The Pomp Podcast - #881 Mine Bitcoin Now, Pay Later w/ Wit Gibbs & Zain Allarakhia

Starting point is 00:00:00 What's up, everyone? This is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Now, let's kick this thing off. Whit Gibbs is the founder of Compass Mining, and Zain Al-Raqqai is the founder of Pipe. In this conversation, we talk about the brand new partnership between these two companies that will allow people to actually finance mining equipment using Pipe's innovative recurring revenue marketplace. Ultimately, I think that there is going to be a ton of innovation around these technologies. Pipe is leading the way on creating a brand new asset class, and Compass Mining is providing a brand new way for anyone in the world to get in the mining game. I really

Starting point is 00:00:43 enjoyed this conversation with both Witt and Zane, but before we get into it, I first want to talk about our sponsors. Today's episode is brought to you by Copper. Since 2018, Copper has been at the forefront of institutional digital asset development. From award-winning custody solutions to creating the first truly off-exchange settlement function. Copper pioneers technology, products, and services in lockstep with a rapidly changing world. No other infrastructure provider covers as many assets across as many exchanges with the speed and security

Starting point is 00:01:11 that Copper can offer. To learn how Copper helps the world's largest institutional investors secure their digital assets, head over to copper.co. Again, Copper, the unfair advantage. Check them out at copper.co today. Next up is Compass Mining. Compass Mining is the world's largest marketplace for mining hardware and hosting. With Compass, everyone can mine Bitcoin. Their team makes it easy to start mining wherever you want, at home or in one of their 23 hosting facilities around the world. Through the Compass Marketplace, retail miners can access mining hardware with similar prices

Starting point is 00:01:47 and purchase plans as the world's largest mining companies. Compass miners own their machines, they choose whatever mining pool they want, and they mine directly to their own wallets. Miners who don't want to host their machines can order ASICs directly to their doorstep. Simple and low-cost hosting agreements coupled with best-in-class customer service are the reasons why Compass is the simplest and most popular way to mine Bitcoin. Start mining your own Bitcoin today by visiting compassmining.io. Again, compassmining.io.

Starting point is 00:02:19 Go check them out and let me know what you think. This episode is brought to you by Bullish. Bullish is a powerful new digital asset exchange built for institutions that delivers the innovations of DeFi in a regulated environment. The Bullish hybrid order book pairs the high performance of a traditional central limit order book with the automated market making. Powered by deep Bullish liquidity pools backed by the multi-billion dollar Bullish treasury. so you can trade with certainty and at scale across variable market conditions.

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Starting point is 00:03:11 All right, let's get in this episode. I hope you guys enjoyed this one. Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only. Zane, how are you? Good. How are you? Good to be on.

Starting point is 00:03:40 I know, dude, I'm super excited about this. As many people in the audience know, Pipe is one of my favorite companies because it is just absolute savages it takes to create a business where you create an entirely new asset class from scratch and then not only create the asset class, but then scale it to the size you guys have scaled it in such a short period of time. So maybe let's start first with just like, what is Pipe and how do you guys think about this creation of a new asset class around recurring revenue? Absolutely. Well, thank you for the kind words, honestly. I would say the way to think about Pipe is it's a way for companies to get non-dilutive financing through selling their recurring revenue. Because if you think about it,

Starting point is 00:04:23 when you close a deal that's for a certain amount of dollars per quarter or per month, you're basically minting a fixed income asset. And because we're able to underwrite it on the asset level, on the contract level, we get better terms than oftentimes venture debt. And the way we look at it is that if you have a growing company and you have high revenue retention, you have a solid runway, there's no need to dilute your company as a first resort to getting financing to acquire cohorts of customers or invest in R&D or anything like that. So when you think about this, there's obvious reasons. And for those that don't know, I think I want to hang my hat on the fact that I was the very first person to ever pipe sub stack revenue, where I took the recurring revenue, I piped it, I got, I don't know, 90 something cents on the dollar. And then I took that and I went and I bought Bitcoin. And the whole idea was I could basically pull future cash flow into the present day, and then use that for whatever purposes I want. And I chose to go buy, buy Bitcoin.

Starting point is 00:05:22 But that was done via what I'm going to call the marketplace, right? Kind of the first product you guys launched. You're now launching an API and explain the difference between like the marketplace via the API and why are you guys creating this API? Absolutely. So they're actually connected. So the API is created because there's a lot of businesses that have recurring revenue that are not built on Stripe subscription billing or QuickBooks invoicing or something

Starting point is 00:05:50 that has an API that we can connect to and pull your data out. So this is trying to serve companies that don't have one of the integrations we support and want Pipe to be part of their capital stack. So we let people directly plug into Pipe and send us their data. And then we triangulate it with their bank accounts data and their accounting data to ensure it's fully accurate, fraud proof. And then we let people trade those revenue streams. Got it. And so the first at least customer that you guys are publicly talking about is Compass Mining. It's going to use this API to allow people to mine now, pay later, which is just a great name. Explain what's happening here in terms of folks who want to mine cryptocurrency. How are they interacting with the

Starting point is 00:06:38 API and what does this allow Compass to do for their customers that they previously couldn't do? For sure. So before I even go there, I think one thing to note is that it's particularly interesting that it's connected to Bitcoin because we know fiat is inflationary, highly inflationary. And I think what you did was a pretty smart and epic move. And I think because, you know, if you have the supply of fiat constantly going up and you have a fixed supply of Bitcoin, it makes a lot of sense. And that's why we're excited about this vertical partnership with Compass. And so what we've done here is Compass sells their hardware on installment payments, and that's basically recurring revenue on Compass's books. They then can register that through the API and then trade that like you did on the marketplace. And through that, they're able to offer – extend that financing to the customers that purchase the hardware.

Starting point is 00:07:30 Yeah. And so when they do this, basically what Compass is doing, to be clear here, is the API itself is not crypto specific in any way. Any business in the world could go and use this API. But Compass is using it very specifically because mining has this almost recurring revenue type model to it. And they're able to actually leverage this API to allow customers to come in, get access to financing, start mining, and then over time pay it off. But it's non-dilutive as well and acts almost more like a debt offering than it does any sort of equity dilution. Yeah, exactly. So there's no crypto moving on pipe. We're just literally the capital U.S. dollar-based. I think Compass is a particularly good use case, but we're vendor industry agnostic. So we have D2C companies that sell recurring subscriptions. We have SaaS, we have insurance companies, we have pro sports, et cetera, et cetera. We're industry agnostic. We actually like the diversification because it makes our buy side, the investors purchasing these assets, really happy that they get really diversified on Pipe. Got it. And so when you start to think about Compass, they've been doing this for a while internally, is my understanding, of using this to essentially help finance the miners. What have they been doing there?

Starting point is 00:08:52 So you're saying how had Compass been using this? It's when somebody makes a hardware purchase that they can't pay for upfront or they don't want to for any reason, they get into this installment agreement with Compass, and Compass then takes those installment payments and sells those revenue streams on Pipe so that they can purchase the hardware from Bitmain or whatever supplier they're working with and purchase the machine, send it to the customer. and then, uh, they're made whole. And then pipe ends up collecting the monthly installments. Uh, and those are the fixed income streams that go to our investors, uh, the buy side. And that spread is their yield. Got it. And so when you think about this idea for pipe, who's on the other side, like who's buying, uh, the actual, uh, recurring revenue streams, right? So when I went and I did the, uh, the sub stack revenue or somebody does the mining, is this like Joe blow down the street? Is this, you know, sovereign wealth funds? Is it anyone in between? How do I think about who's buying it? It's a mix. So there's hedge funds,

Starting point is 00:09:53 there's family offices, there's bank consortiums. I mean, we're offering a really attractive asset class. When you think about it, it has attractive yields and it's tied directly to an end contract and it's super diversified, right? And unlike a corporate bond or something like that, these assets are not tied to general debt, general company expenditures. This is tied to servicing a contract. And I think that's the key here. And imagining having a portfolio of future recurring revenue diversified across Bitcoin mining, SaaS, insurance companies, this to me is the ultimate fixed income asset on planet earth right now. Well, and when you especially look at the legacy fixed income assets that are absolutely in the toilet right i mean just trash to put in your

Starting point is 00:10:45 portfolio this becomes even more attractive because there's the uh the desire in many cases to get fixed income uh exposure but if the legacy opportunities don't look so hot especially on a real return basis with eight percent inflation now all of a sudden something like pipe uh steps in and says hey look we can actually offer you uh an attractive uh way to get exposure to fixed income But also, I would argue, in a risk mitigated way, right? The risk mitigation actually is super interesting here. If you're buying up recurring revenue of a software contract or mining or something like that, compared to going and speculating on other types of debt opportunities. A hundred percent. And at the end of the day, like is unattractive. I was listening to what you were saying earlier on the call. You know, as unattractive as holding fiat is, there is a world out there of banks, of all these neobanks and things like that. They need to power their deposit yield. And this could be a part of that. I mean, we're for any institutional investor. Yeah. Have you guys looked at, kind of on the mining side, what this looks like for individuals? Are they able to expand how much Bitcoin hash rate they're able to get access to? What does it actually look like if somebody uses Compass's offering of the Pipe API versus if they don't? I think Whit could answer that question. He just came on.

Starting point is 00:12:07 Hey, everyone. How are we doing? We're doing great. How are you, buddy? Good. Sorry for the delay, fellas. No, you're right. It's a big day for you guys. We're just talking real quick about the Compass customers as they use the Pipe API via your offering here. What does that look like in terms of what they're able to do that they previously weren't able to do? Yeah. So ultimately, when it comes down to it, they can get on the site and instead of buying one machine, they can leverage this product that we've been able to launch with Pipe, our Compass payment plans, and buy two, three, four machines for $10,000 and spread the rest of those payments out over three, six, nine or 12 months. Got it. And so in that situation, obviously, the recurring nature of the revenue that comes from Bitcoin mining is really attractive, given Pipe's business model. And you guys understand that really well at Compass. Help me understand in terms of what does that do to the returns or the Bitcoin that is actually generated via the mining activity? Does this completely demolish it and make it less attractive? Or is it still just given Bitcoin kind of mining environment today, it's still really attractive even with the payment plan? I mean, it's very attractive with the payment plan. If you think about it, more today is better than more tomorrow when it comes to Bitcoin mining. So if you're looking at one ASIC that's going to generate you, let's call it $600 of Bitcoin a month, you can up that to $2,400 of Bitcoin a month for effectively the same entry price, and then just spread your payments out over the period of time to pay those machines off. So it can be very beneficial for miners. Got it. I've got two of my brothers, Joe and John here. Joe, what question you got?

Starting point is 00:13:40 Hey guys, if you could just talk maybe at an overgeneralized sense of how this differs from traditional buy now, pay later programs and what you guys are doing that's maybe different for the average consumer. Absolutely, I can take that. I think the major difference is that because Pipe is underwriting things on the industry level, we're able to get better pricing. And because we're selling it to a consortium of investors that actively bid against each other, you typically when we do this integration and we understand the business, we're able to get significantly better pricing than you would get with like a loan from a third party. And I mean, significant is an understatement, right? Like when you're looking at a cost of capital, I mean, even for a lot of these large miners who are going out and getting deals with some of the people who are providing financing, you're looking at low teens for the cost of capital. You know, with us, we're somewhere between seven and 10%, depending on the length

Starting point is 00:14:37 of your payback term. And in some cases, it's even lower. So it's been very attractive. And our customers so far through the pilot programs have responded well to this option uh just in the first couple of days of offering this as a test through the compass website we saw about 18 million in piped uh and that's what we call it piped machines for um for those that went through the the pipe payment plan on the compass website wow john what do you got zane with i'm not sure which one can handle this a little bit better but my question would be more about like the fees and the structure behind this financing and how that all works? Sure. I can take that one. What we do is we, Pipe doesn't, so this is the thing, it kind of ties back to the earlier question.

Starting point is 00:15:21 Pipe doesn't profit. We're not a balance sheet lender. So we don't earn more money if we charge a higher rate. And pretty much every other lender on the planet earth or financer, they make more money, the higher rate they charge. We're just simply a marketplace, uh, for, um, uh, for this exchange. We charge a flat trade fee to our institutional investors. So institutional investors bid that bid on the price. We walk in the best price and we charge them a flat trade fee. Yeah. This is fascinating. When you guys start to think about this, like how big of size can people do, do something that is, if I show up and, you know, I want to do a hundred thousand dollars to buy uh mining rigs that seems like that's pretty plausible here but if i showed

Starting point is 00:16:07 up i said i want to do a hundred million dollars of uh mining rigs is that something that compass could facilitate and also pipe could facilitate i mean we we have we have we have limits based on each company we work with and we draw them up and down based on financial characteristics uh to be a good fiduciary to the investors but i i would say i think i think we can go higher for certain industries than others. I think Bitcoin mining is interesting because, uh, you know, you have this hardware components, uh, it may, it makes it lower risk. Um, so I couldn't comment on a specific trade limit, but we definitely try to scale up the longer we do business with someone and the better we understand it. Got it. And then, uh, wait, if I step in and I'm like, yo,

Starting point is 00:16:47 go get me as many machines as you can. How long is it going to take you till I can plug them in? So we have machines right now that you can plug in. And I think it's actually your home state of north carolina um we've got some m30s that if you go to compass mining.io today you can buy those and they'll be plugged in and online within 72 hours wow how much does that cost the machines are listed for around fourteen thousand dollars so if we drop fourteen thousand dollars today in 72 hours we could be mining and there are fourteen thousand dollars uh if we wanted to use the pipe api what could we get for the fourteen thousand dollars let's let's do a little deal here well if you if you just wanted to come and do it with the pipe deal then you could take

Starting point is 00:17:32 that fourteen thousand instead of buying one machine you could buy call it three uh and then we could spread those payments out over three nine or twelve months for you all right and so if i got three machines now for the price of ones like a you know a triple deal here uh how much bitcoin am i going to be mining uh generally given the uh the current difficulty and hash rate call it about 60 a day with all three machines so 20 20 uh 20 of bitcoin each day per machine all right joe's got his calculator out ready to rock and roll 60 times 30 let's see here real quick hold on nobody uh nobody's getting off this call so we get a deal done 1800 so 1800 per uh month but then on top of that uh we would have to pay the payment and zane do we have any idea in terms of

Starting point is 00:18:19 uh if we piped that what that would look like from uh how much pipe would be uh borrowing from us back to give to uh to investors sure so how what was the cost of each machine again with about 14 000 okay 14 000 and then let's say we're spending it over 12 months if you're in the audience you better not front run me i don't want any front runners out here i mean it's too good of a deal i i feel bad saying it out loud now let's see so forth it's 1166 then add the extra time yeah it would cost you about a 1200 a month per machine so for all three 3600 a month and you're yielding 1800 a month right how much were you yielding with yeah so uh but the beauty is is that you pay back uh you're done paying for it in 12 months and after that it's all

Starting point is 00:19:11 share profit for five years um so the analogy i like to think so wait hold on hold on because i'm not smart you get you two are too smart for me hold on a second so i'm generating eighteen hundred dollars in cash flow how much am i paying of that eighteen hundred to pipe the revenue i mean uh so like what do i get here's the short this is like the dummy it's the dummy version how much money i get left over after this so here's how you have to look at it though right Instead of paying $40,000 up front to buy those machines, you're paying $14,000 and you're starting to drive that revenue in. So you're going to get that $1,800 a month. You do have to pay for these machines each month.

Starting point is 00:19:53 Correct. So you're going to be paying $1,200 effectively per machine per month as you start to pay that back. So you're still going to have your same ROI principles when it comes to Bitcoin mining, only you're able to get in with more machines. You're still going to see an ROI on those machines. over the course of 12 to 16 months, but you're going to generate more Bitcoin up front. So you're not waiting to generate more Bitcoin. Like a lot of people, they'll wait until they've raised more money or they've got more money so they can buy a new machine. Now you can start generating all of that Bitcoin from the get-go. And if you want to get out of more of your dirty

Starting point is 00:20:29 fiat, you can do that and just pay your pipe bill off with the fiat that you're generating from your day job every month and convert that into Bitcoin faster. All right. So when I go and I do this, right, let's say I do the $14,000, I end up with three machines. Do I pay additional money every month or the money is coming out of the profits and that covers the cost that I have on a monthly basis? Or am I basically paying on a monthly basis on top of the initial $14,000 investment and then after some point I break out and then it's profit? So the latter. We never touch your Bitcoin. So we're not deducting anything from your Bitcoin. You get all of your Bitcoin to your wallet. We bill you, you pay for it. So you're going to pay for your machines.

Starting point is 00:21:08 You're going to pay for your power, just like you would if you bought your machine upfront from Compass. So none of that changes. It's just more Bitcoin is going to be hitting your wallet every month for the same initial entry price. Got it. That makes sense. So basically, this is a way for you to get more for less upfront, and then you still have the payment plan of paying it off. It's just that now it's a way to convert the actual Bitcoin into to, um, uh, to get the Bitcoin into the wallet. And then if you're smart, no financial advice, but if you hold the Bitcoin rather than sell it, then that usually tends to be pretty good idea. I mean, you're effectively mortgaging your ASIC, right? So you've got an income producing

Starting point is 00:21:44 vehicle and your ASIC that you've mortgaged. So you're just provide your, now you have access to these financial tools that have been available to other investors for a long time that have not been available to retail miners until, you know, pipe started off for them. Yeah, that makes sense. Uh, this sounds really weird, but I have a friend, he's going to kill me that I say something like I say his name. Uh, he recently told me that he bought a bull, like an actual, like one ton bull with a couple of his friends. And I thought that was a cool investment, but I may have to divert my funds and not go buy a bull. And I may, uh, I may be coming back over here to this. Uh, all right. Uh, where can we send people to find out more about this if they want to go and learn more

Starting point is 00:22:22 about it or potentially, uh, participate and, uh, and buy some machines. Zane, why don't you talk about pipe first and then I'll direct people. Sure. I mean, if you're interested in using the pipe API, just sign up, get in touch. Uh, and, and I'd love to talk to you, uh, personally or anyone on our team. Um, uh, this works for any industry, whether you're SAS, Bitcoin mining, uh, DTC. So please get in touch. Awesome. And then, uh, wait, where should we send them to find out more about compass? Yeah. If you want to buy machines today and get started mining in 72 hours, you go to compass mining.io, click that hardware tab right up at the top. It'll take you to a selection of machines, uh, select the M 30 S's in North Carolina, and we'll get you plugged

Starting point is 00:23:07 in in 72 hours. I love it. You guys are both legends. Uh, if you are interested in mining, go check out compass mining and obviously, uh, pipe user, raise your hand if you're a user. Yep. I'm a user. I went and I piped that. Oh, wait, wait as well. Exactly. Uh, awesome guys. listen thank you guys so much for coming on this is huge news you guys been working on this for a while so congrats on uh on the launch and i'm super excited to see uh everyone's reaction uh before i let you go though uh i gotta ask i since the deal was so complex so hard to do so much hard work one of our sponsors is eight sleep and i sleep like a baby on the cold mattress do either one of you use an eight sleep or are you guys uh changing your sleep schedule at all are you are

Starting point is 00:23:53 you asking? I don't use an eight sleep, but I'd love to try. Zane, buy one, man. Come on. Pipe's like worth a gazillion dollars. Let's go. I still sleep on the mattress side 10 years ago. So, uh, yeah. Anyways, last thing. Yeah. I will say the last thing, pipe.com slash mining. Check it out. Oh, amazing. Amazing. All right. Uh, wait, any, uh, any movement on your sleep schedule? i'm excited to get more sleep i'm still trying to get the family out of eastern europe right now so uh i'll sleep more when i'm over in the united states again safe and sound all right i appreciate both of you guys uh anyone who's interested also uh i just got told we have a url we're special

Starting point is 00:24:40 pipe.com slash pomp you can go check that out too yeah look at that by the way that just means that we're ballers over here so uh you can go check out pipe.com slash pomp as well uh all right guys i appreciate you guys jumping on and uh we'll definitely have to get a update a couple months from now to see how uh how people have been using this so far thank you gentlemen all right later guys take care bye thanks so much for listening to today's episode i really hope you guys enjoyed this one make sure you're subscribed on apple spotify or your favorite podcast player and if you're looking to try to transition to get a new job in the bitcoin or crypto industry we've got you covered head over to pompscryptocourse.com we've developed

Starting point is 00:25:20 a curriculum with the top teams across the industry. It's a three-week intensive training program with over 50 events packed into that three-week time period. Go to palmscryptocourse.com to learn more, and I'll meet you guys for the next episode.

The Pomp Podcast - #881 Mine Bitcoin Now, Pay Later w/ Wit Gibbs & Zain Allarakhia

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