Marathon Digital's Thiel on Bitcoin Halving, Mining Outlook

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00:00

It's worthwhile to start with the prices here of Bitcoin and how you think it might be impact into the having a lot of questions out there of whether a lot of those rises have already been baked in. Well, I think the ETFs approval, which has been a huge success, has attracted capital into the market and potentially brought forward what could have been the price appreciation we typically would have seen 3 to 6 months post having.

00:29

So I think we're seeing part of that now already. These ETFs 11 were approved. Four of the 11 ETFs are the most successful ETF launches on record ever, and the total amount of capital in the ETFs already has surpassed 50% of the amount of assets under management in gold ETF. So what has happened in three or four months compared to 20 years with gold is pretty astounding.

00:57

And so we think that has pulled forward some of the demand. The having event will reduce the supply of Bitcoin by about 450 a day. The new emissions of Bitcoin, which will have some small impact on price moves probably. But as miners, we're very excited to go into a having where for once price has not declined prior to the having, but rather price has gone up.

01:15

So everybody is obviously maximizing and optimizing to that. Right. Fred, I want to talk about exactly what you're doing to optimize ahead of that having over at Marathon, you guys on average mine about 28.7 Bitcoin each day. What are you doing to decrease the cost since it's going to cost you more to mine these bitcoin? What are you doing to save money and ease your margins? Great question.

01:43

So we built the business and scaled very quickly using an asset light model where we essentially relied on third parties to build the infrastructure, the hosting, the data centers. If you want, then we would come in, plug in our miners. So 100% of our CapEx was invested in miners that allowed us to scale to become the largest miner, publicly traded miner, arguably in the world.

02:05

Then in December, we went and started looking at those hosting relationships and we started moving to consolidate them. And we now have gone from owning less than 3% of our facilities to owning over 53% of our facilities in just a few short months. The benefit there is it allows us to essentially take out the middleman and take out the margin that we were paying a third party to build infrastructure and manage it.

02:29

And we were able to do that at a cost less than the replacement cost for those assets. So a net net great gain for our shareholders in that regard. We'll continue to do that as we move forward as well as continue to expand through owned and operated facilities both in the US and abroad.

02:48

Average daily Bitcoin produced you have at 28.7 as of the end of February. When you think about the having, how is it going to change your economics and what you see in terms of Bitcoin rewards? You think So the essentially, if you look at the number of 28 eight on average per day, that would turn to be 14 roughly per day. We'll have to see the impact, if any, on the global hash rate.

03:12

Remembering that bitcoin mining to zero sum game today. There are 900 bitcoin made today or admitted today post having it'll be 450 and all the people mining or buying for that. So all our computers competing for that. So the key is to be one of the most energy efficient miners.

03:31

Marathon's fleet is amongst the most energy efficient in the industry. Those miners that have less efficient machines may have to shut off, but the high price of Bitcoin right now essentially has made it profitable for even marginal miners to mine post having what we'll have to see is really what happens to the dynamic if the price of Bitcoin were to drop ten $20,000 per bitcoin, that could potentially push some of the more marginal miners over the edge and they would have to stop mining and they could become acquisition targets potentially.

04:01

You also have a fairly large number of rigs, the computers, if you will, that miners use that are not very energy efficient, that will be marginalized by this having. So it'll be very interesting to see what happens. But we're very focused on both organic and inorganic growth.

04:18

And we believe that the industry globally is going to continue to grow in that hash rate, to continue to mine and secure the Bitcoin blockchain. Fred, on average, how much does it cost you to to mine a Bitcoin and like what's the cost of extraction? And then I'm wondering also about potentially moving more outside of the U.S. perhaps to find cheaper energy.

04:37

Sure. So our average cost to mine Bitcoin across all the facilities is in the low $20,000 range today. And by that we include the energy cost as well as the operating overhead. I mean the people on the ground that run the facilities, any cost to run the f

04:56

acilities, etc.. So the marginal cost of mining bitcoin, if you would, that will now go to about 46,000. On average, obviously the people cost doesn't increase. It's just the amount of effort, the amount of energy that the miners have to do that will double. So domestically, we're still going to be in a great position.

05:16

We operate today on three continents, North America, the Gulf region and Africa, as well as Latin America and Paraguay. We're going to continue to grow our business internationally. And one of our goals is to have 50% of our revenues from outside the U.S. by 2028, which is the next having in line after the one we're going to have here in a couple of weeks.

05:33

The other thing we're doing, we're very focused on a vertically integrated technology stack. So everything from our pool software, which is the orchestration layer that kind of controls what our miners do all the way down to the firmware in the miners and also investments in technology through a company called ORDAIN, which is the only U.S.

05:51

manufacturer in the space located in Silicon Valley. And then also immersion or cooling tech knowledge. And we just released some very interesting emerging technology at the Empower Conference in Houston a few weeks ago. And so we think that even the A.I. industry will have interest in that. So diversifying revenue streams, optimizing existing operations.

06:10

So you continue to expand very quickly here. How do you feel about the future when it comes to your industry? You kind of alluded to this idea that players could be washed out. When we think about the dynamics and the pressure that it puts on the Bitcoin having rewards being less this cycle and of course in future cycles, how are you preparing for that potential wash out? You mentioned acquisitions.

06:32

What do you do today to prepare for that opportunity and how big do you think that will be? Yeah, great question. So we are believers that Bitcoin miners have to try to strive to get to zero cost energy. What do I mean by that? It means that basically the only way we'll survive long term is that our cost of energy is offset by something else.

06:55

So we have started an initiative that we call energy harvesting. This is where we are going to landfills and using stranded methane gas from landfills. It could be oilfields, it could be biomass from beer brewing, ethanol manufacturing, methanol manufacturing, where you take that biomass, convert it into energy and then feed back into whatever that industrial process was.

07:15

Heat industry pays about 50% of the energy cost for industry is spent on heating things. And so Bitcoin miners are great at generating heat. When they mined Bitcoin, about 95% of the energy that goes into a chip that mines Bitcoin comes out as heat. So we believe that Bitcoin miners will be able to essentially take stranded energy in the form of methane, biomass, what have you generate electricity, generate heat, sell the heat back into an industrial process.

07:45

All of that subsidises the cost of mining Bitcoin because Bitcoin is simply how we generate the heat that we sell back. And I think longer term bitcoin mining will move from being these large data center sites with hundreds of megawatts to being hundreds of thousands of much smaller sites that are doing everything from heating buildings in Finland to mining to heating greenhouses, shrimp farms, industrial processes, ethanol plants, processing corn waste, cow manure, a dairies, etc.

08:14

That's the future for Bitcoin mining long term.

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