in west texas somewhere or somewhere in the middle of the country with a lot of sun if if i'm piping that a hundred miles or a thousand miles is there a pretty consistent energy loss or is that energy loss


i've heard of some technology using like hyper cooled or super cooled energy wires is that technology improving or like what's loss on a hot per hundred miles or so so you can only transmit um high voltage about 600 miles so that's your distance limit so you know i i can't generate electricity in west texas and ship it to new york um [Music] so that's an issue uh of all our if you look at transmission losses in the u.


s it's somewhere between four to fifteen percent of the energy generated is lost in transmission wow that high yeah and we generate four terawatts per hour of energy in this country roughly so take five percent of four terawatts and that is more gigawatts of energy than the whole bitcoin industry globally uses is just wasted in transmission it's as you're saying and do you see that improving or that being or that's relatively a fixed constraint on the system so i think what you're going to see over


time is a shift to microgrids so today we have a hub and spoke model you have a utility that sits with a power generating facility and then it ships energy out from there um micro grids operate very differently uh basically you take a community you put solar or wind in that community uh it's of a scale that's small enough that battery storage is actually quite efficient uh financially and then you can put a little bit of bitcoin mining attached to that to consume the excess energy they create and that can help fund the


deployment of that microgrid and uh in southern california there's a project being done now um to build up microgrids where i think it's the either la county or the city of la forget which they essentially were choosing between do we fund a new gas plant for four and a half billion dollars or do we fund uh microgrid development for four and a half billion dollars and they opted to do the microgrid solution so it'll be really interesting to see if that project gets built out how efficient it is because now you're consuming energy


where it's generated so there is no transmission and now the need for the grid becomes what it used to be which is simply to load balance hey i need a little excess energy or i've got some excess energy i want to sell it's not i need all my energy to come through so are you telling me that the california state government made the right decision on uh it's not the state i think it's i think it's the county or the county our city uh do you generally have any criticism of either federal or


maybe state but federal policies on renewable energy it seems like we're in a hyper aggressive and from my perspective not very sophisticated uh analysis of the type of regulation that would improve climate change which is the end goal it seems to almost be this pseudo goal of like renewables are the goal at all costs as fast as possible and i'm i'm just wondering if if we're making a misstep somewhere and curious to hear your reaction on so um i'm going to answer this in kind of a little more roundabout way um but i


think the example is really relevant so if you look at germany look at europe um the uh environmentalists who um you know obviously have considerable say in parliament in germany and the eu um you know essentially drove through um the decommissioning of nuclear power plants and coal plants yeah and said you know let's run on gas well now this ukraine crisis happens and what's happening germany's turning back on all its coal plants and they're considering turning back on nuclear plants so if i were a regulator or a government


official in the u.s and i saw that example i would say what is the most reliable and safest form of energy that we have and that's nuclear um so you could do things like smrs which are these small modular nuclear reactors now nuclear is a challenge because on the one hand you have spent fuel you have to deal with but the other problem is that vast majority of nuclear power plants built in the u.


s are these large central utility plants that take years and years to design years and years to get licensed in years and years to build and then they're run over budget they run way over budget smrs are modular meaning they're cookie cutter it's the exact same reactor it's a basically a handful of containers if you would that are self-regulating they don't need all this water systems to cool them they generate you know typically less than 100 megawatts so it's micro grid again and um you know if you think about


safety uh you know how many nuclear incidents does the us navy had very few yeah and and these are small nuclear modular nuclear reactors and this is what smrs are uh and so i personally believe that if the government really wanted to solve the energy crisis they would go nuclear they would do two things they would deploy smrs where it's practical you know most people don't want a nuclear reactor in their backyard but there are places where you could put these um where you could uh substantially enhance


the power generation uh at a micro grid level and then really focus on fusion energy and you know we are getting close to feasibility on fusion what fusion has is the benefit is there is no spent fuel issue right fusion is like how the sun operates it's essentially a flywheel effect based on on helium gas and other things like that but being done under pressure but it's a very different model but it is the ideal energy source and so if you're not going to go the nuclear route and you want to go the renewable route you need to have a way


to store the energy so we should be investing in energy storage technologies because it's one thing to store a few megawatts of energy it's a totally different thing to store gigawatts of energy and you know look at what they're doing in hawaii today where you know they're trying to get the hawaiian islands off of diesel which is their primary um fuel source for energy there and you know they're deploying lots of solar with lots of batteries it's very expensive to do that and you know hawaii has a


small enough population that you can do it effectively but you can't do that across the nation today in the us and so you have to get your energy storage uh technologies and capabilities to a place where no matter what time of day you generate the electricity or its source you can put it into a bank and store it and then use it later and so i think it's this combination of energy storage technology meets better renewable technology meets some form of nuclear technology yeah meets a political appetite for it which always


seems to be the biggest problem right and you know what's interesting is with what's going on in europe today and this energy crisis listen you know when gasoline or when oil is you know over a hundred dollars a barrel the price is dropping um and natural gas is at you know very high prices and will drop but you know now is the time to kind of get the regulators to say you know what um we maybe need to look at an alternative because um otherwise we're going to be you know unfortunately having to rely on


coal and other fuel sources for quite some time yeah it just seems to make so much sense i mean what are we now about 15 20 of energy in the us is produced by nuclear like it's not trivial i mean it's not that we're starting to scratch it yeah but it's decreasing decreasing and are there do you know if there's any uh current operational fusion plants in existence or is that still experimental technology no the the tacoma which is the technology that's kind of state of the art today um you know has been primarily developed by


japanese chinese and us and some russian they're now getting to a place where they're able to create a sustained fusion reaction um for a brief period of time and you know where before it was microseconds now i think it's in the minutes you're measuring it but you need to get into the days and years scale so we're still most probably about 10 years from a commercially viable fusion reactor yeah versus experimental scientific experiment which you know most probably in five years um you know we'll have solved the


science of this um there's a huge amount of money going into it yeah and you know it's a major issue um then there's also the alternative of generating power in space right where you have infinite solar energy um and just a question of transporting it to the earth yeah yeah i thought about that uh whether you'd have like a tether like an umbilical cord uh into outer space or whether it be beamed down or shipped down occasionally um most probably beamed down is the you know the tether i think is just


there's way too much risk with that yeah just anybody who's a who's uh study who's read the foundation series by yeah yeah tethers aren't a good thing yeah i haven't read that uh and it i mean your point on nuclear-powered submarines and the lack of disasters that have happened there at least that i've ever heard about just seems such a compelling example for how this can be a sustainable way to produce energy are we still riding on kind of mass fear from chernobyl and fukushima i mean


do you do you think there's a real legitimate concern maybe i'm blind to it but everyone i talk to seems to have a conviction about the safety of the technology if it were produced in a way that were standardized and regulated and done correctly i i mean what's your sense is that why things are not moving forward faster and we're kind of decreasing energy usage by nuclear well so you know government officials depend on being elected to hold office and so they have to do things that their constituents believe in


and um sometimes these hard decisions uh go against the grain now the first smr that will be licensed i believe is in wyoming and i think it's scheduled to be operational within this decade um so you can kind of see how long that takes now you could in theory um set up smrs as long as the federal government would uh approve the license you know i'm sure first nation tribes would love to have smrs on their reservations and generate power and sell it to the world um that would be you know great income source for them yeah um because they


don't suffer from the you know state and local issues uh they're self assault they're sovereign nations right but um i think you will see uh smrs start becoming deployed um i think you'll also see fuel cell technology now you know the issue is most fuel cell systems run on hydrogen hydrogen's you know very difficult to transport if you think natural gas is hard to transport hydrogen's much harder to transport but i think we're starting to solve the hydrogen uh transport problem by looking at


essentially creating a solid form of hydrogen which uh call it solid state hydrogen which is uh there's some technologies that have now been proven that allow you to kind of bind hydrogen molecules to materials so it becomes stable in nature and you don't have to keep it in these pressure vessels which can blow up and have hindenburg events so i think you're going to start seeing hydrogen fuel cell technology becoming more prevalent as well now what you can do is you can take a solar plant or a wind plant then you can essentially


electrolyze hydrogen so you have green hydrogen as opposed to what's called brown hydrogen which you do from natural gas so you're still creating pollution when you do that and you can mix hydrogen and ammonia together to transport it uh if you need to um so i think there's a model where uh you know over the next 10 20 years you're going to see large solar farms being built in places uh where there are no consumers for that power where they'll essentially have hydrogen being made and you know i know in saudi arabia the


city of neom which is a modern city being conceptualized by the government which will be all renewable is going to have a lot of solar energy generating hydrogen for example and becoming i think you know they want to become one of the largest exporters of hydrogen in the world so you know that's clearly a you know an opportunity as well that's interesting did you when you joined marathon did you dive into energy i mean do you think of what you're doing as becoming an expert in understanding energy production and trends and


effectively allocating capital to invest in those places where energy is most efficient or how do you sort of think about it because you're such you're riding right right on the on the spike between crypto and bitcoin and energy production how do you how do you think of what would make you successful so you know obviously you know keeping tabs on energy markets generally speaking you know there's kind of the short-term horizon the medium horizon and the long-term horizon right so the long-term helps


kind of indicate you know what we should be thinking about in the kind of five to ten year distance medium term it's really you're thinking more about a combination of regulatory and uh just global energy markets type stuff and short term it's really more hosting capacity and where is there some stranded energy to hold up so our planning horizons if you think about it are you know am i in a mode where i'm deploying a lot of miners then i'm focused on deployment which is what we're doing right now um


and you know i'm keeping an eye on the medium-term regulatory environment the energy regulations energy pricing markets energy types and then i'm also keeping an eye on the long-term outlook of you know where is there going to be [Music] really an expensive energy that's reliable and what should i be thinking about to position myself properly for that should i be thinking about investing in the energy type should i think about you know potentially partnering with an energy provider that's going to build that out um


i you know i personally believe and i've been saying this for about a year that you know energy is the single biggest input cost of bitcoin miners and so it behooves bitcoin miners to partner directly with energy companies and eventually for energy companies maybe to just become bitcoin miners because if you have stranded energy as an energy company well be your own customer and consume it turn it into money and if you can't sell it to a a consumer turn it into bitcoin which is the next best thing um and i think you're going to start


seeing more and more energy companies actually saying you know we'll take a percentage of our capacity and we'll mine bitcoin yeah yeah i interviewed a guy who uh who took over a they have three power plants in pennsylvania and they are coal power plants and apparently at the turn of the century they're able to like cultivate this old coal and it was just a power plant that was you know taking all this 200 plus coal miners coal mines across the state and they uh they just take all this coal and burn it


and they bolted on some crypto bitcoin miners and it worked and uh uh interesting story so i love that i love the different types of stories that come up on bitcoin mining because you know that's that's going to be his thing you know being in western pennsylvania and having this coal mining plant but then there's so many other different applications where you have stranded energy uh which is really interesting to see and how do you do that do you stay up on all the news do you have like an analyst


on the team who sort of presents this news internally or like tactically speaking do you guys have meetings where you'll sort of map out the way that the energy usage is going or or external agencies that help you think through this stuff yeah so we we have an advisory board um where we have experts across a variety of specializations semiconductor technology asics what's happening with bitcoin a6 etcetera um regulatory experts um we have energy experts that we rely on and we're constantly talking


to um you know the energy markets and you know what are you seeing in the way of pricing trends you know where where are there facilities that may be stranded um you know now marathon specifically focuses on ideally renewable energies where we're trying to source all our power from so that kind of narrows our our window if you would or the lens that we looked at things through um because we're trying to get away from anything that's kind of fossil fuel related because we just think it's better for the environment but um


you you know you rely on a lot of experts to continually feed you information you have to read a lot um and uh you know we're obviously also dealing with the regulatory environment so you're talking to a lot of people in washington and it's the state levels uh regarding things to make sure that uh you know you're being a good corporate citizen where you're locating your facilities and you know you're a good energy citizen relative to the energy utilities that you're buying the energy from


yeah makes sense anything you want to throw out there any other uh tidbits or things that you've uh learned or have been interested in or otherwise uh if there's places on the internet that you write or you uh tweet anything you want to throw out personally we'll have all the links to the company in the show notes uh yeah i mean i i would just say that i think um what's interesting with you know markets is they're counseling states of evolution and uh bitcoin mining industry is in a state of evolution right now and you


know it's going through this kind of natural uh and very healthy process of uh evolving from a kind of wild wild west where there was this great opportunity think of it as like the oil business at the turn of the last century right um you know um it's a marketplace where the the john d rockefellers of the world kind of made their fortunes and uh then it got regulated and uh you know now it's a much larger industry um and operates uh you know in a much more mature fashion um so i think you're gonna start seeing you


know the rest of these industries go through that same same spot but you know we're super excited about what's going on uh in the industry we're you know very uh proud to be able to play a role in this industry and how it develops and yeah we're really looking forward to seeing how the crypto world and bitcoin uh more specifically uh really help lift a bunch of people out of poverty who otherwise don't have an opportunity to have bank accounts and financial systems and we're glad that we're able to you


know operate uh you know a good portion of the bitcoin network and provide security and transaction processing yeah well congrats on the progress fred and wish you guys the best i really enjoyed the conversations thanks for having on thank you very much all right cheers