Will Bitcoin Price Skyrocket Or Collapse Post-Halving? | Marathon Digital CEO Fred Thiel
Summary
TLDRIn this engaging discussion, Fred, the CEO of Marathon Digital Holdings, delves into the nuances of Bitcoin's decentralized nature, the role of miners in the network, and the impact of the upcoming halving event on mining costs and Bitcoin's price. He addresses the misconception that miners control the network, highlighting the consensus mechanism involving node operators. Fred also discusses the potential for Bitcoin to be used as a store of value and its comparison with gold, emphasizing the finite supply of Bitcoin. Furthermore, he explores the implications of the recent FBY accounting standards update for corporate holdings of Bitcoin and the future of Bitcoin mining, including the shift towards renewable energy sources and the industry's response to increasing computational demands.
Takeaways
- 💬 Miners and node operators collectively maintain Bitcoin's protocol through a consensus mechanism, preventing individual entities from making unilateral changes.
- 📈 The upcoming Bitcoin halving is expected to double mining costs, potentially affecting the miners' profitability and the overall supply dynamics.
- 🔥 Bitcoin's price movements are influenced by ETF approvals and shifts in investment from mining stocks to ETFs, indicating a complex interplay between market forces and Bitcoin's valuation.
- 📱 Adoption cycles and technological innovations, such as ETFs and digital identity solutions on Bitcoin's layer two, are pivotal for Bitcoin's future growth and utility.
- 🔨 The relationship between hash rate and Bitcoin price is reciprocal; price influences hash rate by affecting mining profitability, not the other way around.
- 📊 Predictions about Bitcoin's price reaching significant milestones (e.g., $600,000 by 2030) are based on its historical growth and the underlying assumption of technological advancement.
- 🛠 The sustainability of Bitcoin mining as a business hinges on energy costs and the evolution of computing power, with trends indicating a move towards more sustainable and innovative energy solutions.
- 🤖 AI industry's growing energy demand could outpace that of Bitcoin mining, potentially reshaping the competitive landscape for energy resources.
- 🏆 Bitcoin miners are exploring acquisitions and diversification strategies to maintain competitiveness, particularly in jurisdictions with favorable energy costs.
- 🌱 Innovations in energy harvesting from renewable sources are becoming increasingly important for reducing mining costs and ensuring the long-term viability of Bitcoin mining operations.
Q & A
What is the main argument for holding Bitcoin due to its decentralized nature?
-The main argument for holding Bitcoin is that its network is decentralized, meaning that no single entity, not even miners, can control or change the protocol. This is because it requires a consensus mechanism involving the majority of node operators, not just miners.
How did the Bitcoin ETF approval impact the price of Bitcoin?
-The Bitcoin ETF approval accelerated the normal price cycle by about six months, leading to an uptick in Bitcoin's price earlier than it might have occurred otherwise. The ETF attracted capital that was previously invested in mining equity stocks, causing some of those funds to flow into ETFs.
What is the significance of the block wars in 2017?
-During the block wars in 2017, despite more than 90% of miners wanting a change, it couldn't happen because node operators wouldn't validate it. This event highlighted the power of the consensus mechanism and the limitations of miners' influence over the protocol.
What is the role of node operators in the Bitcoin network?
-Node operators play a crucial role in the Bitcoin network as they are part of the consensus mechanism. They validate transactions and blocks, and without their approval, changes to the protocol cannot be implemented, even if a majority of miners support it.
How does Fred view the future price trajectory of Bitcoin?
-Fred believes that Bitcoin's price will continue to rise, with the short term potentially ending the year between $50K and $100K. He also suggests that next year could see Bitcoin prices close to $200K or at least in the range of $125K to $150K. However, he emphasizes that long-term volatility will decrease due to factors such as ETFs and institutional interest in Bitcoin.
What are the implications of the new FBY accounting standards for companies holding Bitcoin?
-The new FBY accounting standards allow companies to record crypto holdings at fair value, with changes in fair value recorded in the net income. This clarifies how Bitcoin is reported, making it easier for companies and investors to understand the value changes over time and potentially incentivizing companies to hold more Bitcoin.
How does Fred see the role of Bitcoin in the context of corporate and national asset holdings?
-Fred sees Bitcoin as an attractive option for corporations and countries to store cash due to its finite supply and the fact that it can't be controlled by another government. He predicts that more countries will hold small amounts of Bitcoin in their balance sheets, valuing its role as a sovereign asset.
What are the potential technological innovations on the Bitcoin layer two?
-Fred anticipates innovations on layer two of the Bitcoin network, such as systems like the Lightning Network that enable faster transactions and act as a means of payment. He also sees potential in data storage, digital identity products, and applications of zero-knowledge proofs for identity verification and data security.
How does Fred address concerns about miners' control over the Bitcoin network?
-Fred clarifies that miners cannot change the protocol unilaterally. It requires a consensus mechanism involving not just miners but also node operators. Even if miners wanted to change the hard cap of 21 million Bitcoins, they would need to fork the Bitcoin and get the majority of users to follow, which is unlikely.
What is the relationship between the hash rate and the price of Bitcoin?
-The hash rate does not necessarily change the price of Bitcoin; instead, the price drives the hash rate. As the price of Bitcoin increases, the profitability of mining also increases, incentivizing miners to add more capacity, which raises the global hash rate.
How might the Bitcoin mining costs be affected post-halving?
-Post-halving, the marginal cost to produce Bitcoin effectively doubles, as it takes twice as much compute to generate the same number of Bitcoins. However, operating expenses that are non-energy related do not double. The actual impact on miners will depend on their energy contracts and their ability to sustain operations if the price of Bitcoin does not appreciate to the same extent as the mining costs.
Outlines
🤔 Bitcoin Decentralization and Miner Influence
This paragraph discusses the decentralized nature of Bitcoin and the common misconception that miners, such as Marathon, have significant control over the network. It emphasizes that changes to the protocol require consensus among not only miners but also node operators, of which there are many thousands. The example of the block wars in 2017 is given, where despite 90% of miners wanting a change, it could not occur due to node operators' refusal to validate it. The paragraph also touches on the upcoming Bitcoin halving event and its potential impact on price and mining costs.
📈 Bitcoin Price Predictions and Market Dynamics
Fred, CEO of Marathon Digital Holdings, shares his insights on Bitcoin's price rally, attributing it to a combination of ETF approval and capital inflows. He discusses the impact of ETFs on retail and institutional investment, as well as the outflows from GBTC. Fred provides his personal forecast for Bitcoin's short-term and long-term price trajectory, considering factors like supply and demand, the finite supply of Bitcoin, and the potential for Bitcoin to be seen as an investment class similar to gold. He also addresses Kathy Wood's prediction of Bitcoin reaching $600,000 by 2030, discussing the implications of technological innovation on Bitcoin's growth.
🌐 Impact of Macroeconomic Factors on Bitcoin
The discussion shifts to the influence of macroeconomic factors on Bitcoin, including inflation pressures, geopolitical events, and their effects on market demand for riskier assets like Bitcoin. Fred talks about Bitcoin's behavior during different market conditions, highlighting its role as a potential hedge against inflation. The conversation also touches on the recent changes in FASB accounting rules, allowing companies to record crypto holdings at fair value, and its potential impact on corporate Bitcoin holdings and investment strategies.
🔌 Bitcoin Mining and Energy Costs
Fred delves into the specifics of Bitcoin mining, addressing the relationship between hash rate and Bitcoin's price, and explaining how mining costs might be affected after the halving event. He clarifies that while mining costs may double, the actual energy costs do not necessarily increase proportionally. Fred also discusses the potential for Bitcoin mining to adapt to changes in energy prices and the industry's move towards renewable energy sources and energy harvesting techniques, which could significantly reduce mining costs.
💡 Future of Bitcoin Mining and Technological Innovations
The conversation explores the future of Bitcoin mining, including the potential for miners to band together and fork Bitcoin, the improbability of such an event, and the security of the Bitcoin network. Fred talks about the role of Layer Two technologies, like the Lightning Network, in enhancing Bitcoin's utility as a medium of exchange and store of value. He also discusses the potential for Bitcoin to be used in digital identity verification and the implications of these technological innovations for the broader adoption of Bitcoin.
🌍 Global Competition in Bitcoin Mining
Fred discusses the global competition in Bitcoin mining, addressing concerns about the sustainability of mining as energy costs rise. He explains that miners will continue to chase cheap energy sources and may shift operations to regions with more favorable conditions. The conversation also touches on the potential impact of the AI industry on Bitcoin mining, as it competes for energy resources. Fred highlights Marathon's strategy of acquisitions and technology investments to maintain competitiveness in the mining sector.
🏭 Energy Sources for Bitcoin Mining
In this paragraph, Fred details the energy mix used by Marathon Digital Holdings for Bitcoin mining, emphasizing the company's focus on renewable energy sources like solar and wind. He discusses the concept of energy harvesting and how it could potentially reduce mining costs to zero by utilizing stranded energy sources and selling excess heat. Fred also talks about the future trend of Bitcoin mining moving towards smaller, self-contained operations and the potential for miners to generate their own energy or find cost-effective energy solutions.
🔄 Bitcoin Mining and the Future of Energy
Fred shares his views on the long-term sustainability of Bitcoin mining, addressing concerns about increasing computing power requirements and the potential impact on the industry. He discusses the role of innovation in the technology sector, the development of more energy-efficient mining equipment, and the pursuit of alternative energy sources. The conversation also covers the potential for Bitcoin mining to become integrated into industrial processes and the shift towards smaller-scale, distributed mining operations.
📢 Conclusion and Resources for Learning More
The discussion concludes with Fred providing information on where to learn more about himself and Marathon Digital Holdings. He invites viewers to follow him on Twitter, visit his website, and explore the company's resources for further insights into the world of Bitcoin mining and investment.
Mindmap
Keywords
💡Bitcoin
💡Decentralization
💡Miners
💡Consensus Mechanism
💡ETFs (Exchange-Traded Funds)
💡Node Operators
💡Halving (Haven't)
💡Hash Rate
💡Supply and Demand
💡Cryptocurrency Adoption
💡Volatility
Highlights
Bitcoin's decentralized nature and consensus mechanism prevent any single entity, including miners, from unilaterally changing the protocol.
The Bitcoin halving is anticipated to double the marginal cost of production for miners, fundamentally altering mining economics.
Fred Thiel predicts a volatile but generally upward trajectory for Bitcoin prices, with potential post-halving increases.
The introduction and adoption of Bitcoin ETFs have shifted investment patterns and could be accelerating Bitcoin's price cycle.
Significant outflows from GBTC and inflows into Bitcoin ETFs represent a notable shift in investment dynamics within the crypto space.
Kathy Wood of ARK Invest forecasts Bitcoin could reach $600,000 by 2030, highlighting the optimistic long-term outlook among some investors.
Recent changes in FASB accounting rules may encourage more companies to hold Bitcoin by providing clearer reporting guidelines.
The relationship between hash rate and Bitcoin price is complex, with price often driving hash rate rather than the other way around.
Mining efficiency and sustainability are increasingly tied to renewable energy sources and innovative energy procurement strategies.
Thiel envisions a future where Bitcoin mining becomes integral to energy and industrial processes, potentially reducing operational costs to zero.
The evolution of Bitcoin mining technology and its demand for computing power are closely tied to the industry's sustainability and efficiency.
Marathon Digital Holdings' strategy includes diversifying energy sources, with a significant focus on renewables and energy harvesting.
The adoption of digital ID and zero-knowledge proofs on Bitcoin's blockchain could revolutionize privacy and security in digital transactions.
Innovations on Bitcoin's Layer 2, such as the Lightning Network, are expected to enhance Bitcoin's functionality as a medium of payment.
The changing landscape of global energy, influenced by AI and other high-demand industries, may impact Bitcoin mining's future competitiveness.
Transcripts
holders of Bitcoin cannot change the
network which is an argument for holding
Bitcoin because it's decentralized the
other narrative that's common in the
Bitcoin Community is that miners however
like like Marathon for example have
significantly more control over the
network and changes to the protocol uh
can you address this well I you know
miners can't change the protocol at the
end of the day it's a consensus
mechanism and you need to have the vast
majority of uh the consensus makers
which are the not just the miners but
also the node operators there are a lot
of node operators that aren't minors um
thousands and thousands and thousands of
them and if you go back to the period of
the block wars in
2017 you had 90 plus perc of the miners
wanting something to happen and it
couldn't happen because the node
operators wouldn't validate it Bitcoin
having is coming up in a few weeks what
will likely happen to the price post
having and what will happen to Mining
cost post having we'll talk about these
issues with our next guest Fred teal CEO
of Marathon digital Holdings one of the
largest Bitcoin miners in the US first a
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down below Fred welcome back to the show
good to see you great to be here uh
let's start by talking about uh what
happened in the C last couple quarters
since we spoke uh late last year many um
theories as to why Bitcoin has rallied
the way it did uh certainly the a
Bitcoin ETF approval was one of them but
keep in mind it was approved in January
the rally continued since January um was
it as a result of the continuous inflows
into these ETFs that propelled the price
up to current levels or perhaps it was
something else Fred well I think it's a
combination of the ETF approval
accelerating the normal um cycle by
about six months so the the uptick in
the price of Bitcoin we would have seen
in this fall October kind of Q late Q3
early Q4 was pulled forward by about six
months um you're seeing you a very
interesting Dynamic uh the ETF has
attracted Capital that previously was
invested in mining Equity stocks so
stocks in companies like Marathon some
of that flowed uh out of those stocks
and into the ETFs and then you also have
considerable outflows you know gbtc has
seen almost 50% outflows of its original
Bitcoin balance from um when the ETFs
launched um and so you're now seeing
significant outflows from
gbtc a lot of which has likely flown
back into the other ETFs uh you had a
lot of people who bought shares in gbtc
at 40% discount when Bitcoin was at5 and
$20,000 and um now they're obviously
monetizing that and then reinvesting
some of those proceeds but essentially
most of the ETF inflows have really been
retail dollars at this point you know
it's still as an institution a little
bit hard hard to um invest in these ETFs
and as anybody who maybe banks with BFA
or some of these other large Banks finds
um you know you have to literally ask
permission to almost buy these ETFs
through the banks if you're using their
brokerage account so yeah I think we're
still early in the adoption cycle from
the ETFs but essentially what's happened
is the normal Bitcoin cycle has moved
forward by about six months um so I
think we're going to see a kind of bumpy
sideways Road here around 70k um you
know if Bitcoin breaks through 70k with
strong momentum then we may see another
um run up but um I think at some point
here the market has to consolidate uh
we've already seen uh some of that
happening on the equity side I think
we're going to start seeing it here on
the the ETF and the spot Market side I
know you don't usually give price
predictions so I won't ask you that
explicitly but I would ask you to
address or um respond to Kathy Wood of
arc's predictions uh she has updated her
forecast a few months ago she now sees
$600,000 by three 2030 that's the base
case um perhaps 1.5 million I think it's
I think the Assumption here is that
Bitcoin will continue to advance
alongside technological innovation I
think that's always been her um
underlying assumption here can you just
address that forecast uh whether or not
it makes sense to
you well if you think that Bitcoin
historically has grown increased in
value anywhere from 20 to 35% a year
kind of on average over the period of
time then you know at 70,000 today going
forward to 2030 you're looking at six
years yeah 30% a year appreciation
that's totally doable um we don't look
out quite that far I mean we limit our
Outlook um you know kind of internally
to about 2028 and while we don't publish
pricing forecast
um you know we believe that likely and
this is more really my personal uh
belief that Bitcoin really if we look at
the short term will end this year
somewhere between 50 and 100K it's hard
to tell um next year likely getting
close to 200k potentially uh at the high
end otherwise most certainly somewhere
in the 125 to 150 range most probably
and then it's a question of does the
cycle repeat and you have a bit of a
bare Market or are we done with
historical cycles and because of the
ETFs and longer holding institutional
interest in Bitcoin do we start seeing
less volatility which also means
potentially Less Price
appreciation um on a long-term basis uh
other than that driven by pure you know
supply and demand you again most people
think of Bitcoin in compar to gold or
other Commodities the key difference
between Bitcoin and gold is that there's
a finite Supply there's only 21 million
Bitcoin arguably 4 million of that 21
million have been lost and we still have
yet to mine about a million of it so
you're talking about potentially 16
million Bitcoin that could be tradable
on any given moment um most Bitcoin sits
uh off exchanges in cold wallets hasn't
moved in six to n months over half of
Bitcoin hasn't moved in five years uh
all of which says at some price point
that Bitcoin will move of course but I
believe that with the finite amount if
you start seeing you know one um percent
of 401k assets beginning to be allocated
to this type of an asset class over the
next say five to 10 years uh there's not
enough Supply to uh provide that level
of investment in Bitcoin without the
price going up significantly so I I
think all of the longer term indicators
are that price will go up the question
is by how much and how fast and will
there be um profit taking and drops
along the way the one thing I think that
is certain is while longer term
volatility will decrease in the short
term because of the amount of Bitcoin
that's not on exchanges and the time it
takes to get Bitcoin to exchanges from
offchain wallets uh we'll see a lot of
volatility in the price you know swings
of 10% in a day will be normal fodder I
think well it it's not normal today um
you know I think what you've seen is
typically Bitcoin has been for the past
year quite stable actually with little
spurts of run-ups but you you look more
recently in the past few weeks you've
seen a couple of days with a 10% drop or
fluctuation in the price of Bitcoin
intraday and um while if bitcoin's at
600 and it moves $60 people don't react
well when bitcoin's at 68,000 then it
moves
$6,800 people do react um so again it's
just a question of the volatility your
outlook for Bitcoin uh is it factoring
in Market forces for stocks or the
broader economic landscape or do you
think Bitcoin per your forecast will
move more or less independently based on
its own Supply demand
fundamentals so you have to look at what
money it is that is going into Bitcoin
that is creating the demand so you have
normal demand that is you know if uh the
markets are moving towards a risk on
bias then you're going to start seeing
more Capital allocated to higher risk
assets which would obviously benefit
Bitcoin uh that doesn't necessarily mean
that the equity markets are going up at
the same time you can look at the
macroeconomic situation today and what
you're seeing is one where you have
persistent inflation pressures you have
persistent geopolitical pressures and um
let's just say exogenous events that are
causing some of that uh inflation to
remain very sticky geopolitical
situation in the um Suz area that's
creating shipping challenges uh you now
also have the Port of Baltimore issues
which is another exogenous event that's
going to create some form of impact on
the inflation side uh while you're
starting to see unemployment take up
many Industries especially on the
services side still haven't seen the
downtick in employment manufacturing has
seen it so I think that we're either
going to go into a recessionary period
in which case people may decide to put
actually more money into assets like
Bitcoin which tend to be
anti-inflationary and maintain value um
but at the same time there'll be less
risk assets available so it's going to
be very interesting to see how Bitcoin
behaves because it acts a little bit
like a chameleon or a leopard rather and
that it changes Its Spots uh if you go
back to During the period of covid and
all the subsidies there was a lot of
money people bought a lot of Bitcoin
things like that stocks Etc then we had
um the drop in Bitcoin and then all of a
sudden Bitcoin started acting like an
inflation hedge again so Bitcoin changes
its meme if you would uh and its bias a
little bit depending on the types of
investors who are buying or selling
Bitcoin at any given moment and I think
what we're going to continue to see is
Bitcoin have more uh pressure to move
price upwards than to move price
downwards in the near term one group of
of not so much investors but entity that
could hold Bitcoin is probably just
corporations you and I spoke about the
changes in the fby accounting rules um
last year late last year it happened in
December of 2023 fby issued the
accounting standards update 20 uh
238 uh which basically uh allows
companies to record crypto Holdings at
fair value where uh changes in Fair
Value to be recorded in the net income
uh rather this is a change from prior
Accounting Standards where crypto assets
were accounted for at Cost Less
impairment uh what do you think this
change means for companies and whether
or not it would incentivize companies to
hold more or less
Bitcoins well I think it clarifies how
Bitcoin uh is reported which is 9/10 of
the battle in this case because if a
company's going to hold Bitcoin on the
balance sheet they have to have a very
clear ability to hold to report on it
and investors in those companies have to
have a very clear ability to understand
um how the value of that Bitcoin is
going to change over time and by the old
standard where you could only impair its
value you know Bitcoin might have been
at 100,000 and it that Bitcoin may have
been impaired down to 15,000 which was
kind of the low point of the most recent
draw Downs um and you would have this
Delta between the real market value of
the asset versus the book value now
there Clarity you essentially it's
Market to Market treatment which makes
it much easier so essentially a company
will hold Bitcoin on their balance sheet
just like they hold cash now does that
mean they'll hold they're likely to hold
more of their Assets in Bitcoin I think
over time yes it's going to take a while
but I think you're starting to see uh
companies begin to evaluate it as a way
to store cash uh you know your
Alternatives today are to put money into
uh T bills uh you're going to get 5%
five and a half percent something like
that so what's the alternative and
Michael sailor has for years been the
advocate of taking corporate assets and
putting them into Bitcoin and while he
has accumulated more Bitcoin than most
companies would feel comfortable with uh
it certainly has worked out quite well
for him so I think it's really something
that companies are going to evaluate but
it's not just companies it's countries
are also evaluating this there are
sovereigns who want to hold assets in
Bitcoin why because it can't be
controlled by another government and
having sovereignty over your assets is
very very important especially as a
commodity producer um so I think you're
going to start seeing more countries
holding small amounts of Bitcoin in
their balance sheet uh as Bitcoin begins
to continue to permeate the
Institutional Investor base and then
you're going to see all sorts of
derivative products that are Bitcoin um
uh related uh products you'll see uh
options you'll see the funds that short
Bitcoin versus go long Bitcoin you'll
see all sorts of different investment
instruments that companies will be able
to use to get exposure to bitcoin
without actually having to hold Bitcoin
in a wallet so I think uh the fact that
it's now readily available with
institutions you know you
could go to Fidelity and buy and sell
Bitcoin um spot Bitcoin directly or you
can use ETFs you can use all sorts of
different things uh that make it easy
for corporations to hold it now with
this new reporting it's easy to report
on it and uh are there any technological
innovations built on the Bitcoin layer
one that may prompt people to hold more
Bitcoin that you're looking out
for well I think on layer one it's more
about the fact that the Bitcoin is the
most secure place to store something um
and
so what you're really going to see is
innovation on Layer Two where because
there's only one Bitcoin block minted
every 10 minutes that level of
transaction speed um does not work well
for Bitcoin to act as a medium of
payment but it does work well as a store
of value and so what you're going to see
is more systems like lightning built on
layer tws with Bitcoin that act as that
means of payment you're going to see all
sorts of data stored at Layer Two with
the security anchored in the Bitcoin
blockchain you're going to see digital
identity products launched which is
likely the next big use of the Bitcoin
blockchain uh where people will
essentially have a digital ID it's a
think of it as a token that once you
have validated your identity with some
form of authority say a bank government
whatever it might be they issue a token
that is now your ID your kyc if you
would uh and whenever you need to do a
transaction with somebody and they need
to validate your ID you simply show the
token and um they can validate that it's
real without getting the underlying data
it's part of this concept of zero
knowledge proofs and when you get to
that level then people can have trust
without actually having the underlying
knowledge about the person because there
will be a token that validates they they
are who they are um and they have done
full kyc same thing with your health
data you go to a medical professional
you give them access to your health data
via token they can use it they can read
it they can update add new data to it U
but they can't copy it and then when
they're done using it they no longer
have access to it and will absolutely
kill ransomware there's no way for
ransomware to operate if it can't
re-encrypt the blockchain which it can't
do so speaking of the uh the network
itself so I've heard uh the narrative
that holders of Bitcoin cannot change
the network which is an argument for
holding Bitcoin because it's
decentralized it doesn't matter how many
Bitcoins one particular entity holds
that particular entity cannot have more
control over the network than somebody
who owns maybe only a fraction of one
Bitcoin uh the other narrative common in
the Bitcoin Community is that miners
however like like Marathon for example
have significantly more control over the
network and changes to the protocol uh
can you address this narrative well I
you know miners can't change the
protocol at the end of the day it's a
consensus mechanism and you need to have
the vast majority of uh the consensus
makers which are the not just the miners
but also the node operators there are a
lot of node operators that aren't minors
um thousands and thousands and thousands
of them and if you go back to the period
of the block wars in
2017 you had 90 plus% of the miners
wanting something to happen and it
couldn't happen because the node
operators wouldn't validate it so it's a
consensus mechanism you have to have
over 50% of the consensus contributors
the node operators miners Etc all vote
for and signal for something so as an
example when tap rot which was one of
the more recent changes to the Bitcoin
core Network uh was approved it was
approved because miners signaled they
were going to accept it and node
operators did as well and eventually you
got to 90% and it was approved so
there's a very high hurdle for anybody
to change anything programmatically in
the Bitcoin blockchain uh and then the
only way somebody could change data
that's recorded on the blockchain is to
do a proverbial 51% exploit which is
virtually impossible because of the
share cost to do it you would have to
accumulate as much compute power and
energy to run that as 51% of the
existing miners uh on the Bitcoin
blockchain which would mean you would
have to have over 300 x aash of capacity
the minute you add 300 x aash of
capacity to the network total network
capacity would go to 900 you would now
have to grow to
450 and then every time you're adding
you're only making your number bigger
and so it it is it becomes hundreds of
billions of dollars to even try to do an
exploit so um the long of it is to
change the software protocol it takes
the vast majority of people involved
with Mining and node operators which is
a very high hurdle um and to try and
change go ahead can M theoretically band
together and perhaps just as one example
change the hard cap of 21
million no is that that's not
mathematically possible
no because it's not for the miners to do
you have to change it in the actual code
of Bitcoin so miners would have to
choose to Fork Bitcoin to something else
and then do that that's essentially what
happened in 2017 is you had a fork you
had Bitcoin cash as it's called or
classic Bitcoin and then you have
current bitcoin and uh while there are
still people that mine Bitcoin cash it
is much much smaller than Bitcoin um and
the Bitcoin that we have today is uh
based on true consensus so yes you could
group of miners could band together and
Fork Bitcoin but they would have to get
the vast majority of the users of the
Bitcoin blockchain to go with them which
they're not going to do very easily if
they're changing the hard cap right um
can you explain the relationship between
the hash rate and the price is there a
definitive causation for one variable to
affect the
other well rate doesn't necessarily
change price it's the other way around
as the price of Bitcoin goes up and the
profitability of mining goes up miners
are incentivized to add more capacity
and when they add more compute the
global hash rate goes up so think of the
hash rate as the sum of all the compute
power applied to the Bitcoin blockchain
so miners can't in theory miners can't
hypothetically collude to just you know
lower the hash rate and bump up the
price would that make any
sense no well if you lower the hash rate
again hash rate doesn't drive price
price drives hash rate it's the other
way around so if the price of Bitcoin
drops if the price of Bitcoin drops
dramatically hash rate will drop because
a lot of people won't be able to mine
Bitcoin profitably if the price of
Bitcoin goes up dramatically more people
will order you know more miners will
order more machines they'll build more
capacity because there's more profit to
be extracted in that way Bitcoin
operates very much like gold or
petroleum markets you know if the price
of oil drops oil producers shut down
their oil rigs and their production if
it goes up they turn them back on it's
the same thing with Bitcoin miners you
add capacity when price is high you shut
down capacity when price is low well
let's talk more about mining itself uh
you are an expert on Bitcoin mining
after all uh let's talk about having
it's coming up in a couple weeks how do
you think the Bitcoin mining costs would
be affected post
havening well essentially your marginal
cost to produce will double uh so to
produce Bitcoin if today it costs you
I'll use $20,000 as a round number to
produce Bitcoin then uh and that is your
cost of
energy um to produce Bitcoin then your
cost to produce a Bitcoin post having
would be
$40,000 um notionally there are some
slight differences your operating
expense that is non- energy related
relative to mining Bitcoin it does not
double that cost doesn't double it just
takes twice as much compute to to
generate the same number of Bitcoin and
so what ends up happening is essentially
if you
have you know uh 10% of the Bitcoin
Network in your mining Fleet uh the
capacity of the Bitcoin uh Network then
instead of producing um 90 Bitcoin a day
you're going to get 450 Bitcoin a day
but the amount of energy you're
expending is going to cost you the exact
same so that 45 Bitcoin will cost you
what 90 Bitcoin cost to produce before
the
having right and suppose the price
doesn't appreciate to the same extent as
the mining costs do uh what would the
miners do in that case would they scale
back
on on on mining or would they realize a
loss what would be the appropriate
course of action from someone like
Marathon it it depends on the nature of
the energy contracts if you have energy
contracts that are power purchase
agreements where you have to take it or
pay it meaning you either consume the
energy or you're just going to pay for
it anyway then there is um no real
incentive to shut down completely
because if you were to shut down
completely you're still paying for the
energy but you're generating zero
Revenue however you would have an
incentive to keep at least operating
seeing as you're paying for the energy
and you'll generate some revenue and
it'll cover some of your cost so there's
a a reason to keep producing even if
it's at a loss because it's less of a
loss than if you just shut down
completely in the event where you have
an ability to sustain that because you
have cash on your balance sheet as a
minor then you know that could go on for
a long period of time potentially um in
the event you are able to uh tell the
power company I'm not going to take this
power it's yours and you don't have to
pay for it then yes those those miners
will likely shut down immediately um and
wait out the the drop in the in the
price what do you anticipate could
happen to bitcoin post happening this
cycle uh people have speculated that it
will just history will just repeat
itself because Bitcoin has always gone
up in Prior havening cycles and so why
would this time be any different um have
you observed any evidence at this time
could be
different well I think you need to look
at the supply shock right now we have a
demand shock because of the ETFs that's
what's been driving price up um as you
get and that's you know a demand shock
to the tune of about 2,000 Bitcoin a
day if you look at the having we're
going to go from having 900 newly minted
Bitcoin a day to 450 a day so you're
taking the total new emissions of
Bitcoin if you would the total Supply
that is being newly introduced on a
daily basis will go down by 50% will go
to 450
Bitcoin in a day when typically four to
5,000 Bitcoin are trading hands a
decrease of 450 in new Supply will
likely have some impact on price um
though it's hard to determine what it
might be so there's going to be a small
Supply shock it's not a big Supply shock
it's a small Supply shock but it's still
10 to 15% of typically the liquidity in
the marketplace and again these having
events will have less impact on the
price of Bitcoin over time as liquidity
in the market for Bitcoin increases so
if 10,000 15,000 20,000 Bitcoin are
trading hands uh a
day um then that's very different than
if only a couple thousand Bitcoin are
changing a day right so it's very likely
that what we'll see is there'll be some
upwards pricing pressure on bitcoin um
post having and uh again as I said
earlier when we were talking about price
predictions you know likely we'll end
this year above the former all-time high
um and then we'll see another runup
likely in 2025 as more adoption happens
but it's really the cycle post the peak
um so post the next year Peak that will
be different going forward and that's
something we just it's a hard to tell
because it's a question of institutional
demand for Bitcoin and how's that going
to change will adoption continue at this
current Pace in which case there will
continue to be a deficit in available
Bitcoin in the marketplace so there'll
be a continued demand shock so price
will go up there'll be scarcity uh in
the event all of a
sudden uh there is some major event that
causes the price of Bitcoin to drop you
may see the supply glut in which case
you may see price decrement uh quickly I
I think we're in unknown territory and
everybody is I think uh many people are
betting on the long term that yes it's
going to go up so I'll keep investing
but people are kind of keeping their
fingers crossed that something doesn't
dramatically change negatively uh while
they're making these Investments we're
very optimistic about longer term
opportunities with Bitcoin and obviously
what we're doing and how we're investing
and I think the rest of the industry is
on a very similar track speaking of
mining production are there any energy
Commodities that you think have the most
impact on uh the production of Bitcoin
for example uh suppose access to natural
gas or oil were limited because of
tensions in the Middle East or attacks
on supply lines uh which Commodities
would have the most impact on bitcoin
production well it's the same
Commodities that have an impact on
inflation in this country and the reason
I couch it that way is if Energy prices
go up it affects the
consumer uh that is inflation and that
effect on the consumer is something the
FED is very focused on and you know
they're fighting two battles inflation
and unemployment so so if you see high
pressures on energy costs which means
energy prices are going up gasoline's
going up natural gas will go up all
those things will go up uh impacts
Bitcoin miners yes Bitcoin miners
typically have longer term agreements
for Energy prices uh they're hedging
their bets just like any large
Industrial company Hedges its commodity
risk
um but that being said you're going to
have a Fed that is going to want to
accommodate and loosen to keep those
inflationary pressures from driving
which will then bring uh easy money into
the market which will impact the price
of Bitcoin which will drive it above
whatever the commodity cost increase is
and that's been kind of the historical
Norm but right now we have a glut in
natural gas pricing I mean natural gas
pricing is uh way below where it was a
year ago uh primarily driven by the fact
that on the one hand we can't export
more lfg than we do today and the all
that Natural Gas is backing up in the
market here locally and the us today is
producing more oil and natural gas than
it has in history it's one of the
largest producers in the world and uh
until that stops I think
um you know we'll continue to see uh you
know good good pricing uh on Commodities
well let's just take Marathon digital as
an example um what energy sources are
predominantly behind the production of
your Bitcoin so we're F we're
predominantly renewable so 56% is solar
wind Etc um and the balance is a mix of
natural gas nuclear other things so the
natural gas component of our Energy Mix
is obviously impacted by commodity
pricing you know solar and wind the good
thing is there's no marginal cost really
to producing that electricity and so uh
those prices remain fairly constant what
we're also doing is we're very focused
on moving into we call Energy harvesting
and this is where we're taking True
stranded energy in the form of methane
gas landfill biomass and other sources
of energy converting that into
electricity and then using Bitcoin
mining as a way to generate heat which
we can then sell back into an industrial
process or another commercial use case
what that means is essentially as a
Bitcoin miner my cost could potentially
go to zero and when my cost for energy
is zero then can mine Bitcoin no matter
what the price of Bitcoin is no matter
um what the global hash rate is can you
just elaborate one more time how would
the cost go to zero
hypothetically well because uh for
example there are uh situations where
you can be paid to take biomass or you
can be paid to mitigate methane you take
methane flare you mitigate it you get
renewable energy credits for that those
credits can be sold for quite a lot of
money um you then generate electricity
with the methane gas or the landfill gas
or the biomass um that electricity has
essentially cost you nothing because
you're getting paid for the the
renewable energy credits or you're being
paid to mitigate uh or take that biomass
and process it and then if you can sell
the heat from the Bitcoin mining
operation Bitcoin miners are great
sources of heat and if you capture the
Heat and reuse it by the way 50% of the
energy used by industry today is used
for heating things so there is a natural
um virtuous cycle between taking biomass
and uh waste essentially from certain
process Industries reusing that to
create energy and then feeding the heat
back into the industrial process you are
now being paid to take a waste product
process it you're being paid for the
heat you're producing for it and this is
before you've even mined a
Bitcoin and then those two Revenue
sources can offset potentially your
energy cost for mining Bitcoin okay uh
if somebody were to say to you well I
guess at least my next question if
somebody were to say to you I'm
concerned about whether or not a Bitcoin
miner as a business is sustainable over
the long term I'm talking about decades
down the line as the cost of mining
inevitably go up to a point where it may
not be sustainable for many businesses
or that computing power becomes so great
then well the necessary computing power
becomes so great that we no longer have
the capacity to mine Bitcoin at scale
how would you respond to that well let
say two things uh or actually three
things one uh there's a floor on what
energy costs right uh natural gas
pricing won't fall below a certain level
um wind solar won't fall below a certain
level uh so there's a floor as to how
low Commercial Energy pricing can go uh
the only way to get your energy cost
lower is to generate your own energy as
I just explained a minute ago and so um
what will happen is eventually
Commercial Energy will become too
expensive for Bitcoin miners to use why
well for one thing you're going to see a
um with more batteries at utility scale
more energy storage mechanisms at the
edge such as homes with solar and
Battery Systems the curve on energy
demand during the day the duct curve as
we call it which typically has a lull um
uh there's a glut in the middle of the
day and a shortage in the evenings uh to
simplify it that will normalize because
people will take that energy produced at
the middle of the day when there's too
much of it because there's lots of solar
and lots of wind and they'll store it
and then they'll make it available at
night when there's a shortage when the
sun's not shining for example so as soon
as you even out the cost of the amount
of electricity that's being pulled by
the grid that evens out the cost then
Bitcoin miners are going to be
incentivized to go look at alternative
ways of generating energy because
because they can't play this role of
load balancer on the grid anymore the
other thing that's happening and the
more important Delta is the AI industry
has um potentially 10 times the demand
for energy that Bitcoin ever could have
and it's already growing to the point
where it's going to be eclipsing Bitcoin
soon what that means and they are
prepared to pay much higher prices for
energy so Bitcoin miners will
essentially be squeezed out of markets
where AI data centers could potentially
operate because they are willing to pay
higher prices for energy they're willing
to pay higher prices for infrastructure
a typical AI data center is a 8 to 12
times more expensive infrastructure
investment than Bitcoin mining and the
only similarity they have is they both
consume energy to a great scale so
Bitcoin miners will over time be forced
to essentially go into the business of
generating their own energy or finding
energy that is free essentially um and
doing things where Bitcoin mining is
just a byproduct of what they're doing
and I think that is the
longterm um trend for Bitcoin mining and
it also means Bitcoin mining will move
from large utility scale sites which is
the typical standard today down to a
long tail of small uh implementations
where it's maybe one megawatt 2 megawatt
3 megawatt and that requires systems
that are very self-contained very
redundant uh very automated and that's
the core of our technology Investments
over the past few weeks we've announced
a number of technologies that
essentially will form the basis for the
ability to mine fully remote fully
hands-off small scale with very high
efficiency uh anywhere uh well do do you
see us miners continuously being
competitive with other miners in other
regions in other words how can you
remain competitive um with Min in
regions that may be more Pro Bitcoin or
crypto friendly in nature well I think
it's more miners are going to
continually Chase cheap energy so if
energy becomes too expensive in the US
miners are going to go to Latin America
where there's lots of stranded energy
they're going to go to Africa where
there's lots of stranded energy and you
don't have these grid balancing
components that create big incentives
for batteries or other utilities you
have other issues and so miners will
continue to Chase large energy sources
that are inexpensive internationally
they're going to deal with regime risk
all of the other issues related to
operating in those countries um but I
think the longer term if you look over
the course of the next two decades
Bitcoin mining will migrate to the
longtail it will move away from utility
scale Bitcoin mining will be built into
all sorts of industrial
processes such that it's really just a
way people are generating heat um and
then oh by the way they're also so
mining Bitcoin at the same time are you
interested in pursuing a strategy of
Acquisitions which is to say acquiring
smaller miners to diversify your
portfolio yes we've been doing that uh
over the past uh recent months we've
done two major Acquisitions uh acquiring
hosted providers where we actually had
some of our miners running so we've now
transitioned our Fleet from uh really uh
3% owned and operated back in December
to now over 54% owned and operated when
you think about the actual physical
infrastructure in the sites and we'll
continue to do that um both for growth
purposes and also for uh vertical
integration purposes okay um just out of
curiosity which which jurisdiction in
the world does have the cheapest energy
in
abundance oh gosh the US is uh
definitely a leading Source um parts of
Texas uh if you have the right type of
PPA can be very attractive uh there are
parts of Africa where you can find very
attractive energy costs um and there are
parts of Latin America too so it's it's
available all right um finally uh are
you ever concerned about computing power
not keeping up with the demands of
Bitcoin mining um if Bitcoin mining
requires more and more computing power
in the future are you concerned about us
not having enough of this power to make
Bitcoin mining a scale
efficient well if you think about what
it is that makes Bitcoin mining
efficient part of it is the amount of
energy that the mining rigs the compute
power consumes to generate one terahash
or think of it as uh you know one
horsepower of compute power
um and you know if that progression
downwards uh in cost to produce a
Bitcoin thes is to happen uh yeah you
then have to seek efficiencies in other
places which means getting lower cost
energy you have multiple inputs if you
would uh you know if you have free
energy for example if you have solar
panels in your backyard you can use old
technology to mine Bitcoin because your
Energy Efficiency is not important but
um if you're doing it at scale yeah you
want to have the latest and greatest
always and you know nowadays you have
us-based companies developing technology
for Bitcoin it's not just offshore
companies and so I think we're going to
continue to see like any technology
industry uh continued Innovation right
well Fred I appreciate your time where
can we learn more about um either
yourself or Marathon you can find me on
Twitter at uh FG t iel or Fred mar.com
my email address or just mar.com
m.com okay perfect we'll put those links
in the description down below thank you
very much for your time today
Fred thank you thank you for watching
don't forget to like And
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