Marathon Digital CEO on Future of Bitcoin Mining in Wake of FTX Collapse

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00:00 (Show Host) Bitcoin could remain under pressure because several miners are likely to go bust, overshadowing improving macroeconomic conditions, according to investment firm Bannock. Joining us now to discuss is Marathon Digital CEO, Fred Thiel. Welcome, Fred, to this show. Van Eck is suggesting that a wave of miners are going to go bust. What are your thoughts on that?

0:23 (Fred Thiel) I think we've seen in the news that there are a number of miners under pressure. Core had announced that they were suspending payments to certain financing partners. Argo similarly had announced challenges. There was a bit of fake news out last week that Argo was going to file for Chapter 11. It looks like they are getting financing to dodge that bullet. B. Riley yesterday sent out an open letter to Core and Scientific and their shareholders regarding wanting to be the backstop, provided they could meet certain conditions to avoid going into bankruptcy. I think bankruptcy is a very difficult and challenging situation for a miner. We've had the Compute North bankruptcy this year already, and there are potentially others who are in a market right now where the price of Bitcoin is high, the cost of energy is low, and very tight capital markets or even capital markets shut off for certain miners make it very difficult to operate profitably, especially those miners that have large equipment financing commitments.

The challenges, you know, I think in Argo's case, is that they have to pay upwards of four million dollars a month in equipment financing payments, and they may be able to generate about that much Bitcoin. So, you know, how do they pay their energy bills, etc., while they're doing that? So, I think it's a challenging environment. Some miners are definitely struggling. Clean Spark had an announcement this week as well that they're not going to hit their hash rate targets, but that's mostly because their hosting partner Lancium, I guess, is unable to fund the buildout of the sites where they're going to connect. It's definitely a challenging environment.

02:13 (Show Host) You mentioned Core Scientific, and they've warned that they could go bust by the end of the year, but now investment bank B. Riley wants to lend them $72 million to avoid bankruptcy, saying that most of the struggling miners' issues are "self-imposed" and can be corrected. Do you see this as an exception? Is it wise or risky?

02:39  (Fred Thiel) I'm not going to go into the details of Core's challenges. Part of it is they sell hosting at a fixed price, but they don't have a fixed price on their energy. When the energy markets get out of whack, they lose money with every Terra hash that they're running. They also have challenges because of the Celsius Mining bankruptcy, where because of the rules around bankruptcy and stays, they have to continue providing Celsius service. They can't stop it yet, and Celsius isn't paying. So, their challenges are there. Are those self-inflicted or not? Well, you can argue it either way, but I think most of the challenges are related to rapid growth, people really trying to grow as fast as they could last year and the year before when capital was easy, and the constraints were around miners and hosting, and people that chose the wrong ways to finance that are upside down at the moment.

03:38 (Show Host) So, how are miners surviving when Bitcoin is so low, and we see energy costs a lot higher than they used to be?

03:44  (Fred Thiel) It kind of depends on the type of energy agreements that miners have. If you're on a fixed Power Purchase Agreement (PPA), where you have to take the energy, hopefully, your fixed price is attractive, and otherwise, you can sell that energy back to the grid if there's a good arbitrage opportunity. That's certainly something that companies like Riot do fairly frequently. If you're in a situation where you're on the hook for the energy and energy prices spike, and you're mining at a loss, then that's definitely a challenge. Then the question is, what's the balance sheet of the miner look like, and what's their ability to support those kinds of losses and for how long?

04:22 {Show Host) So, do you think there are mining outfits right now that are definitely going out of business that we just don't know about yet?

04:28  (Fred Thiel) I would say that there are definitely, you know, think about it this way. There are 20-plus publicly traded miners, and I think that a lot of those miners are not healthy at the moment, and depending on what they do, we'll see what happens. There are a lot of smaller privately held miners that also potentially are at risk. But I think it's going to be very interesting. If this condition, this environment continues with low Bitcoin price, high energy prices through Q1 and into Q2, I think you're going to see some more casualties.

05:04 (Show Host) So, how is Marathon weathering the storm? I understand that Marathon expects to recover only about half of the $50 million that it deposited with Compute North, which is now a bank or a Bitcoin miner and data center. How are you weathering the storm?

05:22  (Fred Thiel) We're doing well. We just paid down $20 million on our revolver, and we'll likely continue to pay down debt over the course of the year. We have a strong balance sheet. We have a lot of miners that are being deployed and installed that have already been paid for, essentially. So, we're at about a little over seven extra hash now. Next year, by mid-next year, we'll be at 23 extra hash. That's a 3X increase with de minimis capex expenses related to it because we've already paid for that mostly. So, we're super excited. We'll start seeing more miners come online starting in January through July next year.

05:57 (Show Host) Are you having to sell Bitcoin?

06:01  (Fred Thiel) No, we haven't sold any Bitcoin. I think now we're the second-largest publicly traded company that holds Bitcoin with over 11,000 coins in the balance sheet. Also, by paying down our debt, which we've been doing, it frees up our collateral, which is the Bitcoin, and makes it unrestricted. Our whole goal right now is to end this year with a very strong balance sheet and be able to weather whatever storms happen next year. We're not going anywhere. We're looking forward to an environment where Bitcoin starts moving back up in price as the macro environment improves in the back half of next year. We feel very confident that the market's going to be much better for the mining industry come the back half of next year.

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