Bitcoin Inflation: Cost To Mine Will Skyrocket Next Year | Marathon Digital CEO Fred Thiel

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the dollar is likely going to go through a drop in value as the FED 10 will tend to pause at some point whether it's in June or later this year as soon as that happens the other banks are still raising interest rates so you're going to see the dollar drop in relation to that and Bitcoin is a great hedge against that The Happening essentially results in a minor receiving half as many Bitcoin going forward for their hash rate and so if the price of Bitcoin isn't substantially above you know forty thousand dollars come to happening uh

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based on the current Global hash rate trends uh then I think a lot of minors are going to be challenged um uh post May next year three themes we'll be discussing today can the price of Bitcoin breach new all-time highs within a year what will drive Bitcoin adoption both in the short term and long term and what is the future of Bitcoin and crypto mining in light of increasing mining difficulty well here to discuss these themes with us is a leader in Bitcoin mining he is Fred teal CEO of marathon digital Holdings the largest

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Bitcoin miner in the United States with more than 11 000 BTC on their balance sheet Marathon digital Holdings is listed on the NASDAQ as ticker m-a-r-a Fred himself has had over 25 years of experience being the leader of several tech companies including GameSpy local Corporation and landtronics he's worked in the cryptocurrency digital assets and semiconductor and other Tech spaces Fred welcome to my show it's a pleasure to host you on the Dave Lynn report David great to be here just uh this week Standard Chartered Bank uh one of their

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analysts released a report that was on the news today and Standard Chartered uh is predicting a hundred thousand dollars Bitcoin by the end of the year one of the reasoning or one of the points of the rationale was that and I'll just read this quote against the backdrop of banks collapsing and financial turmoil Bitcoin has benefited from its status as a branded Safe Haven a perceived relative store of value and the means of remittance now these are obviously characteristics of Bitcoin that have always been there I'm just

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wondering why these points have been brought up to the Forefront now in light of what's going on in our economy well I think part of the reason is you know with the closure of Silicon Valley Bank and Signature Bank and kind of the fear of a banking crisis a number of people have decided thought you know where am I going to move my funds or am I going to hold my funds and uh Bitcoin happens to provide a great store of value and if you look at whether it's on a risk-adjusted perspective or not Bitcoin has outperformed virtually every

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other asset this year and has been a great performer so if you believe that Bitcoin will appreciate in price over the course of the year as we get in towards the happening which would be a kind of a historical pattern and you also believe that you know inflation is going to continue and the US dollar will be continued to be debased uh and other currencies are going to have issues because of interest rates uh then Bitcoin is increasing its correlation to Gold where traditional and Bitcoin has been very correlated to equity markets

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the correlation to gold is now increasing as a safe haven asset the other thing is you have you know central banks of the brics countries so um you know the countries that essentially have decided that they're going to move uh their assets into gold as much as possible so when you have central banks buying large amounts of gold um you know Brazil Russia China India um Iran and South Africa and others um you know it tends to draw some liquidity towards Bitcoin I think we've also seen a lot of international

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interest uh from family offices and people who are not Dollar denominated in their assets uh look at Bitcoin now that the dollar is likely going to go through a drop in value as the FED 10 will tend to pause at some point whether it's in June or later this year as soon as that happens the other banks are still raising interest rates so you're going to see the dollar drop in relation to that and Bitcoin is a great hedge against that uh this ties into your company strategy and philosophy Marathon digital Holdings mines Bitcoin and then

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holds I believe the majority of the Bitcoin you might incorrect it says on your financial statement is that holding Bitcoin is a strategy to act as a store of value and you've you've just explained why uh It also says that we believe that Bitcoin offers additional opportunity for appreciation and value with increasing adoption due to its limited Supply tell us about the increasing adoption aspect why do you think Bitcoin will see increasing adoption in the coming years and what is this adoption going to be in so it's

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going to come in a number of ways uh one you're already seeing uh ordinals which is kind of a bitcoin-esque version of nfts if you would you're essentially storing graphic images and content in the four megabytes of block space that's in each block there have been over a million ordinals that have been um essentially registered on the Bitcoin blockchain what that does is a it sucks up more block space which means financial transactions have to get in queue to get into the block space and it's also increasing transaction fees

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for miners like ourselves where previously we were seeing typical transaction fees in the kind of um five one hundredths of a Bitcoin per block we're now starting to see somewhere upwards of three tenths of a Bitcoin four tenths of a Bitcoin uh as transaction fees so ordinals is one use case another uh set of use cases are the side chains where they register on the Bitcoin blockchain for security purposes so imagine today if you want to create a side chain that was going to track ownership in real estate titles or it

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was going to track rare stamps whatever it might be you would typically have to choose do I want to do proof of work do I want to prove mistake well now with side chains on the Bitcoin blockchain you can essentially operate a copy of the Bitcoin blockchain where you're storing whatever it is you're tracking in your blockchain but then you're essentially storing a hash in on the real Bitcoin blockchain the primary chain and that means that anybody at any time can go back and compare the hack of your block

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to your side chain to the one that you stored on the Bitcoin blockchain to make sure that it hasn't been any changes to your blockchain and so it allows you to do have all the same security that the Bitcoin blockchain offers without having to do proof of work or proof mistake so now this is a much more interesting environment than um working in other blockchains or creating your own level one blockchain so we think that's going to drive accelerated adoption but if you just look at the number of wallet addresses

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with uh under 10 Bitcoin in them which are essentially you know a wallet address that's holding less than three hundred thousand dollars worth of bitcoin in it those are increasing at a very steady pace and even wallets with less than a Bitcoin are increasing at a steady pace and if you look at kind of a line graph of this data going back a few years it's adoption has continued at a pretty steady pace and we expect it to continue lightning is getting easier to use you'll see new applications for identity

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Healthcare data other things on the Bitcoin blockchain so we we feel very optimistic that Bitcoin and the technology around Bitcoin is a lot more like the internet you know if you think about the internet you have TCP it's a very basic protocol and it hasn't changed in decades you know the vast majority of traffic on the internet still operates under TCP version 4 which has existed for decades version six has come out um again over a decade and a half ago and still there isn't a huge amount of adoption of TCP IPv6 so Bitcoin is a

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very simple Network the ethereum network is much more complicated it's a programmable Network you do more programming in the actual base layer what that means is that you build applications at layers two and three on the Bitcoin blockchain just like the internet SMTP SNMP all these protocols run on top of the internet um and network protocols so we believe that if Bitcoin follows the internet's uh adoption rate you're going to see pretty massive adoption over the next decade for all things that run on top of

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our adjacent to bitcoin what kind of adoption are we talking about I've heard the prognosis that perhaps 10 to 15 percent of the global population could use cryptos not not just Bitcoin exclusively but cryptos is that something that could happen over the next 10 years is my is the projection yeah so if you think about that number roughly global population nearing 9 billion people today uh you're saying roughly somewhere between you know 800 million one billion a billion people um you know I think it's what you're

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going to see is two different models for adoption or versions if you would on the one hand you're going to see in developing countries Financial transactions settlement the kind of higher order level things uh then in developing countries that's where you're going to see a lot of retail use for it you know look at countries like Venezuela look at Argentina Argentina just raise their interest rates to 81 today um you know in an environment like that turkey for example where the currency has been debased you know a significant

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amount this year those are places where consumer adoption of Bitcoin and stable coins crypto in general is accelerating very rapidly because you need to be able to hold your funds in something that's not being debased and be able to move it quickly and so people don't want to hold funds in banks in those countries and when you layer on top of that the unbanked people you know 70 of the people who live in Indonesia don't have bank accounts yet they have to transact and they have phones so for those types

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of people crypto is a great alternative they can't have bank accounts but they can have a crypto account so I think you're going to see large volume of adoption in developing countries at the consumer level and you're going to see it at the institutional level in developing countries Bitcoin dominance which is the ratio of Bitcoins market cap versus other altcoins has reached its nine month High earlier this week it's actually currently at about 45 uh to 46 percent event multi-month high is this an indication

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of sentiment in the crypto Market from a trading and investment perspective or is this an indication of adoption of Bitcoin for its utility so I think part of it is a psychological factor which is flight to safety uh you know when there are crises in the world historically people have moved investments into U.

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S denominated assets because there's a belief that those markets will be somewhat protected or isolated from risk so Bitcoin being the predominant crypto asset that's a safe place to put your assets why well you need some and you need an asset where there's a lot of liquidity available so you can get in and out of it without necessarily creating slippage and moving the price um and outside of ether uh there isn't really any other crypto that offers uh that other than a stable coin like usdc or usdt I think a lot of people are

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concerned about usdt because they live outside of you know tether lives outside of the regulatory Norm whereas usdc lives in the regulatory Norm but the challenge with the usdc was as we saw in the banking crisis that we had you know they had three billion dollars of reserves that were essentially a signature uh which they got out but it caused a d-peg and so I think some people are a little scared about the stable coins and the benefit with Bitcoin is it's fully decentralized it doesn't depend on banks other than as an

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on-ramp or off-ramp to exchanges or uh you know marketplaces to buy Bitcoin so I think Bitcoin generally tends to attract more interest uh when they're times of fear and it's kind of people are wary of risk in crypto and you know where do I put my crypto denominated assets um um but at the same time you know we're certainly seeing uh interest from uh you know large family offices institutional investors who because of the limited liquidity on exchanges in Bitcoin are now looking for other ways of acquiring Bitcoin so they're reaching

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out to minors they're reaching out to people who produce Bitcoin and hold large amounts of Bitcoin and that tells me there's a renewed institutional interest a couple of other anecdotal things I think that are important you know in a world where The Regulators are kind of going after a lot of the players in the marketplace coinbase Gemini Etc um you now see NASDAQ getting ready to offer custody of crypto products Fidelity offering custody of crypto products you know NASDAQ may even offer trading of Bitcoin and ether uh in the

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near future you know that type of high-level institutional infrastructure coming in place only tells me that institutional adoption is going to come you know NASDAQ wouldn't spend either the political or the financial Capital uh with Regulators to try and get custody and trading approved um same thing with Fidelity they have too much at risk on their traditional security businesses to want to risk that so I think the fact that both of those institutions are moving forward bny Mellon one of the largest custodians in

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the world for cash assets as well it indicates to me that the institutional demand is coming and uh when that adoption happens it doesn't need a lot to derive Bitcoin price you know if one percent of the money that's allocated to 401ks were to go to uh Bitcoin uh you know you're talking about bitcoin's price having to well beyond a hundred thousand dollars closing off in the market uh Outlook I know giving short-term projections is not uh in your core uh job uh description but uh going back to the

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hundred thousand dollar call that Standard Charter Bank May by the end of the year basically they're calling for new all-time highs by the end of the year before the happening cycle which will happen next year is that realistic um you know our own projections and my personal projections are significantly lower than that you know um I think if you were to talk to most analysts out there they'd say they expect Bitcoin to be somewhere in the you know 30 to 50 000 range at the time of The Happening uh in May of next year

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um and we tend to be in that camp you know somewhere between 30 and 50 is a reasonable number um you know from a Minor's perspective as minors are concerned um this is you know less of an impact to bitcoin holders but you know miners receive their rewards from the blockchain for mining a block uh on a daily basis and uh The Happening essentially results in a minor receiving half as many Bitcoin going forward for their hash rate and so if the price of Bitcoin isn't substantially above you know forty thousand dollars come to

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happening uh based on the current Global hash rate trends uh then I think a lot of minors are going to be found um come uh post May next year because uh their cost to produce a Bitcoin have essentially doubles when you have the the reward rate and uh Global hash rate continues to accelerate we're now at somewhere around 350X a hash uh and you know that number is going to likely go to 400 or north of 400 by the end of this year into the having so you know the cost to produce a Bitcoin gets more expensive as we get closer to the

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having and if you go back to the nuclear kind of winter we just went through uh the crypto winter we went through um you know there were a lot of minors when Bitcoin was at 15 000 that were just not profitable and so fast forward to the having plus the growth of the global hash rate now you end up in a place where you know if Bitcoin isn't north of 40 the same conditions will apply let's talk about money now so use forty thousand dollars is a break even price is that for everybody including your uh including your company Marathon

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digital no I mean that that's a projected kind of break-even price for the industry if you would come to having so we're talking about in May of next year so you've got two things playing against you one is instead of you know 6.25 Bitcoin per block being awarded it'll be you know 3.125 um so you're having your amount of rewards essentially so but your cost to mine hasn't gone down by half it's the same and then if you look at the difficulty rate it increases because of the global hash rate growing then uh if

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we go from you know 350ish today to somewhere around 400 or 450 by the having then you're talking about an additional 33 increase in your cost to minor Bitcoin because if you exert 33 more effort to mine as many Bitcoin as you did before take that plus the having and uh you know somebody whose break-even costs today is somewhere around 12 000 their base even cost now goes well north of 20 into the thirty thousand dollar range and so I think the industry on average um 40 000 will be a good number um but you know different miners have

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different break-even points obviously and that's driven by the efficiency of their operations are you able to comment on yours currently um you know we don't give a break-even number uh we don't publish it but you know suffice it to say that um our Bitcoin mining Energy Efficiency so if you look at our Fleet of miners being predominantly state-of-the-art s19 XPS from a hash rate perspective come mid this year our Energy Efficiency across our whole 23 acts of hash will likely be about 24 to 25 joules per

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terahash tell you that it's watts per Terra hash where the industry average will be in the 40s so our Energy Efficiency is going to be substantially better and so then the next question comes in is well what's our cost of energy compared to others and um you know that's where you may see some variation but I think going into the having we are extremely well positioned because of the Energy Efficiency of our net of our Network I'm curious just to I'm curious as to how Marathon digital Holdings has grown

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I mean it is the largest Bitcoin miner in the US and so um what you do I guess is is I want I don't want to say good proxy but it is a good indication of where the industry overall is headed uh Marathon digital increased production of Bitcoin by roughly 90 percent year on year between 2022 to 2023 uh in 2022 uh on the year the company produced 360 Bitcoin I'm just reading the financials over the course of last year or last year going up leading up into uh February 2023 it was 683. that's about an average of 24

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Bitcoins a day versus 13 last year so 90 increase what investments have you made to secure this kind of growth so at the end of 2021 we placed what was I think at the time one of the largest orders for uh you know s19 XPS with bitmain the primary vendor of mining Rigs and those machines started getting delivered in the back half of last year um and we started deploying them so if you think about the beginning of last year we had around 3x a half uh more or less of capacity running um that was running primarily in a

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facility we had in Montana that facility was shut down completely middle of the last year went to zero there was I think a month I think the month of July we produced single digit numbers of Bitcoin uh because of that shutdown and then we turned on our first Texas facility so we ended last year at about 7x a hash so we doubled over the course of last year from the beginning to the end of the year and this year we will more than triple that from seven to over 23x a half so how did we do it I think it was uh I would love to say it was all just

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smart planning and but obviously a lot of opportunity falls into that and we had the opportunity to raise capital in 2020 and 2021 when uh the markets were very open and amenable uh to bitcoin miners raising Capital um we did a convertible Bond offering at the end of 2021 raised 750 million dollars approximately um with the one percent coupon interest rate if you would uh attached to it um at about the peak of the market and uh so that Capital allowed us to then place these large orders when we place orders for Bitcoin mining rigs we

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typically place them with price protection involved which basically means if the price of Bitcoin and the price of the machines drops the vendor has to credit us back that and so when you place an order for I think it was almost at the time uh the cash value that order was around 800 million dollars um you know as you get towards receiving those machines the price of Bitcoin had dropped so much in 2022 that what we ended up paying was significantly less and what that means is that we had essentially paid for a lot of growth

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such that as we deployed that hash rate in the back half of last year and now all through this spring where we're growing pretty rapidly um you know all that hash rate growth has been paid for already so we're sitting in a great position both financially because we've gotten rid of all our short-term debt we just have this convertible as the only debt on our balance sheet and we have a lot of cash in Bitcoin obviously like you said as hash rates increase the difficulty to mine also increases how does a minor the

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scale and the size of uh your company for example beat the increasing hash rates and difficulties of money presumably your cost would have to go up for BTC mine so how do you keep your margins afloat well so what's interesting is um as the price of Bitcoin moves up uh Beyond kind of the mid-20s and into the 30s based on current kind of global hash rate um the profitability to mind starts increasing pretty dramatically because your energy cost is relatively fixed and it's just a question of the difficulty

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now that drives um how much your increase in cost is and year to date the difficulty rate is about has increased roughly 20-ish percent 23 percent I think most probably year to date uh so from Jan one to today and so you know all things being equal or you know miners costs across the board have gone up by 23 from the start of the year um if you're able to then uh operate your miners in a way that you can increase efficiency so you can under clock or overclock you can minimize curtailment you can do things like that

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you can potentially increase the productivity of your Miners and you get to an efficiency level where you're really producing as much Bitcoin as a particular site is capable of doing and so once you get to those levels um then it really comes down just to controlling your your energy costs but as bitcoin price goes north of you know 30 000 in today's world your energy costs plays less of a role because the margin in Bitcoin is pretty substantial at that point but if the price of Bitcoin drops you know below 20 again

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then I think a lot of miners would have apparently uh you know uh tough margins uh you know marching condition would you rather would you rather uh upgrade existing infrastructure and equipment to improve efficiency or would you rather just invest in a new Farm uh and expand the number of machines you have so it's a great question uh you know our Fleet is relatively young it consists exclusively of s19j Pros which are the media prior generation and s19 XPS uh which are the latest generation and from a hash rate mix uh you know come

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mid-year it'll be about 66 XPS and 33 s19j Pros um it doesn't really make sense for us to go back to those J pros and replace them for XPS today just because of the difference in the cost of the miners is about kind of double um it's much better for us just to keep adding new capacity and then as those J pros come to a point where they will eventually reach the point where they're not profitable to mine in the site where they are then we'll look at whatever the current state of the art is then and

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upgrade those machines at that point but there's still a lot we can do with overclocking and underclocking that can increase the profitable lifespan of those machines uh you worked in tech for a number of decades I just want to get your take on how AI is evolving and how that could influence or potentially impact a miner such as yourself is that going to increase efficiency at all or does it have no impact whatsoever oh it definitely has an impact so um the and I I I've worked in a specialized area of tech for many years called iot

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or Internet of Things where you know you are controlling things and a mining operation is a thing you're controlling it's a system right like a factory and so you can use AI for huge benefits there so for example just look at energy costs right if you are mining uh and you're buying energy Off the Grid and especially in Texas where that pricing varies on a continual basis you are constantly making trade-off decisions about whether you should curtail your miners because energy pricing is spiking but if that spike is for a very short

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period of time then the cycle time of shutting down your Miners and then bringing them back up maybe you'll be out of the mining you won't be mining for a an extended period of time compared to the time when energy was higher priced so if you can leverage tools that are AI based to learn how the markets act and respond to energy signals then what you can do is predict okay this energy Spike that we're current this cost by like we're seeing will be a 10 minute Spike an hour Spike or a four hour Spike that will drive a

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different decisioning relative to curtailment and this is something that you know the folks at aircot are very interested in because you know if they're trying to maintain balance in the grid and if miners are all of a sudden you know ramping up and ramping Down based on Predictive Analytics about energy pricing that in and of itself will impact energy pricing and as an example our facility uh in West Texas that can Mountainside sits behind the meter at a big Wind Farm well that wind farm produces at Max Capacity over 200

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megawatts of energy and if uh because of transmission grid congestion which means basically there isn't enough Plumbing to get all that energy to the consumers um if that site goes on or goes off the grid at any time uh it has a huge impact potentially on localized energy pricing meaning we could if we we're not mining and selling that energy it lowers the overall cost of energy in the grid because there's now so much energy available and if we take it off then the pricing could go up so um miners are going to use AI tools as a

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way to really Drive their energy and curtailment decisions uh we'll also use AI tools to determine if and when we sell Bitcoin based on predictive options and we'll also use it to fine-tune things like underclocking and overclocking so when do you underclock well when Energy prices are higher or price of Bitcoin is low you can run your miners at a lower energy level which makes them more energy efficient which allows you to produce Bitcoin at a lower cost it's just you'll produce fewer of them because you're essentially running

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in eco mode if you are overclocking it's the opposite you're running them at excess energy which means your efficiency drops but it's because all of a sudden maybe Global hash rate drops the profitability increases it makes sense to overclock your miners so AI will play a huge role in those decisions as well all right well uh that leads to our next part of the conversation which is legislation regulation and the environmental impacts on Bitcoin mining and you're in the perfect position to comment on all three being a leader in

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the space now as you're aware uh last November New York and stated a two-year moratorium on new fossil fuel based cryptocurrency mining operations the state is trying to work out its economic priorities as well as its environmental priorities one of the concerns behind this moratorium on mining is is a fact that environmentalists believe that Bitcoin is very environmentally where Bitcoin mining rather is very environmentally unsound this is the core thesis behind this band can you comment on this sure um so in New York state specifically

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um to set some context so in New York you have the populations primarily in the southern part of the state most of the energy generation uh especially the Renewables are in the northern end of the state and so Niagara you have a lot of hydro up there um you have natural gas uh based energy coming out of the west of the state and then wind energy off the coast on the east side you have lots of transmission lines for energy uh from north to south because that's a historical Corridor for energy but you don't have a lot of good

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transmission line capability East-West in New York and so what The Regulators in New York are trying to do is essentially if somebody turns back on and the moratorium is essentially not of fossil fuel mining but it's specifically behind the meter at a fossil fuel site that has been shut off that you're bringing back online so reinvigorating already decommissioned natural gas or coal based I don't think anybody would do a cold site today but you know they may bring back a natural gas peaker plant um

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if you were to bring that back online uh that's what the moratorium prohibits you could still add miners to the grid you can still go sit behind the meter at a renewable site and take Hydro or wind or solar it's simply they don't want fossil fuel being revitalized uh in the state and so they could have done that through all sorts of other means as well but it's definitely targeting a specific industry in a specific source of energy for that um so yeah I don't think it's impacting a lot of people it's really more people

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who wanted to go and try and turn back on New York state has a lot of gas plants that have been shut off that were peaker plants um that are sitting idle where you know in theory of Bitcoin miner it could go buy a gas-fired power plant and turn it back on how would you respond to the general criticism that Bitcoin mining crypto mining generally speaking is bad for the environment this is just you know an opinion out there not necessarily my own but for the White House for example published a report uh not too long ago and in the report they

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found that crypto mining globally accounts for about 140 million metric tons of CO2 produced per year which is roughly 0.3 percent of all Greenhouse emissions globally and there's also the argument that let's say you have a certain number of miners a thousand miners all competing for the reward 99 of them are wasted because a few very few of them actually get that reward so it's just a tremendous waste of energy how do you respond so uh the ATM network in the U.

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S um realize cash is disappearing people are using tap to pay and credit cards debit cards mostly the ATM networks in the US use over four times more energy than the Bitcoin Network uses globally Right video games game consoles Xboxes Etc use equivalent amount of energy to what Bitcoin uses holiday lights in the US at Christmas use more energy in the global Bitcoin network does the global Bitcoin Network uses a fraction of one percent of the energy produced in the world now let's talk about stranded energy

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right Bitcoin miners business depends on being able to buy very inexpensive energy right buying energy directly Off the Grid isn't an option for most miners they need to buy stranded energy what is stranded energy it's energy that can't be sold to the market why can't energy be sold to the market we've got to realize that the grid is not a battery the grid is plumbing and if you put more energy into the grid then is being taken off the grid by people their grid tends to blow up Transformers blow up and so

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what the grid operators are constantly doing is regulating the energy generator's capacity in real time so that they're maintaining balance between demand and supply now the type of energy generation that exists in the market today some energy types can be regulated up and down others can't so for example you have nuclear energy at the bottom which is the type of energy that runs 24 7 365.

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it's very difficult for a nuclear power plant to increase production or decrease it on a minute to minute basis they can do it over days you can't respond though to a peak demand Spike whole similar thing it takes days to ramp up and down a coal-fired plant then you have natural gas which is the first type of energy generation which does have the ability to be turned on and turned off and which is primarily used when Peak demand happens then only do you get to solar and wind energy why are they the last energy that's ever used

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well it's because they're intermittent the sun only shines from really 9 A.M to 3 P.M effectively for energy generation perspectives and wind really blows depending on where you are what time of year it is in the afternoons and evenings so when is energy used in the US and the world globally well there's a concept called the duck curve so think of it as the belly of a duck and its tail and and this bill where the tail is the morning people get up around 9 A.

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M there's a small peak in energy demand because people are cooking breakfast they're doing laundry they have the heat on in the house or air conditioning on then energy drops middle of the day very low demand for energy and then it increases in the afternoon and Peak demand is 4 P.M to 9 p.m so what does that mean when does solar energy be is produced primarily it's 9 A.M to 3 P.

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M when is the least amount of demand for energy in this country between 9 00 a.m and 3 P.M so a lot of solar energy can't be sold because there's no demand for it right the grid can't shut down nuclear they can't shut down coal they can tell the natural gas guys not to produce but at the end of the day the solar guys are shut down more frequently than not as are the wind guys why well they don't have energy storage for one thing so they can't store that energy and sell it when there is demand

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and the other issue is that because they only have a few hours in the day when they can sell energy they have to take their costs of operating their sites bake it into their cost and so that energy becomes quite expensive so Along Comes Bitcoin mining and Bitcoin miners can sit at a solar site and from nine to three if they're not able to sell any energy to the grid the Bitcoin miner can use all that energy that is not energy that is otherwise going to Consumers it's not energy that's causing any

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pollution or causing any carbon output and you have to realize Bitcoin miners don't produce carbon we consume energy right you know a factory produces carbon Bitcoin miners are computers it's a data centers so you know Bitcoin mining site doesn't necessarily use or generate more carbon than an Amazon data center would and so it all has to do with the energy consumption and where's that energy coming from well over 50 percent of the energy used by Bitcoin miners is renewable today tell me an industry that does that very

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few Industries have that high amount of renewable energy the advantage that Bitcoin miners bring to the grid is that they can shut off at an instant and come back on and so they act as a balancing factor for the grid that those two things it lowers the cost of energy to Consumers if Bitcoin miners weren't buying that solar and wind energy that's excess then those solar and wind companies have to raise their prices to Consumers to cover their operating costs but because they have a buyer of Last Resort which are the

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Bitcoin miners they can cover their operating costs and can sell that energy to Consumers at a lower price so I think this whole debate around energy is one where people have to educate themselves a understand energy markets and how they work Energy prices vary widely during the time of the day based on demand understand how energy is generated and the inefficiencies that exist in a lot of renewable energy generation because of the lack of battery storage and so you need to have somebody who's able to suck up all that

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excess energy and by the way in Texas 20 of the time energy is negatively priced that means that energy is being you're being paid to take the energy so you know people really need to educate themselves on the energy markets and the fact that you know just because a Bitcoin miner is using solar energy it doesn't mean that somebody is turning on a coal-fired plant to make up the difference in this country we produce 14 to 18 percent more energy than we use so there's a lot of wasted capacity before you have to turn on more fossil

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fuel additionally we waste over 25 percent of the energy that's generated in this country is lost just in transmission lines which is more than the global amount of Bitcoin mining energy consumption there is so yeah I think people really need to educate themselves and understand that Bitcoin mining provides a huge service to the grid and to Consumers really around energy uh and grid balancing and if it wasn't for Bitcoin miners essentially bringing revenues to the renewable guys there would be less incentive for the

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renewable guys to build more sites because if you build a solar field or you build a wind farm you still have to convince the transmission grid operator to build transmission lines and that's two million dollars a mile to run wire from the grid to wherever your generation site is they won't do that unless they have a guarantee that you'll be operating and up and paying for it and you can't get a solar site or a wind farm site financed unless you can guarantee you have Transmissions chicken and egg and Bitcoin miners

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provide that guaranteed customer well thank you for clarifying that for us Fred but what I'm just wondering would it make economic sense for a miner to vertically integrate energy production into mining such that you have your own production energy production plant whatever source that may be solar wind power coal if you want uh well yeah I wouldn't go to call I mean right no we're big Believers in renewable energy so sure an area we are very actively looking at is um methane and uh you know it's interesting to note

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that by the way the world economic Forum released a video recently essentially talking about the benefits of data centers operating that consume methane which is 80 times more damaging to the environment than carbon dioxide is and the company that they highlighted in that video was Caruso energy which is a Bitcoin miner that essentially is burning methane uh and converting into Bitcoin so we are big Believers in um using methane gas capturing it uh converting it to energy and then using that energy to run Bitcoin binds and

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there are thousands and thousands of landfills in this country where the methane gas is either just flared or can't be converted to electricity because there are no transmission lines to buy it and it can't be converted into liquefied natural gas because there's no Pipeline near them we believe as Bitcoin miners is a great opportunity to go in generate electricity at those sites by burning the methane capturing that methane converting it to carbon dioxide essentially which is decreasing the damage that methane does and then taking

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those renewable energy credits that are generated by doing that and subsidizing our costs to produce a Bitcoin which essentially may get our energy costs to near zero potentially um depending on pricing of wrecks and and that so we're big Believers in you know becoming very vertically integrated in that area what is the largest component of the cost of mining is it energy yeah energy costs are by far the biggest components our biggest single biggest input cost um to minor Bitcoin and um you know depreciation of miners uh you know

41:23

non-cash charges like that you know play a role as well but um if you look at uh your cash cost to produce a Bitcoin the vast majority of it is energy so what do you think regulations had in the U.S uh do you think there's ever going to come a point where uh they're going to crack down on mining as hard as let's say China did well I think they're different agendas um luckily we have multiple bodies of government in this country or multiple branches um so there's some checks and balances um yeah you could argue that in China

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the uh desire to prohibit Bitcoin had more to do with capital flight and currency control than it had to do with energy um because uh write it on the heels of banning Bitcoin they launched the euon um and you know they launched essentially a central bank digital currency which provides them with the ability to essentially control Financial transactions uh which is in line with kind of the philosophy that the current regime in China is following around social scores things like that um in the U.

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S um you have kind of two camps you have one Camp who believe that um you know Bitcoin should just convert to proof of stake like uh ethereum and uh you know not use energy at all the problem is that you can't have security uh in proof of state that you have in proof of work you know vitalik the Taran founder co-founders of ethereum uh code developers um you know has famously said you know well proof of stake is good enough security um problem is it's highly centralized ethereum is very centrally controlled

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um at multiple levels and uh staking has increased that uh so proof of work is highly decentralized which is safe in the U.S you do have some concern about uh Bitcoin and its ability to allow people to kind of operate outside the traditional Financial system and there are certain members of Congress who would love to be able to control how people manage their finances and have a cbdc a central bank digital currency so that the U.

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S could do things realize that in the U.S in 1933 um prior to 1933 Americans could hold gold uh and in 1933 through a executive order Americans were prohibited from owning gold why well it's because the government needed consumers to or you know citizens to invest in savings bonds essentially treasury bills you could think of it because the government needed the money and instead they had been putting it in gold and um you know then you go fast forward look at Bretton Woods when the dollar was pegged to the dollar to the gold and then they changed that Peg and so uh

44:11

having citizens holding a lot of capital in Bitcoin is something certain people in Washington view as a threat uh I think there's a contingency of people who um you know view the energy consumption of Bitcoin as bad but I think ninety percent of them would have a different opinion if they really understood how the energy markets work and they're really just reading a lot of rhetoric that's being put out by certain camps who are anti-bitcoin uh you know the founder of Ripple uh famously is you know funding Greenpeace to specifically

44:42

Target Bitcoin and proof of work is something bad and you know they famously the Greenpeace funded this artist who did the sculpture and the artist uh quickly retracted his support for the human initiative because he realized that Bitcoin actually wasn't as bad for the environment as Greenpeace had made it out to be so I think you have two different camps you have some of the Republicans who are uh being supportive of Bitcoin you have States like Arkansas who are passing laws to protect the rights of Bitcoin Miners And I think

45:11

we're going to continue to see kind of a battle amongst people who understand crypto and the benefits of crypto and people who don't and I think it would be a shame if the U.S lost the initiative that and the advantages that they have had that China gave them really when it prohibited Bitcoin mining to consolidate a lot of Bitcoin mining in the U.

45:34

S because it'll just move offshore if the U.S gets more antagonistic to it and um that will mean the U.S won't control it at all versus at least if a lot of Bitcoin mining is done in the US the US would have an impact on it so what is your long-term plan and vision for Marathon digital Holdings is it primarily going to be uh sticking with Bitcoin are you planning to move into the all coin space more heavily um are you planning to move into other assets I do understand that the history the company has evolved from minerals

46:02

physical minerals to digital assets so I'm curious what the next stage of this Evolution would be yeah so the first thing Marathon ever did was mine actually Vanadium that's a mineral um and then it did a lot of other things before it came to Bitcoin mining but uh you know our vision is really primarily focused around Bitcoin and then uh ancillary Technologies and we have built our own very vertically integrated Tech stack we operate our own mining pool we have our own firmware for our miners that we're deploying now

46:33

um our own controller board technology we work very closely with immersion vendors to customize the aversion immersion technology that's being used the first kind of manifestation of this at the site we're building in UAE which will be the largest data center in the Middle East 250 megawatts uh that's fully designed uh using our technology vertically integrated and um as we continue to develop those Technologies we'll eventually maybe start selling some of that technology to other people in the industry there are

47:02

other industries that can benefit from some of the immersion technology we're developing such as operators of cell phone towers and other data centers so you'll see some diversification along the technology axis of our business I don't think you'll see us do other alt coins necessarily we're too big at what we do and uh it's kind of like you know when Apple's going to go into a new market the Market's got to be big enough there are no real altcoins that are of size enough where us coming in and

47:31

Mining wouldn't actually just crash the market you know you have to think about that so um and ethereum there's no mining it's staking and I think the economic benefit to being a Staker when interest when you can get four and a half percent of your money in a bank account why are you going to put your ether at risk to get four and a half percent actually um staking fees when at any given time things can happen and there can be a fork and you know you could lose access to your ether so I think personally that

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the places where you'll see Marathon will be in these side chains that I talked about earlier you'll see us offering in infrastructure Solutions there you'll see us offering Technology Solutions for Mining and uh you know that'll cover us likely for uh the next number of years you I this question has nothing to do with Bitcoin or anything but you were previously CEO of games by I'm a big gaming fan myself I don't have time to play video games anymore but uh you know I still follow this space where

48:27

do you see the future of gaming is it is it in Hardware still like on computers is it in the metaverse is it with VR what's the dominant medium of gaming in the future in 10 20 years you think well I I think the movie and the book Ready Player one is a great preview of where this is all going uh you know it's totally immersive uh you already have a lot of haptic technology that lets you you know feel um you know you can be if you're using one of the if you're playing one of these games where you know there's a

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first person shooter or some fighting going on you know there are vests and gloves and things you can wear that you know you can feel when you get shot you can feel when you get hit um I think the real leap will happen um relative to games uh in two areas one is augmented reality so if you think about uh this version of Pokemon uh that became very popular a few years ago with cell phones that's augmented reality you know you're mixing the real world with a game I think with apples and new glasses that they're launching while this is a

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first generation product and by the time they get to gen two or three it will be in typical Apple fashion so easy to use and adopt that you know the um virtual world in the real world will blend very easily together and I think that'll create huge opportunities for entertainment and games um and then you have through full immersion which is you know when the brain machine interface gets to a point where you don't need to wear anything haptic but rather the game can directly stimulate your nervous system

50:04

um which sounds like weird freaky science fiction but it isn't I mean Elon Musk is doing uh an embedded brain uh product and by the way there are other technologies that don't require anything invasive that are getting quite close around the nerve stimulation um I think that's when you'll see this ultimate kind of uh you know gaming experience where you go into some sort of pod or something like that like going to the movie Avatar and you are in the game and it's immersive um and that's where also a commercial

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world and a world of social world will blend with games and that's where you get this kind of metaverse as people talk about it all right Fred well thank you very much for coming on the show today and thank you for spending the time to educate us about regulations and how mining works and the direction of the Bitcoin and crypto Industries thank you appreciate it I appreciate it thanks a lot David you take care thank you and thank you for watching don't forget to subscribe thank you [Applause] foreign

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