The Pomp Podcast - #1539 Fred Thiel | Why the U.S. Needs a Strategic Bitcoin Reserve — Before It’s Too Late

Episode Date: April 28, 2025

Fred Thiel is the Chairman & CEO of Marathon Digital Holdings (NASDAQ:MARA), a digital asset company that mines cryptocurrencies with a focus on the blockchain ecosystem and the generation of digital assets. This conversation was recorded at Bitcoin Investor Week In New York. In this conversation we talk about what Marathon Digital currently does, AI vs bitcoin mining, evaluating what is happening at the nation state level, gold vs bitcoin mining, hardware in bitcoin mining, and what Marathon Digital plans to do in the future.=======================BitcoinIRA: Buy, sell, and swap 75+ cryptocurrencies in your retirement account. Take 3 minutes to open your account & get connected to a team of IRA specialists that will guide you through every step of the process. Go to https://bitcoinira.com/pomp/ to earn up to $500 in rewards.=======================Core is the leading Bitcoin scaling solution, enabling you to lock in yield by locking up your Bitcoin. Simply lock it on the Bitcoin blockchain to secure the Core network, and get rewards. No bridging. No lending. Just holding. Still your keys. Still your coins. Now your yield. Start at stake.coredao.org/pomp.=======================Pomp writes a daily letter to over 265,000+ investors about business, technology, and finance. He breaks down complex topics into easy-to-understand language while sharing opinions on various aspects of each industry. You can subscribe at https://pomp.substack.com/=======================View 10k+ open startup jobs:⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://dreamstartupjob.com/⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Enroll in my Crypto Academy: https://www.thecryptoacademy.io/

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Get off zero and start earning yield on even just 1% of your Bitcoin by going to stake.cordow.org slash pomp. Again, that's stake.cordow.org slash pomp, or go click the link in the description. you're pointed to? What's your North Star? So we're focused on creating digital energy. If you think about our business, three, four years ago, we were busy putting miners into hosted sites. So we were just an operator of, we owned miners and somebody else ran them, somebody else built the sites. Then we started buying our infrastructure. And today we own about 70 plus percent of the sites where we operate. And then we started buying power generation.

And so we are really much more a vertically integrated energy transformation company. We find idle electrons. We turn those electrons into digital gold, which is Bitcoin. And our objective is to accumulate as much Bitcoin as we possibly can. We use our balance sheet also to purchase Bitcoin. You know, last year we bought quite a lot of Bitcoin, and today we hold about 45,000 Bitcoin on our balance sheet. we also are a technology company and we are vertically integrated in that sense three years ago we co-founded a company called oradine which is the only u.s asic manufacturer

of bitcoin mining asics today their three nanometer designs operate with close to par performance of the best chinese rigs and an environment where there's a risk that between tariffs and trade wars and things like that you need to have an alternative to the kind of what I call the Chinese oligopoly of miners, it's really important to have your supply chain insured. And in the Bitcoin mining world, there are three issues. We call it the three Cs, capital, compute, and capacity. So you have to be long energy, you have to be long compute, and you have to have easy access to capital to pay for that. But the industry's changed now, right? It's now you have to be more efficient with your use of capital because it's been grow,

baby grow baby grow now you have to all of a sudden start operating businesses that cash flow positively you have to be able to act like more of a mature business and you have to really start growing into your scale so for us it's about where does bitcoin mining find itself in the energy transformation not energy transition but the energy transformation business and how do you instead of buying energy become an energy company and how do you partner with energy companies so that you're in joint ventures with energy companies you're not buying merchant electricity and so this business is changing dramatically because the energy companies have finally woken up to this fact in 2021 at mind need disrupt i said everybody beware the energy companies

need to be your partner so you'll be out of business well at the next having if you're buying merchant energy at 4 point whatever cents a kilowatt hour, and Bitcoin price doesn't go to the moon, you may very well be in a world of hurt. And so we believe it's better to be partnered with the energy companies where you can access energy at very low or near zero costs and be able to operate your business and grow your business on a global basis. When you think about the maturation of that, I think you guys reported $1.2 billion in net income? Adjusted EBITDA. Okay, adjusted EBITDA. That's a big business, right? That's not like, hey, we're trying to

figure it out. This is something that is, quote, unquote, working. What are the things that maybe you previously held as assumptions or beliefs that you no longer hold because of the changing landscape, right? We're seeing, let's say, like in the AI world, everyone's talking right now because Microsoft all of a sudden is breaking all these leases and people are trying to read into what that means. Miners, everyone is talking about what they're doing, but I'm actually more interested in what are you not doing that you thought you were going to be doing

or what do you believe previously that you don't believe today? Yeah, great question. So before it was all about how do you get to be the biggest, and so you're looking at bigger and bigger sites. The challenge is with the AI industry today and the hyperscalers, anything over 500 megawatts they're locking up. and even some things under 500 megawatts and it's actually not efficient to operate very very big sites what's really interesting i think now is as the ai piece really takes over more and more of

the the picture bitcoin miners need to make this choice of which business am i going to be in because operating ai sites is very different than operating bitcoin mining sites you know similarity kind of ends at the power. You've got a site with power. If you're going to run AI or if you're going to host AI, it's a different business. And so we decided we were not going to host AI and not going to chase the hyperscaler business from a perspective of really doing what happened in the early 2000s when the internet boom happened, all these companies went public. Those of you who are kind of over the age of 40 may remember this. You had all these companies go public in the late 90s with the word internet in them cisco was stock was at its absolute peak

it's taken 30 years to get back there and the build out of the internet was great and then bang 2002 happened and all those hosting companies went out of business and there was a reset and they rebuilt and the first wave of the internet is that i mean the first wave of this ai cycle is just like that it's grow grow grow and what do the large companies do when they can't grow inside their own capacity they contract with other people to get as much capacity as they can and then to the point you mentioned earlier about cancellations the as they're growing into their capacity and realize how much they're actually going to need they start canceling those third party so we just believed why operate at the edge where you're

going to be commoditized when you can instead operate where the real money will be made which is an inference ai you don't make money running llms you use that for training where you make money is the inference and what many people here don't realize is they think chat gpt oh wow this is the future of ai agi artificial general intelligence is not the future of ai the future of AI is a gentic web where machines talk to machines and they run factories, they run your car, they run your building, they run your life, they run your health. There are no people involved. This is not, hey, write a better essay, write a better email for me. This is trillions of transactions per day that machines are doing with each other. And you can't do that by talking to

the cloud. It has to be close proximity. And these inference AI data centers will have to be built and are being built very close to the customers. And we're very focused on how do we take all the tech we have in cooling, in ASIC, in orchestration, all the stuff we've built, turn that into a modular solution for inference AI at the edge. And that's kind of where we're going. So one of the benefits of doing that likely is that you will smooth out your exposure to the cyclical nature of Bitcoin.

A downside to that is for those that are buy as much Bitcoin, do everything Bitcoin, you're obviously diluting just the sole Bitcoin thing. So how do you think of the pros and cons or the tradeoffs there? Is it an economic exercise and you're like, hey, we can make more money? Is it a we want to weather ourselves from that cyclical nature? What's the conversation as you guys decide how to navigate this? Well, you're assuming the choice is binary. It's actually complementary. Because AI workloads do this.

Bitcoin mining is this very responsive dispatchable load and the grid operators love Bitcoin mining because we operate like this and we can dispatch load whenever we need. Imagine you flip that responding to the grid to responding to an AI workload. And if you can take an AI site and balance their load such that they provide a flat baseload profile to the grid, the utilities will price your energy at a completely different level, especially if you can curtail a portion of your energy, say up to 5%. Duke University just put out a study where they said the United States energy grid has 78 gigawatts of extra available capacity if people are willing to curtail 5% of the time. That's a huge amount of energy. You don't have to build a single power

plant at any additional transmission that's just if you could provide a response to the grid and so when you marry bitcoin mining and ai you all of a sudden get a base load profile whereas the ai needs more you curtail the bitcoin as the ai needs less you over ramp your bitcoin mining but to do that you have to have technology and capacity so you can go from zero percent mining to 200 mining in a very short response time and that's what we've been focused on developing is how do we create this highly complementary technology to ai so we can cohabitate so it's not a question of am i going to do mining or ai it's i'm going to do both and i'm actually going to co-locate them explain the co-location component because i think a lot of people when they see pictures of a bitcoin

mining facility it looks uh not as nice as maybe a you know tier three sock two type uh ai data center where i always joke you could like eat off the floor it looks so clean right how do you co-locate those two separate types of businesses um and then what are things about redundancy and you know uptime and there's all these components of kind of ai requirements that may not be true for Bitcoin mining, or at least to the severity? Great set of questions. So typical air-cooled Bitcoin mining sites look like barns with cardboard cutouts

and machines plugged into them and really loud noise and a lot of dust. If you look at kind of a state-of-the-art mining facility, take what we built in UAE, for example. It's 40-foot containers. It's all liquid immersion cooled. It operates with no use of water. They run 99.8% uptime.

in an environment where it's 122 degrees on average and 95% humidity, and there's almost no humans doing anything at the site. So if you have that type of resilience and uptime, you now look at AI. Well, today, most of AI is liquid-cooled, liquid on-chip cooling. They're moving to cold plate cooling.

It's rack-based. But as you get to the next set of generations of systems, you need to move to immersion cooling, And it's not single-phase immersion cooling, which looks like a car radiator system. It's two-phase, which means you're actually allowing the liquid to boil. And inference AI systems are extremely suitable for two-phase immersion because they're a blend of CPU, GPU, and in the not-too-distant future, ASICs. And so when you can build systems that you can put into two-phase immersion tanks, And if those of you who are interested, we have a lab outside of Dallas where you can see we run a megawatt of immersion in a tank that's about 10 feet by 4 feet by 6 feet high.

And you can sit and have a conversation on the phone right next to it. You don't even hear it. No big fans, no cooling. It just looks like this box with liquid boiling inside of it, essentially. And you can put miners and AI rigs right next to each other in that same box. And so now you have some intelligent power control system, whereas the workloads from the orchestration layer

come down the mining overclocks. And in that environment, you can overclock a miner 200%. And if the AI needs to hit a peak, you just ramp down the AI. And so you really ramp down the Bitcoin mining. So you literally are just building a complete solution that you can deliver anywhere that has its own power management,

energy management, as well as provides inference to the world and mines Bitcoin. And oh, by the way, we convert everything we get into Bitcoin. So yes, we still are very much Bitcoin maxis in that sense. You have 45,000-ish Bitcoin on the balance sheet.

Why not just become a Bitcoin treasury company? Those seem to be doing pretty well. Well, so you can choose to just accumulate Bitcoin, but you need to find a way to acquire them. So either you use debt and use creative financing forms, kind of like strategy does, and they've been very successful in doing that. Or you can generate profits that you can convert into Bitcoin, which is less dilutive to your shareholders. We believe it's a mix, right? There are times in the industry where Bitcoin will go through a pretty impressive price appreciation.

And you have to look at, if I'm going to invest a billion dollars today, build a site, do all this stuff, it'll take me 12 to 18 months to produce my first Bitcoin. What will have happened to the price appreciation of Bitcoin in that time period? And last year, we had the belief and conviction that Bitcoin price is going to move. And so it makes sense to buy Bitcoin at $50,000, $60,000, $70,000 because it was going to run. And part of the reason we had $1.2 billion of adjusted EBITDA was because of this run-up in the price of Bitcoin that we held. Had we not bought $2 billion of Bitcoin at the end of last year and in the fall of last year, we wouldn't have had that same size number. So it's really balance sheet management,

and it's being really smart about how you allocate debt, how you allocate equity, and how you invest in depreciating assets. Now, here's a key thing. Most miners today that operate sites, especially if you're grid-attached, you're paying $0.04 a kilowatt hour. Global hash rates, not only doubling every halving,

but in between, it's most probably tripling, right? In 2023, we had a halving just because global hash rate grew. We had a halving earlier this year, and global hash rate has continued to grow. And hadn't the price of Bitcoin taken this dip, we would have been on our way to 1.2 zeta hash of global hash rate by the end of this year, possibly. China has turned on mining again, Russia's mining, et cetera. It's growing. So it's really important to look at the biggest CapEx number a Bitcoin miner has are their machines, right? The infrastructure you can write off over multiple years,

But 70% of your CapEx are your RICs. Well, you have to write them off over three years. Imagine if instead of writing them off over three years, you could take that miner after three years, put it into a site where you had almost no cost energy that only runs five, six, seven hours a day. You just extended the life and you become much more capital efficient

because now you're getting a much better return out of your assets. So becoming a, you know, Bitcoin mining today is a, You have to be a very smart capital allocator. You have to be a very smart financer. You have to really know how to manage your treasury. And you have to know when to buy, what to buy, how to build. It's a very complex business.

You mentioned Russia, China, many other countries are all kind of looking at this. Everyone's obsessed with the strategic Bitcoin reserve, rightfully so. We saw Abu Dhabi come out and say that they've started to buy at least the ETF, maybe more. but everyone seems to have completely thrown aside the like offhand comments of uh i think it was a russian finance minister and then also putin saying uh not only are they mining they're using it for transactions and it seems like they're kind of i don't say going all in but definitely becoming much more friendly towards bitcoin what are you seeing at the nation state level i know that you guys have looked at various sites around the world just talk a little bit as

to like how do you evaluate who's real who's not who's talking and who's actually acting so the global economy has operated with a very high dollar dominance with the current level of u.s debt the previous weaponization of the dollar the global economy is very scared of dollars right the international sovereigns have decreased their buying of u.s debt the sixth largest buyer of treasury bills today is a stable coin company called Tether. And the U.S. government is very scared of the world going away from the dollar. And so they want to ensure dollar dominance. President Trump said he wants the BRICS countries not to abandon the dollar. So if countries are moving to own lots of Bitcoin

and trade in Bitcoin, the U.S. has to have a lot of Bitcoin and they have to hold a lot of hash rate because bitcoin mining i think is this big misnomer we should really rename it it's called bitcoin transaction processing and bitcoin network security two different functions right because if the rest of the globe has 80 of the global hash rate well people transacting in the u.s with bitcoin may be locked out of eight out of every ten transactions or eight out of every 10 blocks. And so it becomes of strategic importance for the U.S. to have a lot of mining inside the country. To do that, we have to have much more liberal energy policies. We have to fix FERC and permitting and all these other things. But the U.S. also has to build a very

big strategic reserve of Bitcoin because we have a strategic oil reserve, not because we're short of oil in this country. We pump more oil out of the ground here than Saudi Arabia does. We have lots of gold in Fort Knox, not because the dollar is backed by gold. That ended 50 years ago. We have gold in Fort Knox. So if there's an attack on the dollar, the U.S. government has a way to defend the dollar. And it's not something they talk about a lot. We have a strategic petroleum reserve so the government can control the price of oil domestically,

which is what President Biden did not too long ago. so we need a strategic bitcoin reserve other countries know we know that they know they know it and they're starting to buy and even countries where before there was a belief that bitcoin is this bad thing are waking up to the fact that they need to hold some bitcoin to make sure that they're not left out of this game because the u.s government's intention is to inflate away the debt And by that, I don't mean let inflation run rampant. They want the dollar to devalue. The dollar index today is trading at about 1.06.

It should be down to about 100, as it's called, which is an even par to where it's been historically. So the dollar is overvalued right now. If you devalue the dollar, how do you do that? Some of you may have heard that the Trump administration has talked about creating a sovereign wealth fund. What happens when you take lots of dollars, sell them to buy other currencies to go buy and invest in other countries? The price of the dollar goes down.

What currency is our debt denominated in? Dollars. How do you get the debt to go down? You make dollars less valuable in the world. Those of you who earn W2 income, those of you who do not hold real assets, those of you who do not hold Bitcoin are the ones who will suffer from that. And other countries understand that. The bulk of foreign countries' reserves are in dollars.

If the U.S. is going to take the dollar and devalue it, the last place they want to be is holding a bunch of dollars that are getting worth less every day. And so the only solution is something that is not controlled by central governments, and that's called Bitcoin. Do you worry that the central banks that are buying gold take away from the Bitcoin story, or do you think it's an and rather than or? I think it's an and. you can't go, if China were to go all in on Bitcoin, right, that would be scary for the

Bitcoin world. So you need to have gold, you need to have Bitcoin. But it's really interesting. So the US has been repatriating a lot of gold from offshore. And this is kind of the reverse of what happened in the 70s when France was sending battle destroyers to the US to go pick up their gold and and bring it back to France because there's been a really interesting arbitrage play between the price of gold in Europe and in the U.S. And gold is physically hard to, I don't know how many of you have ever picked up a gold bar, and you can't cut gold bars into pieces and make it fungible. And so gold is kind of still an instrument that sovereigns look at as an asset to hold. bitcoin is becoming more and more interesting as an asset to hold and so over time what's

going to happen is bitcoin will start becoming much more interesting and the biggest difference for sovereigns between bitcoin and gold other than the practical matters easy to transport transmit hold etc it's fungible is the fact that we keep producing gold all right so gold can have a loss in value because it's not finite supply whereas bitcoin is a finite supply one other thing that um people have been asking me in the last couple weeks is around the hardware you mentioned the liquid immersion and kind of cooling systems that are being built now what else should we be paying attention to there and i think that there's a lot of great chip manufacturers and all this stuff in the AI world. What are you seeing on the Bitcoin

mining hardware side? So if you think of the technology stack in Bitcoin mining, you have power management in the bottom. Then you have processing. And the reason I say that is the Bitcoin mining ASIC, it's calculating a SHA-256 algorithm. It's pretty basic. The secret sauce in ASICs is the power management and how they operate. And having the ability to leverage variable frequency as well as variable voltage. And there's a whole science to that as to why that's important. But you basically have ASIC technology between power management and compute, if you would, in the bottom. You have cooling technology because you want to have the lowest PUE. PUE is a metric of how much energy over and above the production energy is being consumed by

cooling, things like that. And the average AI site has a PUE of about 1.5, which means a third of the energy that's used at the site is not calculating, is not doing compute. It's everything else. If you use two-phase immersion cooling, you can get that PUE down to 1.1, which frees up a lot of energy for use so the technology stack starts becoming important because people will add capacity to the point where this bitcoin mining is a break-even business right in a run-up they will add add capacity and then eventually because that's the way the calculus works um the difficulty rate will get to a point where it's kind of a break-even business And so what you have to look at doing is how do you put Bitcoin mining into all sorts of things where the energy is free?

And so we made an investment in a company that provisions solar systems residentially. If you think about the energy transition and the life of a solar installation on a residential, you have to calculate 20 or 30 years life for the solar system. So it's batteries, panels, etc. With the energy transition, the average home, and I'll use Southern California as an example, has gas heating today, they have gas for hot water, they have gas for their clothes dryer, gas cooking, and they have an internal combustion car and maybe one EV. Fast forward 10, 15 years, especially in California, by mandate, no gas cooking, no gas heating, no gas period, and two EVs. And so if you put in the amount of solar capacity

that you'll need in 20 years today with battery, you've got a lot of excess energy. And if you build a little bit of Bitcoin mining into that battery system, as soon as the batteries are full and the house has all the energy it needs, you just sit and monetize that free solar energy. So we made an investment in a company where we're providing the Bitcoin mining technology. And again, we're a technology company. We're not providing off-the-shelf mining rigs that we buy from somebody else. These are systems we've designed using Auradine silicon that essentially are custom designed for this application. They run part-time.

They generate hot water. And they can run for 20 years on free energy. And so this calculus of you have to update all your machines all the time because you're paying merchant prices. well if you're not paying for energy you just build bitcoin mining into everything that stores energy and so we're really focused on that part how do you just build bitcoin mining into everything that consumes and stores energy so you have free energy and then you have a highly decentralized network you have a network that's never going to stop operating and you have a fabulous way to accumulate a lot of bitcoin sounds good to me fred teal everyone