Bitcoin 2021: Mining As A Public Company | Frank Holmes, Jason Les, Fred Thiel & Kevin O'Leary

Transcripts are autogenerated. May contain typos.

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[Music] gentlemen take your seats let me set this up because this is going to be quite a panel just for full transparency disclosure this is being broadcast around the world by linkedin because there's so much institutional interest in the answers these gentlemen are going to give today and so they're going to be heard and why it's important is here's a here's an opportunity problem and an opportunity i like to frame things ying and yang here's the problem esg and sustainability has entered into this

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market um very quickly very rapidly on an uncontrolled basis there's a dialogue going on that creating bitcoin is bad for the environment and it's taken on many different forms it's found everywhere around the world there's governments making policy decisions uninformed policy decisions about the sustainability metrics around mining coin and it is in fact hurt the capital markets for the ability for miners these gentlemen and others that wish to raise capital to do so that's the problem here's the

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opportunity bitcoin itself whether you believe it's an asset whether you believe it's a property whatever you believe it is is of great interest to institutional managers that would be pension plans sovereign funds and yet they own none now why is that let me walk you through the decision making process i work in that world i service institutional clients sovereign pension plans you name it what's happened over the last 36 months is that they are all beholden now to what are called esg committees sustainability committees

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whether there's ethics committees on top of that but also committees that concern themselves with the origin of assets and they actually have a filter they make decisions around esg and they say you can or can't own that asset it's not sustainably created not just bitcoin this goes for many other asset classes too which is why there's a lot of debate going on now here's the opportunity if those institutions were just to take a three percent waiting which is very typical in an asset or a stock

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or a bond or land or property it would represent a trillion dollars worth of purchasing of bitcoin itself the increase in value would be geometric from where it is today so everybody in this room everybody is incentivized to solve this problem for those institutions so that we can unmask this log jam for what it is a tremendous amount of interest of capital that wants to come into this asset class that can't do it right now because it's got the wrong messaging around it because the truth is as we'll discuss in a moment that

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bitcoin is actually good for the environment because it's forcing these miners to find the most efficient way to create the power to do the mining there's no other industry that does that but as as a sector as an industry as a voice we have failed we have not delivered that message successfully and it's going to start here today all right so let's start let's start with frank holmes who i thought he was going to spray pay himself green today let's talk about this problem frank let's get it right out here i want to

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deal with the giant elephant in the room sustainability how are you dealing with it in communicating with your own shareholders well you as you know we're both fund managers and i'm the chief investment officer and i was trying to launch a bitcoin etf four years ago and quickly recognize at that stage it wasn't going to happen and so this knowledge i applied and launched the with a couple other investors the first public company to do crypto mining and because of a fund manager we had an esg strategy at the beginning

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and we were only in green energy at the beginning and we've done through the whole piece but all the miners have gone down with this sort of thesis of unin we have to educate those sovereign funds those other institutions and i see a big change happening in within the industry of reporting and transparency but high blockchain itself you know we mine both bitcoin and ethereum uh we are mining in sweden and iceland in quebec and in new brunswick uh and we're only green energy so what is your definition of jason

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actually what is your definition of green energy specifically when asked by an investor what does that mean to you what's green uh to me green energy is uh renewable sources so specifically what would they be i would i would include hydroelectric i would include solar i would include wind and i know it's not popular but i would include nuclear nuclear is a good renewable source of energy fred same question to you what do you when an investor asked you what are you calling green i i'm aligned with jason it's wind it's solar

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uh hydro geothermal nuclear also okay let's make it more complicated an institution that doesn't own bitcoin now comes to and says look we're going to make an allocation we're going to tiptoe in one and a half percent waiting on a two billion dollar fund it's a serious amount of money but we have to know the provenance of the coin because our compliance committee won't let us offset it with a carbon credit we have to know that it was mined sustainably and in some cases ethically how do you answer that um so when it

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comes to mine sustainably um you have the opportunity to use a blend of power most ppa agreements are really a recipe of power you're going to get so much wind you're going to get so much solar you're going to get so much offset um and you also have the ability to use rex which are renewable energy credits so i think you know as institutions look at it they want to make sure that we're not greenwashing our mining operations but rather that we're actually using a certain amount of truly renewable and

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then certain amount of wrecks to offset what would be clean natural gas for example okay so jason do you see a time and this has been a very controversial topic that's been spoken of recently that somehow we would tag green coin versus non-green coin that there would be two asset classes within bitcoin do not shoot the messenger i i i think an important property that makes bitcoin valuable is that it's fungible and one bitcoin is always when bitcoin no matter where it comes from so back to you frank when an institution says look i'm going

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to do a waiting i want to buy a billion dollars with a coin and it has to be check the box with my sustainability committee even though we know that this is an unusual dialogue to be having but it's got to be dealt with how do you solve it i'm sorry kevin i cannot your question is it's this i need a sustainable coin yeah a sustainable asset i have to get compliance to agree to buy it how you how do you deliver that to me as a miner an asset a coin a specific piece of property well what we what we do as we as as hive does is that

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we mine these virgin coins they're untainted they've not been anywhere that's bad they're and we hold them and we just continue and we mine ethereum classic sell that they'll pay the electrical bills and keep huddling uh and so we think and we think that our coins are more valuable because they've been untainted and they've only come from green energy and they should have a two-tier price system and our coins should be more valuable that's what i personally think whoa so you are basically going against

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the fungibility argument that jason just made that all coins are basically the same and value the same as they transact around the world 24 hours a day but you're saying you're frank coyne not frank coin it's a bitcoin but it's a frank bitcoin no but it's what i'm trying to share with you [Applause] is that our bitcoins are green energy and they have not been anywhere someone could tag them being in a dark pool etc i know that this is a big issue whether software out there to make sure those coins have been are

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clean so i believe that these coins are very special i i have been in bitcoin for a while and yes you have i i have heard people always talk about you know these these mine coins are going to be worth more and uh you show up and i i don't see that in the marketplace i talk to these otc desks no one has seen that and i think i think the people you're speaking of they say that they think that but when they come up to the desk and they say i want to buy one bitcoin are they really going to pay 20 more well we we have an obligation

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here because the way i set this up is i simply ask the institutions give me your questions i am simply a messenger right and so i am asking them are you interested in allocating to bitcoin specifically these are very large pools of capital and generally they haven't made that decision yet for one specific issue they don't want to get caught up in this turmoil this debate this issue that we're we're talking about now and we should because we need to send a message to them we need to solve it for them but

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there's a way to do it which has nothing to do with the mining let's hear your idea you're speaking to them directly right now which is essentially you know a financial institution could create a fund where they only buy bitcoin that has been sustainably mined and then institutions can invest in that fund that's a way to do it without the miners having to even think about the difference but aren't you bifurcating when you say that you're saying this coin is mined sustainably versus the historic coins that we don't know what

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the carbon footprint was from 17 years ago so the problem is there are only 900 bitcoin mine today and so to build a volume of coins sufficient for the trillion dollars that you're advocating the institutions would want to have there's no way you can get it by newly mined coins they're if they're going to go into the asset class they have to go into the broader asset class if they're going to get any volume that's one answer the other answer is the value of a coin that was mined sustainably becomes

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very very high because they're allowed to own it and they're willing as frank is saying my coin's different than your coin because it's done on a green basis they'll pay more for that you buy that no i i think you know we at various times have believed that financial institutions would pay different prices for different type of coins and what i've learned um is that they won't actually because to jason's point yes if you ask them the question is it more valuable to you yes will you pay

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more for it most probably not that's the answer i'm getting from financial institutions but you just want them to buy it in the first place that trillion dollars is outside of this room waiting to come in that's the way i look at it yeah i own the coin because i think we will solve this problem one day and i say that collectively when that happens there'll be a geometric increase in the value of my coins whether they were mined sustainably or not but but i think if if a person wants exposure to the asset class and this is

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the unique thing about bitcoin it's so limited in supply that if you wanted an exposure to the asset class you're going to have to buy the broader market there's no way you can invest in public company stocks like us miners you can invest in other ways to get exposure but if you really want to hold bitcoin either by a fund or directly the only way to get a 100 200 million dollar allocation is to go buy it in the broader market let's go down that path let's talk about owning the stocks of your public

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companies as opposed to owning the coin you mine is there a thesis out there that you will eventually trade at the same with the same volatility that the coin has well i think historically at least riot and marathon you look at our stocks almost regardless of what we announce bitcoin moves we move kind of in lockstep um there doesn't seem to be a lot of differentiation in our stock prices relative to the news we announced it's really very much driven by what bitcoin does we all have the same dna of volatility

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on a daily basis it's plus or minus six percent uh it is the funniest strangest thing is the same as tesla it's just the same dna of something that's perceived as being disruptive but i want to come back to something that's really important when i first went to try to launch an etf the pushback from the regulators the sec was aml anti-money laundering laws and they were very concerned of some hacker getting paid bitcoin and was going to show up in the new york stock exchange and they've still not figured a way out

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to resolve that so that is where i have this thesis that with us holding every coin we can and owning on our balance sheet and it's never been in the dark cloud it's never been out in that cyber world it it will over time have a greater value and i think most of the miners are huddling as much as possible and those coins are great coins so let's talk about the regulator because what's happened over the last 36 months and not just domestic switzerland france germany new zealand canada most of the european

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countries now have come to the conclusion that cryptocurrencies are here to stay and eventually all currencies will somehow be fungible in a digital form you think about just the idea of a two trillion dollar stimulus package here domestically can you imagine the esd issues around printing two trillion dollars with paper that's never going to happen so that's going to be some form of credit form which is itself digital now regulators in canada were the first to allow bitcoin in the etf wrapper and the assumption is and i'd like to get

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your estimates this is a very interesting asset class for individual investors obviously we do not have that here domestically when do you think that happens we've been waiting for an etf for four years when etf there's every there's always a sweat around that etf um i think it's a positive for the industry when regulators finally wrap their head around it but i i think there's almost an upside to the delay as well because if people want to get exposure to bitcoin they don't have an etf to do it

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well then they have to learn about bitcoin and they can learn about customers for themselves so it's almost this delay almost works in our favor it gets more people understanding bitcoin okay so to do that you have two options you either go through the learning process of a decentralized ownership or you go to a centralized ownership like a wallet that you can basically download off your phone and buy there's two different friction levels of cost there the centralized systems are very expensive versus other financial assets

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not very expensive really expensive when you look at the basis points charged for these services versus if you learned how to go decentral nine out of ten people can't do it it's too complicated the industry itself has not solved the friction problem either you pay a lot or you don't do it at all or you get someone to teach you how to go to central and start working with the metamask and everything else that you nobody knows how to use that's a problem for your industry is it not well i think there are a couple

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things going on one you may have read about the announcement that fis is rolling out custody buying and selling a bitcoin to over 300 million u.s bank accounts through a platform provided by united that's 300 million people who will using their bank app on their phone be able to buy sell and hold bitcoin you can do it with paypal and venmo today square et cetera there are ways to do it with fairly low friction but to your point there are fees associated to it that make it expensive one of the most rapidly growing sectors

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in the industry is bitcoin atms and those are predominantly used by people who are sending money back home to their families because if you look at the money grams of the world and the fees that just payment organizations charge for sending money to the philippines or whatever home it happens to be um it's very high it can be up to 20 in some parts of africa for example so being able to buy bitcoin in an atm excuse me and send it back home has been a rapidly growing market i mean there are tons of bitcoin atms being deployed across the

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us today the u.s banks want a piece of that business too so i think you know the cost of ownership for bitcoin is going to commoditize here over the next few years it's going to become very easy to hold very easy to trade there'll be tons of etf type instruments whether you want to hold public companies that are in the bitcoin world whether you want to hold bitcoin itself balances of crypto with other baskets of crypto with other currencies i think we're going to see a plethora of products that people can buy and sell to

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get exposure to bitcoin including just holding it in your bank wallet on your phone what about the thesis going back to what you do there's someone that's not here today hud 8 the woman that runs that told the institutions that were looking at her stock i will never take a single coin off my balance sheet every single one that i mined is staying on my balance sheet if you want to own bitcoin just buy my stock it's all mine sustainably i'll never sell it you'll be a shareholder of a portfolio and i will know the provenance of every

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single coin how do you feel about that idea for solving for the problem we've been discussing the trillion dollar prize so i think just the the ability to own the printing press versus buying the books which is the analogy most people use for bitcoin you're either printing press for printing money or owning bitcoin itself it all depends on what sort of exposure you want to volatility um but i think for people who want to hold bitcoin most of the miners today are holding it because they believe it's the bitcoin they're producing is going

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to be more valuable in the future many miners can do yield farming to generate income off that bitcoin so they're not having to sell it to pay for operating costs but as bitcoin price grows yeah they'll monstroid be pressure and miners will sell some volume of it because they're going to be driven to grow themselves and i think it's a capital intensive business you know miners will hold bitcoin as long as their balance sheets let them do it there comes a point though where they have to start spending it to fund their

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growth operations they don't have to they can basically lend it out on a d5 basis and get fiat back to pay their bills right right but you're if you think about the bitcoin market what many people outside of the bitcoin community don't realize is 900 bitcoin a day it's a fixed volume until the next halving the global difficulty rate the hash rate continues to increase if it increases 40 50 percent a year effectively any my any public miners market share of that 900 bitcoin reward will decrease unless they are spending to grow their

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infrastructure by 40 or 50 a year the yield they get off the bitcoin they hold on their balance sheet most probably isn't enough to fund that and they're either going to have to sell more stock raise that or jason this goes the real issue right now the public markets have essentially dried up for a lot of miners that want to raise capital that are not public yet there are about seven deals that i'm aware of that i was interested in taking a position in that have just ground to a halt and when you ask the

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bankers who have a great interest in getting these things done because they get paid five to seven percent fees they would like to clear these deals but they can't get right back the same problem the institutions won't buy it because they're waiting for the answer the answer to this sustainability issue they don't want to be tagged supporting the idea that they're going to use every piece of electricity or drop of power that man is going to need for the next two years just to start some north

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you know new york facility which it's one of the deals that actually collapsed was supposed to happen with hydropower didn't happen new york put this potential moratorium in its state for 36 months the capital dried up right away what do you say well you know i i think uh at riot at least and i'm sure other bitcoin money companies as well we are still seeing a lot of interest in investing in these companies our stocks all have an incredible amount of volume you know we we trade over a billion dollars in

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value uh in a day quite often there's a lot of people still interested in the stock so that gives uh companies like riot marathon hive a very efficient access to capital to grow our business and allow us to retain as much bitcoin on our balance sheet as possible um you you mentioned the new york bill you know i'm not really sure if that's going anywhere because i think the underlying story uh for for bitcoin mining and its relationship with renewable energy is important bitcoin miners come in they are the buyers of energy

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of last resort and where you find that is congested energy surplus energy energy that cannot get to people bitcoin miners are indifferent to their location they're indifferent even to the time of day that they are uh will consume power and that's if there's certain policy makers lawmakers in new york that haven't seen that yet i'll tell you the lawmakers in texas do see that that's why we're so happy to be running our business in texas going forward um i want to give you a question that i

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thought was the best okay one institution said this the industry has no voice it has no one to tell its story to policymakers they pride themselves in decentralized thesis and theory and the origin of bitcoin and yet they have no voice when it comes to a new york policy maker saying i'm shutting it down because it's bad how does this it's your industry where's your voice what happened here i think i think we're starting to see now the formation of different players in the industry starting to talk to each other and say

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what can we do to help the community what can we do to promote the good that bitcoin can bring the good the decentralization can bring and try and create transparency in data and information to the regulators and to the general public i think the north american mining council it's kind of the working name if you would that is in the process of formation is a first step in bringing the industry together to kind of talk about things share information make commitments about what we intend to do and then educate um legislatures educate

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lobbyists uh about really how the market works phone call with minors yeah yes that he was on a call with the group of minors but the group of minors you know all of us here on the stage included are moving forward to become more transparent about the information we provide really to educate uh regulators in the marketplace the common man if you would let's ask this audience does this industry need a voice yes or no i think the biggest thing with this as when i first went in the business is transparency and that was a big issue

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of of getting transparency of your costs because being a public company you want to be able to get more and more information when you're mining everything's transparent blockchain is transparency so i think that this industry as a group was only to be able to pull together to give more transparency on sources of energy uh uh in particular where the sources are what we're paying for that and that's really the element to take on this sort of anti-crypto and what's interesting for me to hear is

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yesterday that it a lot of is coming from ripple uh ripple centralized and we're decentralized uh and so a lot of this narrative that's so negative i think that we're we're in a great position and i want to share what we're doing in bowdoin in northern sweden we give back to the community we have software that can go from 20 megawatts to one in 15 seconds a hydro company can't do that at peak periods and then we go right back up in mine uh and so what does that do it helps the the infrastructure the community

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we're highly respected and regarded and we go on mining and then they turn around and call us up and they want us to participate on an expansion of 10 megawatts uh very attractive terms because we get that's part of the innovation of sustainability so i think let me finish i think what's going to happen with this group is that we're all bought into let's tell a better story on esg okay we're at zero time now so last word you jason voice no voice for this industry and are you a voice what i think is

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important is it's you know the story that that bitcoin miners riot all of us on stage are using more and more renewable energy is a good one but i think it the story that needs to get out there is that this is not something that's just being done out of the goodness of our hearts there are market forces in energy markets like ercot that are connecting loads like bitcoin miners and renewable sources and they are making those more viable we said we're set up in urcot marathon set up in aircon now i think it's a

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great choice and it's not just it's not just oh we are using this this much energy bitcoin miners are enabling helping more renewable energy to come in because they have a load like bitcoin mining and i think all of us telling that story however that comes together vehicle medium it's a good one oh no you're a capitalist ladies and gentlemen we've run out of time here let's have a hand for these gentlemen who came into the digital shark tank here today thanks guys [Music] you

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