The Wolf Of All Streets - Bitcoin Frenzy: Exploring Massive Demand and Miner Sell-offs | Fred Thiel, Marathon Digital

Starting point is 00:00:00 Over 16,000 Bitcoin now and will continue to run. Our Bitcoin hodl is over a billion dollars. January of last year, Bitcoin 15,000. You know, here we are sitting at Bitcoin nudging 70,000. So this is all about nation state security and treasury management. New boogeyman. The U.S. government holds 1% of all the Bitcoin. Sounds like you're a few cycles ahead in your thinking.

Starting point is 00:00:27 The criticism of Bitcoin miners that they're destroying the planet, oiling the oceans, using more electricity than sovereign nations has seemingly slowed down. I talked to Fred Thiel, the CEO of Marathon, about what's going on in mining, what they're building and what the future of mining looks like, but also about how the environmental impact narrative is likely about to shift to a much, much bigger industry, and that is AI. You don't want to miss this conversation. And Bitcoin mining is a hot topic right now because we got the halving coming and we're at all time highs.

Starting point is 00:01:15 So it's a rare situation that we really haven't had before. Is it different this time? It's certainly different. I mean, last time when you think about it,, having came, dip in price of Bitcoin, scramble, and then Bitcoin went on. It's kind of its progression upwards. The ETF has thrown everything kind of all the rules out, right? Because you have a vacuum cleaner that's just sucking up all the available Bitcoin right now and between uh the etf and michael saylor um you know if you look at how the market has responded i believe uh and you may know this better than i do but you know

Starting point is 00:01:53 the aum uh held by bitcoin etfs right now is somewhere approaching 40-ish billion dollars which is approaching 50 of the gold it's higher. Yeah, I think it's actually, yesterday it was 53, and we're recording here on Friday, so it went up even slightly. It's probably in the 54, 55, including GBTC. So pretty, pretty wild. Yeah. Yeah, so gold is at 90-ish plus billion of AUM in their ETFs.

Starting point is 00:02:18 So here we are. Took gold 20 years to get here. We're going to do this in three, four months, maybe. Crypto investors in the United States face some major challenges. One of them is that there's almost no way to get exposure to the asset class inside of your traditional investment vehicles. The other thing is the taxes. They are absolutely atrocious. What if I told you there was a way to solve both of these problems? Well, there is. And it's with a self-directed IRA from iTrust Capital. Guys, not only can you open a new self-directed IRA and fund it with the limits

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Starting point is 00:03:20 You have to try this now. Yeah, it's astounding. So what does that actually mean for miners? As you sort of hinted at before, and we know, I guess miners who are a bit weaker or a bit underprepared generally have to sell off quite a bit of Bitcoin just to remain solvent in advance of that slow period awaiting all-time highs in past cycles, right? Like you said, you sort of have the having, it's a non-event. And then six or seven months later, the actual supply reduction starts to matter and prices start to go at all-time highs and we have our cycle.

Starting point is 00:03:53 Now they're probably under less pressure to sell if prices remain where they are. Well, there's another factor. In our industry, it's about capital, capacity, meaning where you plug your miners in, and compute, which is the mining rigs. The mining rigs have been a glut market. People are still able to buy miners. All of the big three miners, we all have orders with locked-in pricing, locked-in supply, well into the future. Capital for the public miners has been easy to raise. The private

Starting point is 00:04:26 miners have had a harder time still because there's no equipment lending like there used to be in the in the rah-rah days. You could go to Galaxy, you could go to NYDIG, you could collateralize these machines. You can't do that anymore. So that favors the people who have access to capital. But capacity is a constraint, right? So there's a lot of orders out there. People have a lot of machines on order and now they're scrambling to kind of find places to plug those in. So the actual hash rate increase will lag. But with the Bitcoin at these levels,

Starting point is 00:04:56 what you're seeing is many miners, not Marathon, but many miners are selling every Bitcoin they generate because they just don't know when the shoe's going to drop. And because they don't have access to credit lines or the public markets, they're having to sell. So, you know, I think we're even seeing some old mining wallets. There was a note somebody wrote, you know, a 10-year-old wallet, you know.

Starting point is 00:05:18 Yeah, a 2010 wallet sent a thousand Bitcoins last Tuesday, right when it hit an all time high and sold effectively. Yeah. And, you know, this week or the end of last week, I believe somebody reported that there had been eight transactions of over 500 Bitcoin each. You know, that's pretty large volumes considering a normal day in Bitcoin is $20 billion of trading. You know, we're now trading close to 50 billion a day of Bitcoin. I think there's a lot of, because the ETFs are cash settled T plus one, I think there's a certain amount of potential market games that are being done by hedge funds and others

Starting point is 00:05:59 where they can go in, buy ETFs, and then the market closes on Friday. The ETF has to buy the Bitcoin on Monday. Bitcoin price is going to rally over the weekend. Then you short that Bitcoin. So I think the market is learning about it. If the CFTC would allow futures that were commodity settled, I was speaking with a trader yesterday and he said

Starting point is 00:06:26 Bitcoin would just run because people would just buy futures, sit on the Bitcoin, take delivery of it, and it would just run. So I think we're in for a very volatile market. You saw the swing the other day. It was a 10% swing. I think we're going to see a lot of that as you get this kind of demand that needs to be fulfilled and then all of a sudden a bunch of coins come on the market you're going to see a lot of otc desks doing a lot of trading the exchanges are still going to be tight i know we get frequent calls from the institutional desks at exchanges just saying hey where can we find bitcoin and so i think uh you know the market's running right now and fingers crossed when the demand kind of abates, we'll settle at a good level for everybody. And then we will sally forth and see

Starting point is 00:07:15 how the rest of the bull market goes. Yeah. And I think we all believe that there is a further continuance of this bull market coming based on past cycles. But as you said, a lot of miners are still selling just in case, right? What if this is the top? That's sort of the mentality there, correct? Yeah. Yeah. I mean, just think about things. January of last year, Bitcoin 15,000. Here we are sitting at Bitcoin nudging 70,000, 65,000. For a miner like us, our SG&A and our operating costs get covered because of the high price of Bitcoin by not a lot of Bitcoin. So our huddle keeps growing. We're over 16,000 Bitcoin now and will continue to run. Our Bitcoin hodl is over a billion dollars. These numbers are kind of quite staggering, I think,

Starting point is 00:08:10 as you look at it going forward. And not to mention the success that MicroStrategy has had with their market cap almost doubling recently. I think people are looking for all sorts of ways to have exposure to Bitcoin. There was a rotation out of the miners into ETFs because of the halving coming up. And I think post the halving, people will go back and see the beta advantages of investing in the miners. And it'll be back to the kind of traditional model of one asset, one of the assets playing off against the others. That's exactly my thesis. People were so surprised that with Bitcoin running this high,

Starting point is 00:08:49 miners were sort of bleeding. Right. But it doesn't make sense if people were buying miners or MicroStrategy or Coinbase or any of these proxies effectively for a spot ETF that they would rotate into the spot ETF once it was approved. Yeah. So, you know, may you live in interesting times as the proverb goes. So do you think that we're going to see sort of one of these mass extinction events post-halving of, you know, a culling of the weaker companies and the individual miners and sort of further consolidation into the larger companies? Or do you think that the high price could fix that or save them um i think it's just putting um an inevitability pushing it out a little bit further out um you know this allows miners to continue to mine uh you still have a large percentage of

Starting point is 00:09:39 the mining fleets that are s19 pro or older those machines are profitable at a hash price somewhere north of seven or eight right now hash price is running in the double digits um post the having the hash price will come down to kind of five ish most probably and what we might even see is uh you know if a hash right dip to four then all of a sudden those miners stopped being profitable yeah and it's a question of attrition how long can they last before um they have to shut things down there's a lot of new hash rate coming online still um and i think uh you know as more hash rate comes online the difficulty will continue to increase those marginally profitable miners will move to break even and to a loss unless bitcoin runs to triple digits and then again even old machines people will plug them into their kitchens and run it off you know

Starting point is 00:10:33 the garage uh utility line but um the way to hit your house it's yeah i i think yeah the one word of warning i would make is that you know the um people think that just because demand for the ETFs is so high that this is the new normal. I don't think that's the case. I think we're seeing pent up demand. I think we're seeing this transition. We're only now seeing the early parts of these pension funds, these assets. You're seeing BlackRock offering the ETF to their broader funds.

Starting point is 00:11:03 You're seeing conservative money managers like Merrill Lynch, Vanguard now saying, okay, for inbound requests, we'll sell you ETFs, but we're not going to go out and promote these instruments. We have to get through kind of this period of normalization. Don't know how long it'll last, but when the demand does normalize, and it will at some point, at that point, volatility will change and we may see a decrease. Last time we spoke, I believe you guys were almost ready in Abu Dhabi. I believe that has come online since, correct? And that is the largest mining facility on the planet.

Starting point is 00:11:44 Is that correct? And that is the largest mining facility on the planet. Is that correct? So talk about that coming online, how that's affected you, and then I guess future plans to continue to scale at that level. Yeah. So we think of our business as kind of in three buckets today. You have utility scale mining, where what we're doing is we're like the Abu Dhabi project, like what we do in West Texas. We have hundreds of megawatts, which we are able to curtail whenever the utility needs it as part of a demand response mechanism. And these are projects where you're helping the grid load balance. And that if you look in the United States today, miners are beginning to compete with AI companies. The Googles, the Amazons of the world right now, they're looking for access to reliable power. It has to be available 24-7 and a high-speed internet connection. And so if you look at certain parts of the US, and Amazon just did, AWS just did

Starting point is 00:12:41 this deal for $650 million for a data center by talent energy, where they went out and they locked up a project where they could get 650 megawatts of power. So the miners are going to be competing against AI companies for these types of sites. The good thing is miners don't need access to high speed internet, we can go into stranded locations and use satellite links very efficiently. That's one bucket. The next bucket is what we've talked about is energy harvesting. This is where we're doing things like landfill methane gas, biomass. That is going to be a growing part of our business over the next four years. These projects take a long time to turn on. So you'll start seeing some

Starting point is 00:13:21 reports this year of progress in that area, but it really starts turning on in the outer years. And then we have our technology business, which is where we sell firmware, we sell our immersion technology, and those products are just really starting to be sold now. And we have our first early revenues of some of those products. And those provide miners and data center operators with a lot of efficiency gains in cooling and other things like that. So we believe that's a good diversification play. Internationally, we're looking at a lot of our large-scale projects. The African continent, we recently co-sponsored a Power in Africa conference in Washington, D.C., where we had heads of the power companies from the African nations come in.

Starting point is 00:14:05 And we talked a lot about what we're doing in Abu Dhabi and how we could help do that in their countries. And so we're very proactively going out. And we've gotten actually quite a lot of very positive support from the foreign commercial services arm of the U.S. government, where they are obviously very interested in fomenting U.S. inbound investment into African nations because of the China competitive threat. So that's been very good. We will expand in Latin America as well. And we're expanding our Abu Dhabi facility with additional hash rate. And so we're going to continue to see all these things growing. And based on the pipeline of machines that we announced on our earnings call, we have

Starting point is 00:14:47 the ability to get to about 70x a hash just based on what we have coming in. Which is incredible. It sounds like you guys are taking over the world. Interestingly, you're talking about Africa. It seemed wildly underreported recently that Ethiopia, I believe, is mining Bitcoin, correct? I think in the past, there was reports Bahrain. I don't want to say the wrong country, but I believe Bahrain. We know that Qatar now is meeting with Nayib Bukele and eventually talking about these

Starting point is 00:15:15 things. Doesn't seem like anybody's talking about the fact that sovereign nations are now mining Bitcoin or that they always were. Yeah, I mean, I've been talking about this issue for a long time. It's the sovereigns are the single biggest competitors to the large public miners because they're really not interested in the cost to mine. They're looking to mine Bitcoin because they want to hold Bitcoin as a reserve asset. And if you hold Bitcoin as a reserve asset, you need to be able to ensure you can transact your Bitcoin. The only way to be able to ensure you can transact your Bitcoin is to mine it yourself. So there's a million Bitcoin plus or minus left to be mined between now and

Starting point is 00:15:51 2140. No sovereign nation is going to sink a billion dollars into infrastructure to go mine Bitcoin because they're thinking they're going to mine that million Bitcoin because their pro rata share will be a much smaller piece of that. So this is all about nation state security and treasury management. And I think what we're going to see is you've seen a huge amount of gold being purchased by central banks, these nations, because they don't want to be dollarized or they want to reduce their exposure to the dollar. You're going to continue to see that with Bitcoin.

Starting point is 00:16:21 Now people are going to countries are beginning to allocate to Bitcoin as a way to hold a certain amount of reserves. There's a lot of testing going on. You got to realize that with only 21 million Bitcoin and the actual trading venues for Bitcoin are fairly limited still. You have Binance outside of the U.S., which is the biggest exchange. Coinbase in the U. US, Gemini, etc. If you're a sovereign and you happen to be sitting on 10,000 Bitcoin and you happen to need to go buy a battleship or something, these are large chunks of Bitcoin that may or may not go on and off the market.

Starting point is 00:16:57 So I think people are a little wary. They're going to want to test. I've certainly seen some stress testing going on on some of the ETFs. There were some hedge funds that were doing high velocity tests. 10x the volume, does it work or doesn't it? And it seemed to work fine. So I think this is a developing market. The demand is going to continue to develop, but it's going to be very volatile. When you talk about sovereign nations adding Bitcoin to their central bank, effectively,

Starting point is 00:17:29 the few people who are telling the mining story are not including that part. It's talked about as this future theoretical narrative that might happen far down the road, that some central bank somewhere is going to add Bitcoin to the balance sheet. And you're basically saying that that's exactly what's happening here. Yeah. And let's face it, the U. the US government holds 1% of all the Bitcoin. It's not a reserve asset. I don't think Senator Warren would admit that, certainly. But the US government, because of what they have essentially confiscated from criminal activities, sits on 1% of the available Bitcoin. What's really amazing, you look at GBTC,

Starting point is 00:18:07 a lot of the selling currently in GBTC is still bankruptcy-related sales and liquidations. It's not people saying, oh my gosh, the fees are too high and I'm leaving. There's some of that. But I think generally speaking,

Starting point is 00:18:21 once those bankruptcy sales are completed, the net inflows number will grow potentially. And it's not abating right now. I don't think people are jockeying for a position with fees at all, to your point. I think that there's the forced selling of those bankruptcies. And then there's the people who are trading the discount. And they sold when it closed. And that's what we saw early. But yeah, I think GBTC will actually,

Starting point is 00:18:47 they've done the math, right? They didn't accidentally keep the fees exactly where they were. They've done the math and they know what they're doing and have clearly calculated how much we'll leave and for what reason. So I tend to agree with you. And I think that these are going to grow massively.

Starting point is 00:19:02 Now, there's always this idea that one day there'll be no more bitcoin left to mine and miners will go out of business and oh what was me who will be there to secure the network how much have uh ordinals and brc20 tokens and all this other activity now happening on bitcoin alleviated that fear i think there was great proof last year. In May, we had a big bump with Ordinals the first time around. Transaction fees ran up over the block reward. So in other words, transaction fees exceeded six Bitcoin in a block, in addition to the six and a quarter Bitcoin that the subsidy was. In December, we had another month where that happened. We were mining some blocks that had over seven Bitcoin per block in transaction fees what you've now see is kind of the interest has abated um

Starting point is 00:19:50 transaction fees have come down they're still much higher than historical numbers but they're not as high as they were in may and december but we recently launched for example uh a product called slipstream this is a block reservation system so you know imagine all these financial institutions who are trading bitcoin traditionally you put your transaction in the mempool you pay a fee to try and prioritize that further up in the queue if you would um with our reservation system people can now essentially reserve space almost like a seat on an airplane if you would in blocks and it's kind of use it or lose it and um when people do that they pay us a fee over and above what we get in the way of transaction fees and block subsidies and so between that we also launched

Starting point is 00:20:37 our l2 uh enduro platform which is open source to the public. We've given it to the community. There's already a sidechain on that, which allows you to essentially use functionality of the EVM, but secure it on the Bitcoin blockchain. That's a sidechain called Alice. Enduro lets you build any sidechain you want, and it's secured on the Bitcoin blockchain. Where people like Stacks and side chain you want and it's secured on the bitcoin blockchain and you know where people like stacks and others issue tokens and charge for it again we've given this to the community we think um the more we can remove the friction from enabling applications on the bitcoin blockchain the better but longer term for us our energy harvesting business is all about generating

Starting point is 00:21:22 energy getting paid to generate that energy. We convert the energy into heat and we sell the heat back into an industrial process because the vast majority of electricity used by industry is for heating things and it's low grade industrial heat. In doing that, that business, in theory, based on our estimates, the cost of energy to mine Bitcoin is zero, which means we can continue to mine Bitcoin, even if the block reward is a few sats and transaction fees are moderate.

Starting point is 00:21:58 So we're here for the long run. We view Bitcoin mining as a necessary part of securing the blockchain. We're going to continue to grow, continue to secure the blockchain even more. And we're going to continue to develop technologies that allow people to leverage the Bitcoin blockchain and make it even more useful, which means more transaction fees, which means more revenues for miners, more reason to keep the blockchain secure. A year ago, we were using more electricity than the country of Argentina, and we were boiling the oceans, and Seneca Lake in New York was on fire. Seems like the environmental attacks have subsided. I mean, not from the Elizabeth

Starting point is 00:22:37 Warrens of the world and such, although she's moved on to false stories about terrorist financing instead. Have you noticed at all that there's a little bit less criticism about the environmental impact of Bitcoin or are we just not hearing about it as much on our end? I think the power argument has academically been proven to be false regarding that you add Bitcoin mining, more fossil fuel comes online. So that narrative has been debunked. Are there places where Bitcoin miners are competing for energy with other people? Yeah, it's when the AI guys come in. I think the AI is going to use much more power than the Bitcoin mining industry globally uses.

Starting point is 00:23:21 And it's going to use many factors of magnitude more. And the problem is they need the energy 24-7. Unlike Bitcoin miners who can shut down when the grid needs the energy, AI wants to keep running and they want clean energy. So they're trying to take the nuclear energy, which is baseload energy. Now that does impact energy prices because now the grid has to use higher levels of energy that's more thermal related. So I think if you were to have an ear in the boardroom at some of these large hyperscalers,

Starting point is 00:23:55 I think you would hear them say, we want renewable energy, but if the only thing we can find is coal, let's go turn on a coal plant. You don't hear Bitcoin miners talking about that at all. So I think that whole narrative is going to shift to the AI guys. And plus the AI companies use a lot of water in what they do. And Bitcoin miners typically don't use water. We especially don't use water at all because our immersion technologies are closed loop and they're not water-based at all. So yeah, I think the narrative is going to shift to the AI.

Starting point is 00:24:27 New boogeyman. A new boogeyman. New boogeyman, but they have a lot of money and big lobby. And I wouldn't be surprised if the AI guys partner with the battery companies to try and make Bitcoin still look bad so they can take the power. But it'll be an interesting market. They'll find a way. We know that when the bulk of the hash rate was in China,

Starting point is 00:24:47 that Bitcoin wasn't necessarily the cleanest mining in the world. I mean, what percentage would you say now that things have shifted so massively over the past few years, what percentage would you say of Bitcoin mining is using renewables or cleaner energy? I don't know exactly what the metric or terminology being used now is, but obviously the trend has been in that direction. Yeah. Sustainable energy, which includes nuclear, but not natural gas. And it's not net of carbon credits. So it's gross use. So no funky accounting. It's about 56% for the industry globally. That's a very high number. Oh, absolutely. I mean, we were in the 30% range two years ago. So no industry has transitioned

Starting point is 00:25:33 as quickly as the other Bitcoin mining industry. And again, we need and want stranded energy. And there's a huge amount of stranded renewable energy available because there is lack of transmission. The single biggest factor limiting the U.S. and its ability to transition to clean energy is lack of transmission. And that's because how the utility model is created. The utilities have no incentive to add transmission because it's hugely capital intensive and they don't get paid enough for it. So to be clear, you're talking about lost energy as it travels over long distances from the plant to where it eventually ends up being used. Is that correct? Well, partially that, partially the fact

Starting point is 00:26:13 that if I go build a solar plant today, a solar farm, I can't get it connected to the network. I can't get it connected to the grid. That's interconnect and transmission. 84% of the projects, there was a FERC report that was published late last year. 84% of the projects, there was a FERC report that was published late last year. 84% of the projects for renewable energy in the United States will likely never come to fruition because of lack of transmission. That's crazy. That's crazy.

Starting point is 00:26:35 $3 trillion is needed to get there. And Bitcoiners can go right to the source, right? So you don't have to worry about any of that. Well, then I look forward to a time when the environmental FUD dies completely. I have to ask you, as we kind of run towards time here, what are you excited long tail of Bitcoin mining. Eventually intelligent devices, and I have a big background in the IoT world, intelligent devices like battery systems, like EVs, things that store electricity in volume or things that consume electricity in volume will have intelligence added to them

Starting point is 00:27:22 so they can make decisions regarding, do I use grid energy? Do I use battery energy? Do I use my excess energy to mine some Bitcoin? What am I going to do with my energy? And you're going to have essentially distribution of decision making regarding demand response go down to the device level. And there will be very interesting marketplaces that will sit and trade this energy. Because at the end of the day, it's just electrons.

Starting point is 00:27:47 When you get a little bit of Bitcoin mining in every single battery, every EV, things like that, you now have a hugely decentralized Bitcoin blockchain where the cost of energy to mine is not a factor in whether you're doing it or not necessarily. And so now you have the long tail. You'll have utility-scale miners like ourselves, and then you'll have this long tail of space heaters sitting in a home, a battery power wall. These are very interesting potential new businesses

Starting point is 00:28:16 for the Teslas of the world. And I think we're going to see this orthogonal competitive competition for hash rate, which is going to be these tiny little devices. It's like you think about the internet, the long tail. We're about to see the long tail of Bitcoin mining start over the next four or five years. The technology is not there. We're obviously driving a lot of innovation in that side. But I think where you're really going to start seeing this appear is kind of 2028 and beyond. But I think where you're really going to start seeing this appear is kind of 2028 and beyond. Sounds like you're a few cycles ahead in your thinking.

Starting point is 00:28:52 I'm a futurist. That's a good thing. Somebody has to be. And that's probably how we've ended up debunking a lot of these myths and actually fixing the things that were broken. So, you know, rather than just towing the line and continue with the same old processes that did have some problems, right? I mean, it's not like Bitcoin mining has always been perfect. So it's good to know that it's advancing the right direction.

Starting point is 00:29:13 Fred, thank you so much. Where can people follow you after this conversation and check out everything Marathon's doing? I'm on Twitter, or X, formerly known as Twitter. F-G-T-H-I-E-L, same place on Telegram or just Mara.com is our website.

Starting point is 00:29:30 Thank you so much. Great to catch up. I wish we had more time. We're going to have to run this back sooner than later if that's okay with you. Absolutely. Anytime. Love talking to you. Thanks so much, Fred.

The Wolf Of All Streets - Bitcoin Frenzy: Exploring Massive Demand and Miner Sell-offs | Fred Thiel, Marathon Digital

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