Will Bitcoin Price Skyrocket Or Collapse Post-Halving? | Marathon Digital CEO Fred Thiel

Summary

In 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

00:00

🤔 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.

05:01

📈 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.

10:02

🌐 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.

15:03

🔌 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.

20:03

💡 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.

25:04

🌍 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.

30:05

🏭 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.

35:07

🔄 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.

40:10

📢 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.

Keywords

💡Bitcoin

Bitcoin is a decentralized digital currency that operates on a peer-to-peer network, independent of a central authority. It is the first and most well-known cryptocurrency. In the video, Bitcoin's decentralized nature is highlighted as a key argument for holding it, emphasizing the security and resistance to control by any single entity, including miners.

💡Decentralization

Decentralization refers to the distribution of authority or control away from a central, singular authority. In the context of the video, it is a fundamental aspect of Bitcoin's network, ensuring that no single user or group can exert undue influence over the system. This is contrasted with the perception that large miners might have significant control.

💡Miners

Miners in the context of Bitcoin are individuals or entities that use specialized hardware to perform complex mathematical calculations and validate transactions on the blockchain. They are rewarded with newly minted Bitcoins and transaction fees. The video discusses the role of miners in the Bitcoin network and the common narrative that they have significant control.

💡Consensus Mechanism

A consensus mechanism is a process or protocol used in computing systems, particularly blockchain technology, to achieve agreement among participants in a network. In the context of the video, it is the principle that ensures changes to the Bitcoin protocol require the approval of the majority of the network, including both miners and node operators.

💡ETFs (Exchange-Traded Funds)

Exchange-Traded Funds (ETFs) are investment funds and exchange-traded products that hold assets such as stocks, bonds, or a basket of assets like commodities. In the video, the approval and launch of Bitcoin ETFs are discussed as a significant factor that may have contributed to the rally of Bitcoin's price.

💡Node Operators

Node operators in the context of a blockchain network are individuals or entities that run software to maintain a copy of the blockchain, validate transactions, and propagate them throughout the network. They play a critical role in maintaining the network's integrity and security. In the video, node operators are emphasized as an essential part of the consensus mechanism that governs changes to the Bitcoin protocol.

💡Halving (Haven't)

Halving, also known as 'haven't' in the context of the video, is an event in the Bitcoin network that occurs approximately every four years, reducing the reward for mining new blocks by half. This mechanism is designed to control the supply of new bitcoins and adjust the rate at which they are created. The halving event directly impacts the cost of mining and the overall supply dynamics of Bitcoin.

💡Hash Rate

Hash rate refers to the speed at which a Bitcoin mining operation can perform the complex calculations necessary to validate transactions and add them to the blockchain. It is measured in hashes per second and is an indicator of the computing power applied to the Bitcoin network. A higher hash rate means more security and difficulty in mining new blocks.

💡Supply and Demand

Supply and demand are fundamental economic concepts that describe the relationship between the quantity of a commodity that producers are willing to sell at various prices and the quantity that consumers are willing to buy. In the context of the video, supply and demand dynamics are crucial for understanding the price movements of Bitcoin and the impact of halving events.

💡Cryptocurrency Adoption

Cryptocurrency adoption refers to the process by which cryptocurrencies like Bitcoin become increasingly accepted and used by individuals, businesses, and institutions. This can include using them as a form of payment, store of value, or for various financial and technological applications.

💡Volatility

Volatility in finance refers to the degree of variation of a trading price series over time as measured by the standard deviation of returns. In the context of the video, Bitcoin's price volatility is discussed in relation to its supply and demand dynamics, as well as the behavior of institutional and retail investors.

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

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