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What Happened: Public Miners - Bitcoin 2023
This panel at Bitcoin 2023 discusses the challenges faced by the Bitcoin mining industry in 2023, focusing on public miners and their experiences. The timeline from 2016 to 2020 saw companies running out of money and going bankrupt over a longer period compared to the recent bear market. Factors contributing to the challenges include over-leveraging, rising energy costs, and the drop in Bitcoin's price. The convergence of lower revenue per kilowatt hour and higher power costs created leverage issues, leading to financial risks for mining companies. Strategies for surviving and thriving in the industry involve better risk management, efficient operations, diversification of locations, and optimizing energy costs.
Transcripts are autogenerated. May contain typos.
uh hey guys so the name of our panel is literally public miners what happened and undoubtedly it has been a tough time to be in the Bitcoin mining industry I think about you know from 2016 to 2020 the amount of time that it took for companies to run out of money and then subsequently go bankrupt uh it was a much longer timeline than what we've seen in this most recent bear market and I'm wondering is that you know is that partially to do with the fact that there was just so much more over leveraged issues involved this time around or was
it a perfect storm of you know Rising energy costs the dropping price of Bitcoin like literally what went wrong last year from each one of your respective pers you know views started off I guess you know it's been a tumultuous time for everyone not just in the Bitcoin mining industry but it was really a perfect storm as you mentioned of higher power costs lower Revenue per kilowatt hour on the mining side and so when you couple those both together it created kind of this issue where there was a big risk for US Dollars versus Bitcoin for mining
companies because they're mining the same amount of Bitcoin but a lot less US dollars so from that perspective it created this big leverage issue in our industry that you saw play out really at the end of 2022 and I think there's still this kind of overhang in this industry that we'll see on a go forward basis throughout the rest of 2023 as well yeah I think it's for one thing people have short memories in this industry and um those that did remember thought if I can scale faster than anybody else
then I'll be able to take advantage of mining Bitcoin you had the China drop also in hash rate which drove even more desire for people to get stuff online and when you think money's easy you never think that that's going to end and uh you know there are a lot of people who raised a lot of money went out and invested in infrastructure and said I'm going to go back to Market get more money when I have to finish building this out and then money started getting tight and issues started raising coming
up and people were now all of a sudden financing machines at 11 12 13 14 and when bitcoin price drops and energy price goes up it all kind of collapses and so it was the people with didn't have the financial wherewithal or the sort of prudence to have a good balance sheet that unfortunately overextended themselves and then it's kind of spirals from there so yeah so with everything that happened from what they said I won't go into all the details because there was a lot but I think at the root of it is that hope is not a plan and I
think that that's really what was happening there was a lot of Hope in the industry we there was so much potential but you need to plan on both sides of that potential the potential for things to go really well and the potential for things to go really badly and when when it came to the leverage in particular leverage doesn't behave very well when you know things go really really wrong and the convergence of the drop in bitcoin price with the increase in energy price it really created that perfect storm and so I think that's what
it is if you plan for the worst and hope for the best it becomes a real plan instead of just hoping for Hope's sake and I think there's a lot of that Adam right now you guys are you know we're Bankruptcy Court thinking about how you restructure core relaunch like what is the plan there how are you how are you rethinking the way that you do business yeah I mean I think it really comes down to the fact that at our core our operations have been extremely successful through the bankruptcy process you know it's really hats off to
our data center text through the software team you know we've continued to mine at a very exceptionally high level and so when we look at how do we kind of get through this process and what do we look like when we emerge it's really comes down to managing the Bitcoin US dollar trade much better and so that's an area that I know everyone on stage here has been looking at really closely is ways that we can manage our margin profile in a much more proactive way because historically that was never the focus we were always really focused
on just mining more Bitcoin but on a go forward basis it's really about risk management and focusing on how do we ensure that we can produce free cash flow on a leveraged basis to ensure that we can always pay our debts in terms of that idea of you know Zach something that you were talking about before this this risk management and when you know having to plan ahead to when you're not in the at the height of a of a bull market I think of clean spark and you guys raised a lot of money and you waited to deploy it and I mean I'm sure
at the time that was at the expense of market share so how like walk me through your thinking and your strategy and how you timed when you bought gear because you also recently made a lot of big Acquisitions of public sites so what was the thinking there and also how did you not get fomo not expanding more when things are going really well yeah no that's a great question and you know two years ago I actually gave a presentation and the title was the last kid on the bus and it had nothing to do with actually being the last one to join
or you know missing out had it with perspective and I think that the time that we entered it gave us an interesting perspective Bitcoin hadn't quite risen yet but there was already people making big Investments and so it we actually missed our first opportunity to make a big investment while it was still down before price on per tear hash ran away and kind of seeing the true contrast and how Roi worked every decision we've made ever since has always been about return on investment the other thing that we paid really
close attention to is time the capital is out before it returns and that's been the number one thing for us we've been very willing to be patient because it's not just a measure of what a machine cost but what does it cost between the time you pay for it and when you can plug it in because that capital is gone until that the plugging in event happens and so we worked really really hard we went into the spot Market we didn't Place big headline orders about you know 20 000 machines 45 000 machines like we
just did in the past because the time to pay for it to plug it in was too far what we have now is we waited long enough we've been making bold predictions about the price drops on a price per tear hash on the XP in particular and and everything kind of converged perfectly for us to make a really big order but it's because there are as machine availability so the time between paying and plugging in is still our number one focus and so that's how we look at it when we build up our Capital when we deploy it it has to
return to us quickly not just return to us well I think just a comment on that it's um it's really hard to time the markets perfectly I think you guys have done a great job um you know we placed our big XP orders at the peak of the market but with price protection so we had that protection all the way down but you also have to look at kind of you need to get machines online so that you can take advantage of the conditions in the hash straight Global hash rate before the having and I think the you know you could reverse engineer the
timing to be almost perfect and the challenge is that what that really means is you need to be turning on machines in the depth of winter running up into the having and Beyond and then if focusing on efficiency and I really do want to dig into the having in a minute but before that I mean you guys operate different business models you've got the asset light model where you don't own infrastructure employees there's a self-mining side of it um what what has worked for you guys and I'm not even talking about uh preparing
for the the having next spring but I'm just talking about getting through this latest storm like how how did you think about your strategy in that sense and when we you know I've got Zach's perspective on that but Fred I'd love to hear a little bit more yeah I mean our model is a portfolio approach so when if you go back two years ago we were in a market where Capital was nearly free you could raise as much money as you needed if you had a good float in your stock um and it was a market that really was
all about um accelerating and so if you were to look at a site building a site yourself you had to tie up the site you had to get the energy contracts you had to spend about 30 percent of your capex on infrastructure and then 70 on miners and we said if we can find sites that are ready to go live and just invest in the miners we're willing to pay a higher price for the hosting overhead because we don't have that capex so we did that with our initial deployments our model now is a hybrid where we have some third-party hosting
when we can get time to Market um where we'll just if we have extra capacity we want we can contract it very short term get it online where we're looking for efficiency perspectives low cost we're building and what we're doing is slightly differently than other people we're building a tech stack that gets us the efficiency so what we've done in Abu Dhabi for example is taken you know a bit main XP put our firmer on it our own controller boards it's a hybrid type of immersion technology run using our own pool and
you know that system has run in ambient 47 degrees C with lots of humidity flawlessly for months without Engineers touching it that means very low operating expense for the site plus we can overclock and underclock the machines based on electricity pricing so we've been very focused on how do we maximize the impact of our technology on the solution so that we can operate when prices are high we can operate when prices are low and we can operate when conditions are are bad and we can hit the throttle when we really want to
you know the coin is up more than 60 year today but it's still well off its all-time high of almost 70 000 there are still a lot of distressed assets out there what does m a look like in this space and you know Adam is it something that you guys are thinking about like what what makes sense do you relaunch his core do you partner up with somebody like who rolls up to who what how is this industry going to change in terms of corporate structure yeah so before I joined core which I just joined core about five weeks ago but before
that I worked at a firm called XMS Capital we're the largest investment making team focused on Bitcoin mining and that's an area where over the course of 2021 and in 2022 a lot of deals a lot of M A fell apart through that time period and it was partially driven by the fact that when a potential acquirer was looking at the Target they were like well this target potentially runs out of money in the next 12 months or the next 18 months and it brings credit risk onto our balance sheet and so it became a real business
of just looking at the individual assets inside of companies versus full company Acquisitions and so that's why I think when you look at other companies in the industry you know it's really difficult to understand which ones are still going to be around 24 months from now because there's 20 some odd public companies today but in the future there's not going to be 20 some odd companies and it's what is the pathway to get to five companies or ten companies and a lot of that's going to be sale of assets that
actually have value over the long term two larger companies and besides that you're not going to really see these Big M A transactions because they just don't make sense when you look at the income statement the balance sheet the whole m a model it just doesn't really play out the way I think everyone else thinks it's really going to play out for us I think just the the challenges in traditional Industries when times are bad you can pick up an asset for a lot lower than its replacement cost in our
industry everything drops in price so the replacement cost drops with the asset prices so a far philosophy at Marathon is if we can find energy assets that are have good energy pricing good infrastructure we don't care what machines are in the facility because we're going to throw them out anyway and so if it gets us faster to Market than building it ourselves we'll acquire infrastructure but we're not going to acquire anybody with actual rigs running happening I'm having this is a really important
moment for the industry how are you preparing for it how are you bracing your shareholders for what that means and the impact on the business like if Bitcoin doesn't I mean you know historically it has appreciated in the run-up to the happening but let's say that doesn't happen or like regulation proves such a headwind and we'll talk about regulation in a minute but let's say that is Weighing on the price more than it has during past bull runs what are you doing to prepare for it how are you answering to your shareholders
for us you know we've and to go back on a few of the other themes too a really important to us is controlling our own destiny and we've actually acquired some sites because hosting is a tough business and we've stepped in but you have to be able to control it going to happen and you have to be able to control your efficiency when you operate how you operate so all of those factors have their own unique roles so you can come into an asset whether it's required it you build it and and you better be
able to have flexibility with that if you're beholden to somebody else and this is why the hosting business can be a really tough business you have an uptime guarantee even when being up doesn't make sense so that's why for us it's all about self-managing our systems what that also means is it's about deploying technology the technology software things like that that can help make your existing machines and your Fleet more efficient whether that's air cooled or immersion which we have both
but also you know we're in the process you know we just ordered more efficient machines and we'll be doing an upgrades cycle between now and then now we don't need to upgrade very much of our machines but you know internally we clean spark really believe that at the end of the day anything over 38 watts of Terra hash when you have you know right now the global average I think is about 43 38 is a tough number when the Bitcoin gets cut in half a lot of people are going to have to unplug and if you can
stay plugged in and efficient both in your machines and how you operate that's how winners and losers are going to be selected in this industry and you have to be ready now and you should have already started to get ready I really think over the next year if you just start now it's going to be too late because getting Capital now is so hard to deploy and can you do it cost efficient you're probably going to be on a not enough Capital to survive the tough times even if you upgrade to more efficient machines now so the you know
the time was over the last year is is what I really think is when you needed to get prepared yeah I mean I could pylon what you said the average Fleet of miners operates at about 43 joules 43 watts of Terra hash our Fleet as of mid this year will be at an average of 24 joules of Terra hash so we're prepared by having one of the most energy efficient fleets out there on top of it deploying the technology stack that lets you underclock when Energy prices are higher bitcoin price is low so you get even better efficiency out of the miners
leveraging the technology stack to really optimize not just the cost of mining but also things like curtailment so having very intelligent strategies around curtailment because they're for example you can operate with certain signals in demand response where you know there might be a price spike you go offline it's a two hour cycle from kind of initiate to come back online and maybe that price spike was only 10 minutes long and so building very intelligent systems that are continually learning based on the
specific nature of the market that site is operating at that can essentially determine there are times where it makes sense to run unprofitably because lots of people will shut off hash rate drops you get an extra bump in profit and it becomes this very interesting learning Loop in systems and I think it really speaks to the miners with scale are going to be the ones that will make it through the having because if you don't have scale you don't have the ability to invest in these systems new miners more efficient systems and
also have a very Diversified footprint which is really critical because you know if you're all concentrated in Texas and one little thing happens in Texas you're done and that's why we're very focused on diversifying you know Texas North Dakota and even now internationally outside of the U.S yeah we have a saying in our firm that's doesn't math up and it's about evaluating all of the different Power programs that all of our facilities and looking at how do we adjust post having each of the power programs that
we're participating in into Fred's point we have a full stack programming team that manages all parts of our facilities and are managing them in five states across seven facilities and this is an area where you know we're in North Dakota we're in Texas we're in North Carolina we're in pretty much all the different locations and environments you could possibly experience in the United States and so it's a re-evaluation of can we participate in more power programs at this location if so should we change the
machine mix at that specific site and so that's really what we're doing right now is really just starting from the beginning and saying all right let's evaluate how do we prepare for April and so to Zach's point if you weren't already preparing for it you're a little late and we've already started moving machines inside of each of our facilities to make sure we're prepared for April step further so after next year and four years you're going to cut that prize in half again so does it just become a
razor thin uh you know business where you expect razor thin profits do you have to then own power generation and become more vertically integrated to be viable uh is it data center data center diversity or does that dilute the brand like how do you really really survive in this industry for the next decade you know I think it's a combination of things the on the one hand um 2028 that having is going to be hugely impactful on the industry um you also have to look at what's happening to Global hash rate where is
Hash rate coming on where is there access to energy but from marathon's perspective we're very focused on getting to zero cost energy and then it doesn't matter when you're mining because your single largest input cost is zero so that's kind of the focus strategically of what we're doing both domestically and internationally because the question you haven't asked is well what happens if you get taxation on energy use for Bitcoin miners I mean 30 tax is being proposed by the Biden Administration right now on just that
yeah 30 tax on zero is still zero dollars so we believe that owning energy Assets in a way that gets you zero cost of energy is what long-term survival in this industry is because at that point having to really have are insignificant to your cost structure yeah just you know a few thoughts on that you know one of the things is going to be about being a real partner with Energy Partners the utilities any service provider that operates in the space can really use Bitcoin if they know how I really think diversification
but of location of mining is going to be a much bigger deal and I don't mean that from there's going to be a lot of small minors but big Miners and operators are going to have more smaller sites these big super sites have their benefit now and they still will in the future because you know there's a lot that they can throttle up and down but we really need to focus I think on a long-term basis of scattering throughout a unique utility where you can provide a unique benefit that can only serve that single
provider who is managing their section of the grid and you know to get really low cost driving towards zero you have to provide a really immense benefit so that's something we're already focusing on now we're a pretty significant amount of one of the three utilities that's in Georgia and we're scattering our sites yes they're big on a megawatt basis but we really think on a long-term basis five years from now we will be such a significant and flexible part of that load that we'll just be providing a
service to them and Bitcoin you know Bitcoin will be a big part of our output but I don't think when it comes to 2028 I think gone are the days where you truly mine 24 7. because the benefit to drive towards the true low-cost power to that true zero you have to be giving value to somebody else and so but because scale will be there I don't think it will matter if you're you know 12 hours this site and 20 hours that site it will all balance out at the end but you can't do that without scale you
really need to be one of a large minor but there still will be diversity and strength in the network because your sites are scattered all over we should definitely talk about two minutes that we have uh there's a bill making its way through Texas which became an epicenter of the industry after China banned its minors that's viewed as as uh you know having a largely anti-mining sentiment New York has passed new rules around proof of work Mining and as I mentioned a minute ago the you know the Biden White House
is looking at a potential 30 percent tax on the electricity consumed by crypto mining operations for its 2024 budget so how and we've talked a little bit about geographic diversity so that you're not you know the slave to one jurisdiction and you can kind of get outside of that but just how significant it is like is this because when you set up these larger Footprints and I think of some of the mines that are out in Rockdale that I've visited um it's not an easy thing to migrate if suddenly you're under
um you know under new rules that make it more difficult to do business so are you guys worried about about the way things are going in terms of regulation in terms of rules in terms of taxes when it comes to the mining industry specifically in the US yeah I mean we're one of the reasons we started focusing on International expansion was to diversify exposure to the U.
S at the federal level you have state exposure and you diversify by doing operating in different states um our expectation is that over the next five years 50 of our capacity will be offshore and there are multiple reasons for that you know you have energy market dynamics that are different in different places there are parts of the world where they are generating way too much energy and don't have an off take for it and so they're willing to take anything if you'll take off their energy so they're you know we as miners our business model is to go where
the lowest cost of energy we're the buyer of Last Resort and there are still places in the world where there is very inexpensive energy if you're willing to invest in the infrastructure yeah I mean for us it's about the story that we need to tell to all the communities that we operate in and to the at a state level and the federal level you know a lot of people don't understand they're like oh they've come in and they're taking 50 or 100 megawatts you know that's damaging our community it's like at the same time you
know we we've hired hundreds of employees we've invested hundreds of millions of dollars in local communities and that's an area that that story never likes to be told by a lot of politicians and so it's an area that it requires some education I think that's where our industry is really focused right now is educating politicians to understand that we're out there we're in local communities we're investing capital and we want to be good corporate citizens and good communities citizens as well to
really support every community that we operate in the one thing I'll say since we're running low on time is to Adam's point it's important to go in the front door and not the back door when you go into communities to go in it's you're winning the hearts and the minds of the people and you're providing real value you go in we I think all of us donate to different communities we're in we all employ people in the communities it's about adding more value than you're receiving and that's really been our
focus and I do think that there's still a lot that can be done to avoid onerous taxes and I think it's important where you locate I do think it will come at the state level you know we have some headwinds ahead of us but I think it's all manageable as long as we're always going through the front door and we're engaging with the communities thank you so much to the panelists and to the audience for joining us today and to the conference for uh having us up on stage so thank you all and have a good rest of
the conference bitcoiners welcome back to bitcoin 2023. this is the Bitcoin magazine news desk sponsored by Marathon I'm joined once again by my panelist Samson Mao Preston pish Michael Saylor in the beginning of the talk zad Zach Bradford the CEO of clean spark mentioned hope is not a business plan Michael from a man that owns hope.
com what are your thoughts on this well you know I think you got to be optimistic if you're in business uh I I disagree Bitcoin is hope uh and providing hope for 8 billion people to give them Freedom sovereignty and pop uh property rights it's a pretty good business plan all right tell us a number to you Preston what was your general take on this panel that we just listened to so for people that aren't intimately familiar with mining I would break it down into three different things and this is what they were kind of talking about throughout the panel which is
cheap energy you have to have access to cheap energy to be competitive In This Very Cutthroat industry uh you have to have some type of political stability in order to make sure that they don't pull the rug on you up and then the third one is just operational excellence and so they were talking about efficiencies and that's really important in order to be able to really kind of compete in this in this really Cutthroat industry for people that are watching that panel I think the message uh to anybody that has
any type of political influence and and isn't a region that has net production of energy you want these types of people to come into your jurisdiction you need to set up some type of uh laws and regulations in order to protect them to attract them in there and it's going to strengthen your grid they're the buyer of Last Resort like they said in in the discussion and I'd say that that's my main takeaway or what I I want people to walk away from that is if you live in an area net producer of energy you need to
figure out a way to to help inform the the public servants in your area to set up some type of stability in in their local region yeah there's a great website called WTF happened in 1971 it seems that there's been a trend hollowing out the manufacturing industry here do you think Bitcoin miners I'll toss us to Sampson are a great way to bring an onshore a lot of uh more of that uh Dynamic minors and bring them more here instead of going global and abroad well I think we there's enough mining in the U.S right so I think what
they're talking about is decentralizing themselves and expanding out of the US and I think it's important for themselves just for survival because you don't know what the administration is going to do and if you're that big at that scale so scale has pros and cons like they can shut off at one site and turn on at another site but they're also going to be stamp outable right so if you look at the hash rate right now 20 is still in China and I can tell you that that 20 are not the big guys that
were operating at that scale previously so it's good that you can decentralize but I think what you want is smaller scale mining operations instead of big Mega Farms because those will be more resistant to uh crackdowns kind of expanding on that press and do you see Bitcoin miners fleeing the US to other jurisdictions and is this ultimately good for the Bitcoin Network I think the main thing that you got to think about uh when you're thinking about being competitive in this space is you just have to have access to cheap the
cheapest energy you can find and I think that's what the panel is really saying is that is such a dominant variable in their consideration so if they're able to get energy at a much cheaper place and they can find it in a jurisdiction that's friendly and has regulations there they're gonna they're gonna show up there and they're gonna show up in style because that that's the thing that really drives their uh their bottom line to remain competitive in this space 20 seconds to you Michael final thoughts on
the 30 tax that's proposed by The Binding Administration yeah I don't think it'll happen I think it's a Non-Stop solder on Capitol Hill uh the country needs uh Bitcoin mining it's the digital power industry it's the future and we're going to come together to support it all right thank you everyone remember to smash the like button and hit the Subscribe Button as well we're going to be going back to the Nakamoto stage for what happened to exchanges thank you
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MARA: Transforming Energy Challenges into Opportunities
Senator Ted Cruz speaks about the future of Bitcoin & Crypto in the U.S.
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