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Post Halving Strategies For Miners (Charlie Schumacher, Zachary Bradford, Charlene Fadirepo, and Amanda Fabiano)

October 23, 2023

Amanda Fabiano, the owner of Fabiano Consulting, leads a discussion with mining industry experts. The guests, Zachary Bradford, Charlie Schumacher, and Charlene Fadirepo, delve into strategies for miners in light of the upcoming Bitcoin halving event. They emphasize the importance of mining efficiency, cost control, and diversification as key factors for success in the industry. The video also explores the potential impact of Bitcoin ETFs on mining stocks and the role of governments in supporting Bitcoin mining and renewable energy projects. It's a comprehensive conversation on post-halving strategies for miners and the evolving landscape of the cryptocurrency mining industry.

00:01 Introduction

03:00 Discussion about the upcoming "having"

07:00 Discussion on strategies to survive revenue cuts

10:00 Discussion on vertical integration

13:00 The role of efficiency in mining

16:00 Creative revenue diversification

18:00 Balancing control and flexibility in integration

21:00 The evolving hosting model

24:00 Impact of Bitcoin ETFs on mining stocks

25:00 Conclusion and closing remarks

Transcripts are autogenerated. May contain typos.


Right light okay how we doing everybody um awesome so my name is Amanda Fabiano I am the owner of Fabiano Consulting a firm I just launched to help miners with their strategies after a decade long of experience in financial institutions focused on mining with us today we have a few people to talk about what we're all thinking about and what's on our mind which is the having uh really big times and Bitcoin so first up we have Zach Bradford who is a CEO of clean spark a NASDAQ listed public Mining Company in the US they have a 572


million market cap they started as an energy company transitioned into a Bitcoin mining company and they've continued to grow at a rapid Pace I would say especially over the past year um making many strategic infrastructure Investments and uh Acquisitions you have 9.6 EX ahash under management and you have six maybe six and a half sight we decided backstage so Zach also will be tomorrow on the stage sharing some of the strategy that he has at clean spark on the orange stage so if you want to check him out there too next up uh we


have Charlie Schumacher did I get it right you got it amazing Charlie is the VP of corporate Communications at Marathon digital Holdings and marathon is also a NASDAQ listed public minor they have a 1.48 billion market cap um they have 19.1 EXA hases spanning across seven sites globally yes yes Charlie looking forward to your Insight today than and last but certainly not least we have Charlene fipo Charlene is the CEO of mangle digital strategies it's a consulting firm helping companies integrate B Bitcoin into their businesses she is a


former US regulator and banker and is very active in the West African uh landscape related to Bitcoin mining you also have a podcast where we can learn more about about the landscape in Africa called the bigco in Africa show yes awesome so I'm very excited to be here today with these three guests so we're approaching the time where we all lose sleep about the having we have to think critically at 3:00 a.m.


about what our strategies are um I think you know the having's less than 200 days away revenues are going to be slashed hash rate is continuing to rise does that sound right yeah okay and uh the macro Trends around cap deployment is still quite challenging so what are some of the changes that we've seen from the last having cycle and where are you focused on Zach we'll start with you yeah um you know I think this one is set up to be probably the most interesting um I I I'm I'm one of those people that do believe in the cycle I do think that


you know supply and demand will always take effect it will affect bitcoin's price so I think that we have you know a good future but I I think that we have bumps in between that and hope is not a plan all of us hope Bitcoin is going to go up um but we need to be prepared for the worst and it's about which companies are set up to weather the storm I think a unique impact that this happing has in something maybe we'll talk about later but the ETFs there's a lot of new capital that is likely to enter the


market and it's going to be new in a way that we don't know how it's going to affect Bitcoin um and and again I think it's going to be for the positive but if you haven't prepared for the worst I don't think a minor makes it through this next next halfing cycle um the best part about Bitcoin is that it pushes for efficiency at all times it's always driving to squeeze out efficiency and so I think that that's going to have to be the focus and it's something that can't


be done overnight so PE it's miners are either going to be prepared and they're going to be ready to go or or they're not so Charlie what do you think yeah uh I mean I obviously agree with a lot of that everything's about efficiency um I do think that something that's interesting is this is kind of the First Institutional having that we've seen so in you know the last cycle there were no large publicly traded Bitcoin miners now there's several of them 34% of the network now yeah so it's gone up a


little bit um and I do think that the principles are the same it's you have to be as efficient as possible um and we've seen that Trend continuing but I think you know we were what like the average I think the average efficiency of the Bitcoin network was like 58 Jewels per terahash going into the last having it's close at a 30 now and so uh and the machines although they are getting more efficient that at they're doing so at a decreasing rate and so I think the game is the same it's the same about lower


your costs you know deploy the most efficient equipment you can except it's becoming much more sophisticated and a lot more difficult to get there and Charlene what are some of the trends that you're seeing um that miners are taking in Africa yeah I mean I think that we heard it earlier a lot of miners are really focused on jurisdictional uh diversification so if you think back to the last cycle May 2020 most roughly 65% of the hash rate was in mainland China June 2021 um the hash rate moves from China it goes to the UK uh the US Canada


Russia and Kazakhstan um when we hit 20 20 uh when we hit 2020 when we hit 2020 uh we realized that um these were very difficult Economic Times and energy costs were very very high and that has allowed both public and private miners to start really thinking of where can I get that low cost energy what we're seeing is that originally that was the push toward Latin America but we're also seeing a push toward Africa so East Africa West Africa and South Africa and I think that will continue when you combine this idea of lowcost energy with


the with the opportunity for Renewables you really can uh create the the best conditions for a profitable mining business so speaking of profitable mining businesses we see hash price continuing to rise we see new machines with crazy efficiency jumps and you know how will miners survive with their revenues about to be cut in half what strategies are your companies taking or that you're seeing companies take well there's um there's a line I'll steal from one of my colleagues Adam swick which is that someone will always


make money mining Bitcoin because hash rate and then therefore difficulty rate is dynamic so what matters most is actually because mining is a perfectly zero some game that you were in the low half on the cost curve and ideally the bottom 25% so uh again it being like all about efficiency to get there I think if you're if you're on the very low end of the cost curve like you're good so at this point what should you probably be doing well probably sh up your balance sheet um and look to grow as much as you


can and try to do that now or put yourself in a position where if you're interested in buying assets that you have the balance sheet to do it because stuff may go on sale uh for the people who can't uh survive the having you know maybe I'll I'll add on top of that because that that was a strategy we we took halfway through the cycle was to buy the assets when they were cheap and not buy them when they were most expensive um but to make sure you were buying assets that were incredibly efficient so so but


efficiency is only half the equation right it it is we keep mentioning power over and over again that's half the equation efficiency is the other half I really do think you have to be at the bottom 25% and then you need to plan for the next halfing so we we were thinking about the halfing coming up in 200 days three years ago and we're already starting to talk about what we expect about the 2028 halfing we won't really make any moves towards that until probably a year into the next cycle but I think that that's how far that


especially big companies public companies like ourselves we need to be thinking three years out before every single halfing at a minimum and I think that's the only way to continually uh improve something that's also going to be interesting with with hash price and the efficiency as we mentioned is there now are these giant fleets that have developed amongst public companies that means there's now a giant Fleet that a few years from now will be less efficient and a big part of Capital Management on this is going to be what


do you with that doesn't make sense to just sell and buy new machines every 5 minutes that's where we think that there's a strategy now talking about different jurisdictions there's going to be places where in the US a very efficient minor works great three years into it when it's less efficient where am I going to go plug that in or am I going to sell it to somebody else we would rather take it and either keep it plugged in to end of life where it started or move it to a new jurisdiction


and that involves getting creative into kind of the the mic microG grid side of things that there's opportunities for example in Africa developing I think that there's going to have to be a unique places where kind of the second tier minor continues to live is that what you're seeing in Africa it is and and and just in terms of survival tactics I think they're for sees there's cost Capital creativity and clocking so very similar to what you guys said first thing is cost you need to be mining at the most low cost Place


uh possible and even if you are in Africa or in an area with a low uh energy uh environment you need to make sure you're locking in that power doing power purchase agreements or making sure that you have a renewable strategy from a capital perspective we're expecting this is the time that miners are building the war chest they're cutting back on investments they're not overextending themselves they're trying to make sure they have enough extra reserves to last the um to last the the the the Long Haul um from a creativity


perspective and we haven't really gotten into it but miners are being super creative with Revenue uh diversification you see miners and ordinals you see some miners opening repair shops you see some minors doing derivative hash rate uh anything to bolster those revenue streams that are coming in and of course clocking that's kind of a na to Efficiency do you have an efficient Fleet can your Fleet lasts for the Long Haul so those are the things that every minor public or private needs to focus on to survive and speaking of uh


incentive strategies going forward right and changes in strategies there is definitely some vertical integration that we see happening more broadly across the mining industry and certain groups have decided to you know jump into different areas um when you think about vertical integration how has that become a key differentiator do you think from you know one company to the next when we think about you know entering into new verticals there there's risks that go along with that right so how do you as companies or are companies that you are


watching evaluate risks as a minor and think about like is this the right time to jump into this or should we kind of hold back how how I think it's important to look at that is ultimately what underlies that diversification strategy or the integration strategy and and that's one of control and flexibility that's what a minor needs to be able to do they need to be able to control when they mine when they don't mine they need to be able to control their supply chains they need to be able to have a


control in all of those things but on the flip side of that control is sometimes a lack of flexibility if I own a facility that manufactures a Transformer let's say and I now have the control of ensuring I have that Transformer well I've now lost the flexibility around maybe my labor force that's associated with that maybe my Capital that's required to go there so I think that what we're we're really going to see and I think that this is the real important thing whether you're big or small and how you integrate all


these pieces together is which ones add control which ones add flexibility and how do you balance that I think we're going to see a lot of flavors develop but that's that's what we're paying attention to and I think that's what's ultimately going to prove out that matters the most yeah everyone sort of has a little bit of a different strategy on that among miners uh so like mining itself is commoditized but the the way that people approach mining the commodity is all a little different um so but I agree that


a lot of it is about controlling the variables that you can so none of us control the price of Bitcoin which means none of us actually control our Revenue right which is crazy as a business um so what how how do you plan for that uh well you can control actually quite a lot on the cost curve part of that is when you're looking at new sites uh looking it for the cheapest electricity you can find and ideally uh renewable right especially if you're a publicly traded company uh but the other side of that is uh you can control your


technology so something marathon's done is we were very asset light for a long time that's kind of what we were known as um in a bull market we basically just wanted to buy Revenue generating assets so we could grow and get as much hash rate online as possible as you transition into kind of where we've been the last couple years and kind of prepping now for the next having uh we're looking to control as much of the cost on the technology side as possible so that's you know we run our own pool


for example so if you can reduce latency that gives you like a little bit of an extra Edge uh we're we've been developing our own firmware so talking about being able to overclock or underclock your miners depending on market conditions uh we have proprietary immersion technology which has also been uh something that's really valuable for us o speaking about going into new markets uh that opens the door for areas that previously you couldn't mine in because of aircooled machines so we really think that the technology


component of mining is a really important place for people to be focusing their attention so is the hosting model dead I I I would say it is and and I think I'm going to go back to actually why I think it is and that's because the you know Bitcoin as the algorithm it's seeking out efficiency a host model is an inefficient model you have two parties that need to split a revenue stream now to try and make it and again making it isn't good enough when you come into really hard times of having you have to be thriving up to those


tough times so that you can make it to the next stage that's why I don't think that mining lives a a long life successfully I think we're going to see it come in come out but I think that it's it becomes this very short cycle with a lot of failures involved I think it's more likely you see things if there are going to be two sides that work together it's going to be in a joint venture where they properly share the revenue stream and they share the exact same incentives and that is efficiently


generating the greatest return as opposed to just selling power or just selling um you know a hosting labor force along with it well if we if we dig into that for a second right um when we saw the China ban happen which was the change right in the last having really there wasn't a ton of opportunity other than hosting right like there were people who had infrastructure already built out if you wanted to become a minor you didn't want to wait 18 months for a transform or you wanted to host right away so you were


willing to give up some of that profit because you were going to make money on the other side now that structure works for some people right and that has made a lot of groups a lot of money but it adds this third party risk Dimension that becomes extremely important and that's what we saw play out over the last two years right we had the perfect storm where Energy prices were increasing the hosting companies had all of the Power at that point they you didn't say like show me your PPA it was this is the price and if you don't want


it someone else will take it and they might take it for higher than you right so I think that that model has shifted my personal take and I know I'm the one asking the questions but I do still have takes um my personal take is I don't think it's dead I think that the risk will be adjusted and that there will be you'll have to have really good financials on the other side in order to make it work right so that you don't end up in a situation where your host becomes bankrupt yeah I was going to I was going


to agree I think hosting is not dead hosting has just evolved right you know we they needed to exactly there opportunities to host uh in in uh East Africa and West Africa but the terms of those Agreements are very different and they're going to continue to involve and and that's what we want I think your point is well taken hosting was the best option because most folks did not want to take the time or spend the money to enter a new market now the entire industry is way more mature so you actually have options as to how you want


to enter a new market yeah it's I the answer is both right uh the the old model of Hosting I do think is dead where you have three parties involved you have someone who brings miners to the table you have someone who brings power to the table and you have someone who builds infrastructure who sits in the center the margins are getting too compressed for all three of those people to exist so that concept I think is going away except maybe in places that have super super cheap energy um what I do think though the way it's evolved is that uh


kind of what Zack was alluding to which is the the principles that people who have different expertise will work together and bring different expertise to the table that's still very true so that's this sort of JV structure that that Zach was mentioning and if hosting does work hosting and power should be the same person right the host should be the Energy company yeah I think it's also just more people have gotten into Mining and now understand that energy is really like the center of it all and


there's more people working in the space so the structure has changed because everyone got smarter over the past four years yeah it's interesting I've for i' so I've really struggled with this question of marathon of like who is our customer and um because technically we don't really have a product that we sell which is like the weirdest thing in the world for a business um and for a long time I thought that maybe the Bitcoin network is our customer cuz all miners provide a service to the Bitcoin Network


in form of security but uh you and I were talking about earlier I'm starting to shift my perspective and maybe it's that the customer is actually the energy sector and that Bitcoin miners are Technology Solutions for energy providers so if that's the case the host power company that's those should be the same person and then miners provide technological solutions to help them make them themselves more efficient or basically build new infrastructure out and you're seeing that right in different Landscapes yeah we're


absolutely seeing that um we're absolutely seeing that in Africa and I'll just do a quick segue so um one of the models that I'm most most excited about is Bitcoin mining as an anchor tenant um and we're seeing that uh Bitcoin mining used as an anchor tenant to subsidize the cost of power so uh earlier this actually two weeks ago I was in Nairobi Kenya uh touring uh the grit lless there's a company called grit lless compute they're Kenyan um they have pioneered the combination of Hydro


power and solar power to solve for energy poverty so basically um roughly 500 million folks across the continent of Africa don't have access to um sustainable electricity but when you bring Bitcoin mining into a power equation the economics of that deal just make sense and I think we will continue to see um really unique models that work that way um so that we can push toward Global energy abundance and also solve for uh or and help push companies or push countries uh toward renewable energy um but also lock in lowc cost


power you know I I would add to that because I do think that that's that's the reason that we got out of the energy business we sold a micro grid business because it was so hard to get funding because the anchor tenant was generally in a business or set up as a community or campus that they were looking for savings were so uniquely positioned to generate Revenue without the waste between the output and the input when it comes to energy that funding of energy projects as an anchor tenant really is the way to create an abundant Energy


Future and and that's what got us into Bitcoin in the first place um so I'm I'm really excited to see that this is happening because I do think that it's an answer for energy to actually be developed in places that wouldn't otherwise be perfect one question left five minutes left what other macro Trends do you think will affect mining going forward so we talked a little bit earlier about the ETF um if it's approved how do you think mining stocks will trade do you think that operations


and thinking about like a mining operation will be like the real clutch going forward to assess if someone is good to buy or bad to buy yeah you know I I think the ETFs are going to be a stamp of approval upon Bitcoin for traditional markets in a certain way and you know one of the fears could be that a capital moves out of mining stocks but I don't think that's the case I think there's so much latent Capital that's going to be brand new to the space that goes into the ETFs um I think that instead we're going to get more


Capital to every sector that's connected to it whether it's a power company that serves a Bitcoin minor or a Bitcoin minor that operates in the space and and and that's ultimately the the stamp that traditional Finance needs is it's this really easy way for it to be introduced generally accepted by financial advisers so I I think that that's going to be a really big Catalyst that happens um now I think mining stocks of course will benefit but I do think that the reason they're going to benefit is they'll now


be seen differently in what they really are in a True Light from an investment point of view it's a leverage play Bitcoin miners are really you're mining Bitcoin is the only way to acquire Bitcoin cheaper than you can buy it in the market I'm sure you can do the derivatives around it but really if I want a Bitcoin you know and I want to get a block and I mine it and I can mine it for my all-in cost let's say is $155,000 that's that minor is the only person on the planet at that moment that


can buy it at $15,000 right now so that's the reason that Bitcoin miners will continue to have value because of the leverage that they have yeah I mean gold ETFs exist and gold mining stocks exist right y so yes both can can exist in the same world I think the question is like really is as the if assuming an ETF gets approved is that Pi going to stay the same size in which case investment moves away from Bitcoin miners into the ETF or is that Pi going to grow my personal take and I'm I think probably all of us agree on this is that


the is that the pi is going to grow uh because it's going to make because if you think about it today your choices in getting exposure to bitcoin are you can buy a Mining stock which is volatile has a lot of beta Traders love that some long-term holders don't like that um you can buy Bitcoin outright or you can put it on an exchange um this is maybe like heretical to say at a Bitcoin conference but I don't think most people want to hold their Bitcoin people don't want to run the risk of vaporizing their net


worth like there's a reason that Banks came to existence in the beginning right so if you if you have a new Financial instrument that is super familiar to people that allows them to get exposure to bitcoin without running the risk of vaporizing their net worth I think that does pull a lot of new people into the space I think said in a different way you have the option with Bitcoin to hold it for yourself or to have someone else hold it for you and that is like the real I think value yes the option is what's important right yeah agreed


outside of the ETF are there any other macro Trends from a regulatory perspective that you think will affect miners going forward indeed I'm just looking at the regulatory landscape around the world you know if you look at on the west the US and and Canada you know they've had some pretty tough and aggressive regulation with regards to mining we've had moratoriums in New York we had uh Bitcoin uh mining moratoriums in New York and also in Canada yeah but if you look in the Middle East and Africa you're seeing favorable


jurisdictions and also supportive governments uh just this year in Nigeria they passed a new electricity act which means individuals can M can produce up to one megawatt of electricity without a license so you see the entire Nigerian government being open to renewable energy um you're seeing you know there's projects in El Salvador where the government uh is partnering to provide Bitcoin mining sites there's uh huge sites there's a huge site in Oman where uh the Oman government has sponsored a


billion dollars a billion dollar budget for an 800 megawatt facility so again you're seeing government saying yes to Bitcoin mining and you're also um they're saying yes to private investors and they're creating the regulatory structures to make sure that these ecosystems can um Can th to flourish it's the beauty of Bitcoin right it's completely decentralized and you could use it and mine it wherever you want and Bitcoin mining follows the path of least resistance so we will see public and


private miners move to those places that make the most sense for the business yep awesome well thank you guys so much for your insights today thank you thank you thank you Miami for the last 3 years in this amazing city the whole world shut down but Miami welcomed us with open arms we want to show Bitcoin to the whole world we are taking the conference on the road to set the stage for Bitcoin in a new [Music] city Nashville Bitcoin 2024 is coming to Nashville in Tennessee a city that is known as a music and freedom City


Bitcoin 2024 in Nashville from July 25th to 27th