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Marathon Digital CEO on Bitcoin's regulatory landscape

August 6, 2023

Fred Thiel, the CEO of Marathon Digital Holdings, discussed the intricacies of Bitcoin mining economics, highlighting the significance of Bitcoin's price, energy costs, and the global hash rate on profitability. Marathon Digital Holdings has adopted an asset-light hosting strategy, focusing on owning and operating mining sites efficiently. As the Bitcoin halving event, which reduces mining rewards every four years, approaches, industry efficiency becomes paramount. Institutional support for Bitcoin as a mature commodity remains strong, while regulators concentrate on decentralized finance (DeFi) and stablecoins, with Bitcoin mining classified as a commodity regulated by the CFTC.

00:30 Bitcoin Mining Profitability

02:11 Transition to Build-and-Own Model

03:11 Bitcoin Halving Preparation

05:32 Regulatory Landscape

Transcripts are autogenerated. May contain typos.


well the Bitcoin price has been rallying that's come as welcome relief to bitcoin miners there's a lot of things going on on the regulatory front let's bring in Fred theel CEO of marathon digital Holdings over the past year your stock has recovered um pretty significantly though well off of its peak and outperform the moves that we've seen in the price of Bitcoin uh FR remind us about kind of the economics of being a minor there's the energy impus there's the price obviously and we're things


stand right now so um we have there are a couple levers that impact profitability one is obviously the price of Bitcoin energy cost is the other and the global hash rate which is the total amount of compute power that our industry applies to solving this equation because the Rewards or the subsidy that we're paid for winning blocks is a finite amount per day they're a finite amount of blocks so it's kind of a zero sum game and the more compute power there is the more more difficult it gets for us and


the global hash rate has grown by well over 100% in the last 12 months so it's become twice as difficult for us to do what we do but we're very um fortunate we have one of the most energy efficient fleets in the industry uh today and we have been able to position ourselves well with um our energy providers and our hosting contracts and we continue to expand uh with renewable energy on the international and domes IC basis working very focused on optimizing our cost even lower so it's interesting on that energy


part because analysts have described your approach as asset light hosting strategy what does that mean so in the boom time in our Market uh the fastest way to expand was to partner with third parties who would invest in the infrastructure and then as a minor we would bring the mining Hardware if you would the mining rigs which is about 70% of the total capex spend of a project historically and so to grow faster we relied on third parties who would build infrastructure and then we would essentially pay them uh to operate the sites for us and part


of the profit they would generate would go to pay back the infrastructure cost they had the investment they had made uh we have since shifted our model much more towards a build and own model uh the site that we developed in Abu Dhabi which is uh started going live in July and will be completed by the end of this year is fully designed and built by us it's owned as a joint venture together with the Sovereign wealth fund of Abu Dhabi and we continue to develop and build new sites um both domestically and


internationally using that model where we own and operate the site um because we've now developed technology stack that allows us to do this much more efficiently than other miners for example our site in Abu Dhabi the pilot site ran for over a 100 days before an engineer had even go on site and touch any of the equipment that dramatically lowers your operating overhead for these sites so we believe as an operator we can be much more efficient than even the top operators in the industry and how does that position you for this thing


that happens in in Bitcoin for for mining rewards in which those rewards are cut in half every four years does that and that's that's coming up next year correct yes that the having as it's called or some people call it the happing yeah um every four years the way the Bitcoin network was originally designed by its Founders was that the block subsidy that we receive uh drops in half the theory being that you have Supply shock in the market it drives the price of Bitcoin up and as adoption grows transaction fees which are added


on top of that subsidy would make up the difference uh so every four years we have an incentive to get very very very efficient as an industry and typically every four years there's a cleansing if you would of the least efficient operators so we believe that if the price of Bitcoin stays in the rangeb area where it is today somewhere between 25 or 22 and 30,000 um the cost to mining Bitcoin will double in end of April of next year so if the average industry cost today is somewhere around 167,000 per Bitcoin to mine a Bitcoin


well that goes to 32,000 in May and if the price of Bitcoin isn't somewhere near 40,000 then the um least cost efficient and producers will be negatively impacted so we believe this will be a great market for consolidation we've spent the past year um cleaning up and Tiding up our balance sheet we paid down uh 52% of our outstanding debt at a 22% discount uh convertible bond that we bought back recently that was a generated $100 million savings to our shareholders uh we have over $400 million of cash and Bitcoin freely


tradeable on our balance shape so we believe we're in a position to consolidate um and really acquire the most attractive power contracts that are out there uh we're also very focused in optimizing our business towards what we have as a goal called zeroc cost energy doing things in the renewable sector where we can benefit from all the incentives of things like methane gas capture uh Ira programs I mentioned there's a lot going on there's you know this application for spot Bitcoin ETFs there is of course at the backdrop the


FTX trials that are going on which are will I guess serve as a reminder of you know things can implode quite spectacularly in cryptocurrencies how would you characterize institutional support and the conversations that you've been having since that time yeah it's it's a great question I spent a lot of time in Washington DC and New York talking to both the investment community and the regulators and the legislators Bitcoin and crypto have bifurcated in an interesting way institutional investors and Regulators view Bitcoin it's a


commodity this is an asset class that is maturing uh it's stable it's fully decentralized there isn't a central party there isn't a central controlling actor who can do anything with it and Bitcoin never issued Bitcoins if you would as a way to raise capital for itself so it is um of all of the Alternatives out there is the one that would definitely uh never be considered for the Hoy test um that being said uh Regulators are very focused on the decentralized finance or defi businesses that trade these altcoins the stable


coins uh especially coins where the isser essentially issued a lot of coins raised a lot of cash and the coin doesn't serve any particular utility it's just used as a stable coin dogecoins things like that so I I think you're going to continue to find regulatory um focus on D5 uh especially trading and how do you control the on andof ramps if you would of the financial markets it's something that ever since 911 the government has been very focused on um so kyc AML Etc uh but for Bitcoin mining


you know we are essentially data center operators we're focused really more on energy policy and energy politics uh The Regulators have again deemed Bitcoin a commodity it's regulated by the cftc and and um is freely tradable if you look at now Bitcoin ETFs spot ETFs and what that could bring we believe that um spot ETFs will attract New Capital to the market it's a easier frictionless way to access spot bitcoin price and it will bring in capital from 401ks Ira Ras uh and and families and will be a very positive


thing all right Fred we got