Fred Thiel | The Future of Bitcoin Mining | EP 135

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We're building a great business. We're building a business that over time will diversify. Our primary objectives are energize, optimize and diversify and I think what you're going to see is it's a business that is very focused on leveraging technology to do good. We just happened to choose Bitcoin as our vehicle to do that because it brings the bell on so many areas, right?

Bitcoin is about providing people who are disadvantaged with the ability to have self sovereignty over assets because they live in countries or they're in places where the government is inflating the hell out of the currency. If you care about your financial future, you need to check out a couple of our offerings, including Swann, Ira and Swann. Private Swan.

Private is our white Glove concierge service where you get a trusted partner on your Bitcoin journey. We offer all kinds of education and research projects as well as exclusive events to our Swann private customers. Check it out today at Swanscombe sized private also Swann, Ira Swann. Ira is the best way to gain exposure to real Bitcoin in a tax advantaged account like a traditional IRA, a Roth IRA, or rolling over for one K.

So if that interests you, check it out at Swanscombe, says Ira today. Hey, everybody. I am Sam Callahan. I am the host of Swan Signal Live. We've got a very special in-person interview today at the Texas North American Blockchain Summit in Fort Worth, Texas. We had CEO Marathon Digital Fred deal with us today. So thanks, Fred, for taking the time to talk.

Great to be here. Yeah. So I just wanted to talk to you because, you know, this is a really interesting event because there are presidential candidates, there's public officials here, and they're all interested in this Bitcoin thing. And so when you you just spoke with Robert F Kennedy Jr, what's your reaction that you have these public officials of potential, you know, residents talking about this technology?

How is that differ that different than maybe the last four years? Well, I think a couple of things. For one thing is if you think about who are the predominant users and supporters of Bitcoin and digital currencies, it tends to be millennials and Gen Zs. And typically presidential campaigns are focused on historically kind of the baby boomers. If you would, and then other sort of sub demographics depending on the particular topics that are du jour.

But the one thing that crosses a cross, that crosses all party lines is Bitcoin and crypto, especially with the younger generations. And so candidates who want to differentiate themselves have had to take positions on Bitcoin and crypto because they need to attract that younger vote. And I think one of the key challenges that the incumbent candidate on both sides, Trump and Biden, by not really addressing the topic of Bitcoin, they are really potentially alienate the younger generations.

Yeah, and I think that's a bad thing. So I like the fact that Vivek RFK Jr and other candidates have started really being articulate about bitcoin because being articulate about Bitcoin is not just Bitcoin, it's also energy policy. Right? And, you know, you saw kind of you maybe heard on stage today RFK Junior, very articulate about energy and grid and transmission and really understanding the place Bitcoin place.

And I think that's really critical because the executive branch is really what drives policy for the regulators and what they're going to enforce. And, you know, the current regime has not been particularly friendly towards crypto or Bitcoin. And I think that, you know, between RFK Jr, Vivek and other candidates, they're doing a much better job at taking a position that at least I can feel comfortable with when it comes to bitcoin and cryptocurrencies.

Yeah, And however, you know, the regulatory environment around Bitcoin mining changed in the last couple of years because I sense like a sentiment shift a little bit, at least from the educational efforts. It seems like people are starting to understand some of the benefits that this technology brings to the energy sector. Do you feel like there has been a shift in DC because, like you said, the Biden administration, they kind of snuck in that same tax in their budget proposal that that tax, I think 30% of the electricity cost for miners.

Now that's I don't think that's likely to happen, but it kind of shows how there's differing sides that are pro Bitcoin mining and against Bitcoin mining. But I see that's that's been shifting where where they're starting to understand the benefits do you see that too? Yeah. So definitely noticed a couple of sentiment changes You know post-death tax it was all crypto is deemed bad.

Yeah. Fast forward to today. Bitcoin is not crypto, Bitcoin is bitcoin. Then there is crypto, right? While crypto still needs to be regulated, Bitcoin is a commodity. It doesn't need to be regulated in the same way. So you're definitely seeing a shift from that perspective. Bitcoin has been bifurcated from digital assets writ large, right? You're seeing all this, you know, forward movement from the traditional trad fi guys moving into Bitcoin ETF products and custody products and all these other things that you're seeing.

So clearly Bitcoin is being adopted into the investment and asset management environment in the United States and broader speaking in Europe. What the U.S. still has to do on the regulatory front is fix this whole issues of securities versus not securities smart contracts, stablecoins, etc.. Yeah. So that they're more in line with what's going on in Europe and other parts of the world to simplify things.

But there's clearly been a sentiment change. Additionally, there's been a sentiment change on the whole energy story of Bitcoin because where previously the media was writing about it, my God, they're going to burn up the planet. I think there was one media report from a few years back where by 2022 Bitcoin would consume all the energy on the planet.

You know, we're still less than a fraction of 1%. So we've got a long way to go before we get there. But this is an industry that is driving energy security and energy policy. You know, look at what we're doing in Texas relative to grid stabilization. Our operations in UAE are stabilizing the grid in the United Arab Emirates.

And there have been cases where by us being able to shed load quickly shut down our systems, we've been able to keep blackouts from happening in some of their member states. There are some really interesting projects going on all over the world. Africa, Latin America and other places where Bitcoin miners are going to provide not just grid stability, but also financial stability for the grid operators because they have a need for baseload customers like Bitcoin miners, people that can take large amounts of energy that otherwise is stranded.

And then you look at what we're doing around capturing methane, converting that into energy that we can mine Bitcoin with, and then using the heat offtake from the Bitcoin mining to feed back into low grade industrial processes. Wow. And so what you're going to see are really two different types of businesses from Bitcoin miners. They're either going to be an industrial kind of utility support grid stabilization type of miner where they're on grid and they're helping stabilize the grid by shedding and they're buying up excess energy on the cheap.

Then you're going to have what we call energy harvesting miners, which is what we're doing around methane capture, around using the heat offtake for things like heating greenhouses, shrimp farming, other things like that. And so I think you're going to see these kind of micro miners who are heating buildings with their the heat offtake. They're using it for agriculture, They're drawing wood products, they're doing all sorts of things with it.

And then you see the utility scale sites. And over time, those utility scale sites will likely be joint ventures with power generators who have a need to balance the grid or utility operators. And then those micro-scale sites will be all sorts of businesses doing diverse things that Bitcoin mining will be some insignificant portion of what they do, but you'll have thousands and thousands of people doing that, which will provide for an even more decentralized Bitcoin network.

Yeah, and even more stability. It's exciting. I mean, you hear about it, I see all the time on social media, people using ASICs to heat their homes. I've seen a greenhouse where they're growing flowers and then selling the flowers at the access heat. But you guys did something interesting recently, which is using, you know, capturing that methane from a landfill, Right.

You guys, it is a pilot program that you guys can you talk a little bit about that? That's really interesting. Yeah. So we needed to validate the hypothesis we had. You know, there are lots of landfills in the U.S. and all over the world that are spewing out methane gas in some cases, those landfills are close enough to a transmission line or close enough to a natural gas line that they can refine that methane, convert it into a type of gas they can inject in the gas line, or they can turn it into energy and sell it to the grid.

But 50% of all the landfills in this country are not able to do that. And so what are they doing all they're either just venting the methane, which is the worst thing for the environment, or they're flaring it, which is an inefficient thing, because when you flare methane, you're not burning 100% of it. But it's like a car motor that's been badly tuned.

Yeah. All right. You're not going to burn. And so it emits a lot of still bad stuff. So we decided to do is we needed to test the economics. Can we cost effectively mine Bitcoin using methane gas from a landfill and can we get consistent uptime in production out of it such that it's economically viable to start scaling And most landfill sales can get you, you know, two, three, four megawatts of power, which is fine for Bitcoin mining, but it's not like building a whole new gigawatt site in the middle of Texas somewhere, right?

So there's going to be a lot of these sites and we've been focused on developing the technology that lets us run those sites. Remote, very little human interaction needed. But the pilot site in Utah has exceeded our expectations relative to efficiency, energy efficiency and the cost to produce Bitcoin. And so we're super bullish about rolling this out on a bigger scale.

And I mean, if you're pro-environment, how can you argue against that? And you know, exactly how can you argue with that? And it's I think it's interesting. Now you guys have these pilot programs, see if it works, build out the technology to do it, and then and then scale from there. It sounds like that's what you did with your mining facility out in Abu Dhabi, too, because there are some challenges with the environment there, right?

The climate, Yeah. And then you guys kind of figured out a way to do it. Can you maybe divulge a little bit just tell about I mean, listen, I've been in the tech industry for 40 years, and if you talk to people who are software engineers or product engineers, you have a hypothesis about something, Well, you don't go take and shoot a rocket to the moon.

You have to first figure out how do you leave Earth's atmosphere, how do you do it safely? So you look at what is the single biggest problem I need to solve for, and let me solve that. If I can do that now, everything else I have to do should be easier. And eventually you get to a point where you feel comfortable enough that, okay, I can do this.

And you know, it's a lot of money to do these projects. So we use lean methods. Now, you know, Lean is a tech system that was developed by Toyota back many years ago for automobile manufacturing, but it's used throughout the manufacturing world today and even in the software engineering world today around building prototypes, testing, piloting, as you build more confidence, you are willing to invest more.

And so we are doing lots of experiments, a lot of which we don't talk about, and many of those fail, and so we don't progress on them. But the ones that do succeed at the lab level go into a pilot and when they go into a pilot, if that succeeds, they go into production. And so with UAE, we had the challenge that our partners had worked with lots of different people to try and make mining work properly with sufficient uptime.

And the challenge to us was, can you operate a megawatt for an extended period of time with good uptime? And so we designed we looked at the kind of the climate criteria. We came up with a design together with our container partner company by the end of summer and we kind of optimized design they had for our specific needs.

And then we deployed one as a test and it ran for 100 days without a human being having to open the door to the container and do anything that's unheard of in the Bitcoin mining. Most air cooled mining sites have an army of people going around swapping out fans cleaning machine in the desert, right This is in actually the center of Abu Dhabi.

The center of the city. okay. I mean, it is you look at pictures of the site and there's skyscrapers all around it. Wow. Okay. And so, yeah, the average temperatures, 100 plus degrees, it's 95% humidity, which is challenging for those challenging. Right. And the Aztecs are fully immersed in dielectric fluid and the site runs beautifully. 19 99.9% uptime with very few hardware errors at all.

And these systems just run super stable. So we built confidence. Both our partner got confidence in us and our ability to execute and then we rolled it out and now we have, you know, 250 megawatts of capacity there. And it's a symbiotic relationship. It sounds like that helps stabilize their grid and then when you guys think about expanding internationally, you guys probably think about a lot of different things.

Is it are you thinking about maybe, know, diversifying across jurisdictions because there isn't regulatory clarity in the United States as much as other jurisdictions? Are you thinking about just where are there opportunities in terms of energy resources that might be beneficial for you guys to tap into? Is there things that what are the things you think about? So it seems like you guys build another one in airway.

Yes, It just seems like these things like how are the UAE and Paraguay connected and are you guys just finding these like opportunities and saying, hey, this is interesting to us? So yeah, we focus very much on having some beliefs, hypotheses, if you would. Yeah, about how we could optimize what we do, how could we do what we do better and what do we need to be able to do that.

And so which is why we've kind of divided our business into this concept of industrial scale mining, large sites, grid stability, and then this kind of energy harvesting where we're doing methane capture and using the heat for other stuff, two very different types of use cases. But when you look in the developing world, you have old power infrastructure and new power infrastructure, and the two of them often are disconnected or are inefficient.

So in the case of Kenya, for example, you have traditional hydroelectric dams that operate for decades and then now they've added solar energy. And when you add solar energy, you get excess energy at times of the day. And so they're not able to sell the hydroelectric energy. So now they're not generating revenues that helps support the maintenance of the hydroelectric dam.

So they need a baseload customer who can co-locate at the dam and suck up the excess energy because the transmission lines are using are being used for all the solar. So that's a grid stability issue. All right. Paraguay, they have the type of dam which was built between Paraguay and Brazil generates upwards of 14 gigawatts of power yet, and Brazil gets half of it.

Paraguay gets out of it. Paraguay's total national consumption of energy is about three gigawatts. Wow. And from that dam, they use less than a gigawatt, most probably, which means there's a lot of energy that they haven't been able to sell at a profit, which means that the electrical utility has to basically support these tools but can't operate profitably.

And so by them inviting Bitcoin miners to come in and start mining Bitcoin, they're able to sell this excess energy at a price that allows them to, over time, reach not just break even, but generate some profits, which allows them to feed that money back into maintaining the dam, maintaining the infrastructure, and then lowering the cost of electricity for people in Paraguay.

Yeah. So basically improves the economics, right, for that for these firms, Right. Yeah, that's the way it is across all solar sites. You know, one of the challenges you have here in Texas, for example, West Texas, all these incentives to build wind and solar farms, everybody goes and does it. Guess what? Most of those don't operate profitably. Why?

They don't have transmission capacity sufficient to sell their energy all day long. And so they have to sell energy at a loss. So Bitcoin miners come in and they take that excess energy and it helps also balance the grid. So you provide profitability opportunities for projects to develop renewable energy while at the same time providing grid stability. Well, it sounds like a win win, which is a rare thing in the business world, honestly.

And so I just it makes a lot of sense and it makes me encouraged because that boots on the ground, you can just see the benefits that this technology brings to the energy sector as well as the sovereign nations for welcoming this up into their infrastructure. I want to pivot a little bit and talk about the having I mean, do you think that having frozen.

Yeah, I get this question all the time. Listen, I'm a little bit of a divergent thinker about this in the sense that I don't believe Bitcoin price moves in relation to having cycles. Yes. So you thought it was more coincidental that. Well, it's more you know, there's correlation. Yes. But is it causation? Right. So if you're a data scientist or a software engineer, you understand what I'm saying?

There may be something that happens at the same time always. But that doesn't mean that one thing causes the other. If you overlay liquidity cycles on the Bitcoin cycles, you'll see there's a perfect match and there's a logic behind believing that liquidity cycles drive bitcoin prices because when people need money, they have to take money out of their savings account.

When you if you're going to put a deposit on a house and you've been saving for it, you may be have cash savings, you may have stocks, you may have bonds, you may have other places, and when you need to put that deposit on a house, you're going to take money from different parts of your portfolio. Well, the same thing when a consumer or when institutional investors need liquidity, they're going to sell off portions of their portfolio.

Well, if Bitcoin is an asset that they've invested in and they need to raise 30% liquidity, they're going to sell assets out of their portfolio to raise that money in Bitcoin may very well be that conversely, when they have an extra billion dollars to invest in something, they're going to invest it in stocks, bonds, etc. and maybe some bitcoin.

And so liquidity drives access, road price appreciation and also price declines in Bitcoin. We had all these subsidies. People during COVID had a lot of time on their hands. They were playing Robinhood and they were buying Bitcoin. I think what we're going to see now coming into the having is the ETF is going to play a role, buy the rumor, sell the news.

It'll be a little underwhelming. I think on the other side of the ETF why grayscale is the biggest one of these to convert if it converts people have been buying grayscale shares at a discount since the beginning of the year. It was 40% discount, 40%. Now it's a 10% discount when it converts. Do you think some of those people are going to want to sell to capture their money or take their money out?

Most probably that will create supply in the market, which will lower the price. BlackRock, they have been buying Bitcoin in their funds for some time, so when they need to seed their ETF, they've already got bitcoin. They can do that with other large custodians who are holding Bitcoin for financial institutions. They lend bitcoin to funds who need them to cover market shortfalls.

And so don't expect all of a sudden billions of dollars to drive the price of Bitcoin up when they're going into these funds. But once that initial demand is fulfilled, whatever impact it does or does not have on the price of Bitcoin, then that demand shock is gone. Right? Right. And when the economy goes down and people need money to pay their mortgage bills, what are they going to sell?

They're going to sell across their portfolio, right? So into one. Yeah. Yeah. So I don't think the ETF is a panacea. Got it. And I think like with these things, the rumor drives more demand. Of course, there's a lot of excitement around then the news. It's like an Apple announcement, right? You know, buy the rumor, sell the news.

So I think we're in for a period of choppiness in the price of Bitcoin. I would be surprised if Bitcoin is near 50,000 at the having I mean, I think we're going to be somewhere between where we are today and 45 maybe. Got it. And by the end of next year, hopefully we drift upwards as more institutional products, more institutional adoption happens.

But you've also got to realize we're heading into a recession. No matter what people say about a soft landing, it's going to be a hard landing. You can just look at the numbers. The Fed is got to stop quantitative tightening because they can't sell bonds. This latest bond auction they had, it was a disaster. And so they have to stop quantitative tightening, which is effectively the Fed selling bonds off their balance sheet back into the market, which means they can't now bleed that off, which means there'll be more liquidity in the market and they may have to do cost curve control, which is they may start having to buy bonds like they did during COVID,

another financial crisis which injects liquidity into the marketplace because the Fed's not going to lower interest rates because they're deathly afraid of inflation kicking back on. So you think that we should be watching the Fed's balance sheet right now? Yes, absolutely. QE BOE before they do anything with. Absolutely. Because they can do that behind the scenes. Right. Even we saw like the banks are a funny program when the banks start to fail it was almost a pseudo yield curve control in a way.

Yeah. Long end right. So we already kind of saw what they might do. And the Fed's already soaked up all the money in the repo market. So there's no money left in the repo market, right. Very quickly right now. So those are all fantastic points. I want to maybe end this interview. It's just more broad question. And, you know, you you've led other companies before you turned your focus onto Bitcoin.

You brought up young people of how boring Bitcoin is to them. Why did you decide, you know, a guy that has a lot of opportunities, probably you could have done a lot of different things. You decide to focus on Bitcoin. Why is it important to you? Yeah, over the years I've worked in a lot of disruptive industries related.

I've been in tech for 40 years, so I started writing software in banks when mainframes were the only thing you could write software on the PC came. I realized the impact it was going to have on many computers jumped on that train. I was involved in the data comms world at the beginning of the internet and saw what was happening there and designed Ethernet technology for Ethernet networks was early on in digital media and I have had the luck to at times have the right belief about what was going to happen and assembled teams of people who could do some amazing things.

And what I really just love doing is creating teams that achieve amazing things. You know, July of last year, Marathon had zero hash rate, right? Today, we're one of the largest in the world, right? I was employee number five two and a half years ago. Right? Today, we're just over 50 people and we're a company who last quarter reported $98 million of revenue and profits.

So congrats. You know, we're building a great business. We're building a business that over time will diversify. Our primary objectives are energize, optimize and diversify. And I think what you're going to see is it's a business that is very focused on leveraging technology to do good. We just happened to choose Bitcoin as our vehicle to do that because it rings the bell on so many areas.

All right. Bitcoin is about providing people who are disadvantaged with the ability to have self sovereignty over assets because they live in countries or they're in places where the government is inflating the hell out of the currency. The government is taking money away from them. Potentially even women's husbands are taking money away. When the women work. And so this is a way for people to have self sovereignty in the developed world.

It's the ideal asset for store of value, right? When you think about it, you can choose to put money in artwork. Most expensive art, by the way, is not on people's walls. It sits in vaults. Yeah, right. You can buy gold, sits in vaults too. You can buy Bitcoin. And you know what? It doesn't sit anywhere. It's everywhere you are.

And you have access to it whenever you need it. And when you look at the return risk adjusted even of Bitcoin over the past three, four, five, six, seven years, etc., back to the beginning. No other asset really beats it. Nothing. And so you've got a great asset. You've got an ability for young people today to put their money into savings that the government can't inflate and that the government can't confiscate, ideally, depending on how they hold their bitcoin and are going back to the conversation with RFK Jr earlier today.

You know, the young generation can't afford to buy a home. Yeah. So what are they doing? They're putting their money into digital assets. Yeah, because the average home would appreciate 2 to 3% a year over the lifetime that you lived in that home. But Bitcoin appreciates a lot more than two or 3% a year. Yeah, and so I'm very bullish on the future for Bitcoin long term.

I'm very bullish on the younger generations desire for change and really revolution around how they look at financial independence and financial assets. I think we're going to see a world of many more entrepreneurs in the younger generation than people who traditionally focused on these big, you know, long term careers and big businesses. And I think Bitcoin is going to play a huge role in creating some of these new industries, both around energy management, food security and financial security.

Yeah, the young people, I mean, you look around and I think you're exactly right. I think Bitcoin is a hope to them in a lot of ways. And you brought up art, right? But not a lot of these young people can afford to buy a Picasso, right? Bitcoin's accessible to them. Anybody with a smartphone can buy, you know, $100 with Bitcoin and save in a pristine asset.

So thank you, Fred, for being a leader in this industry. This was a fantastic interview. MERRITT That's actually our partner in the show, so thanks for that. And I just really appreciate what you guys are building over at Marathon. And best of luck with everything in the coming quarters. Thank you so very much. Really appreciate the opportunity. All right.

Thanks, Fred. Thanks. If you care about your financial future, you need to check out a couple of our offerings, including Swann, Ira and Swann. Private Swann, Private is our White glove concierge service where you get a trusted partner on your Bitcoin journey. We offer all kinds of education and research projects, as well as exclusive events to our Swann private customers.

Check it out today at swanscombe Slash private, also Swann. Ira Swann. Ira is the best way to gain exposure to real Bitcoin in a tax advantaged account. A traditional IRA Roth IRA or rolling over for one cake. So if that interests you. Check it out at Swanscombe, says Ira today and don't do.