The Wolf Of All Streets - Transforming Tomorrow: Marathon Digital's CEO Fred Thiel on the Global Impact of Bitcoin Mining

Episode Date: April 23, 2023

Fred Thiel is the CEO of Marathon Digital, a leading Bitcoin miner in the US. In this episode, we discuss the correlation between Bitcoin price and the hash rate, the geography of Bitcoin mining, the reasons why Russia is starting to play a significant role in the industry, the environmental issues of crypto mining, and much more! https://twitter.com/fgthiel ►►THE DAILY CLOSE BRAND NEW NEWSLETTER! INSTITUTIONAL GRADE INDICATORS AND DATA DELIVERED DIRECTLY TO YOUR INBOX, EVERY DAY AT THE DAILY CLOSE. TRADE LIKE THE BIG BOYS. 👉 https://www.thedailyclose.io/ ►►BITGET GET UP TO A $8,000 BONUS IN USDT AND GET MASSIVE DISCOUNTS ON TRADING FEES! 👉 https://thewolfofallstreets.info/bitget ►►NORD VPN GET EXCLUSIVE NORDVPN DEAL - 40% DISCOUNT! IT’S RISK-FREE WITH NORD’S 30-DAY MONEY-BACK GUARANTEE. PROTECT YOUR PRIVACY! 👉 https://nordvpn.com/WolfOfAllStreets ►►COINROUTES TRADE SPOT & DERIVATIVES ACROSS CEFI AND DEFI USING YOUR OWN ACCOUNTS WITH THIS ADVANCED ALGORITHMIC PLATFORM. SAVE TONS OF MONEY ON TRADING FEES LIKE THE PROS! 👉 http://bit.ly/3ZXeYKd ►► JOIN THE FREE WOLF DEN NEWSLETTER, DELIVERED EVERY WEEK DAY! 👉https://thewolfden.substack.com/ Follow Scott Melker: Twitter: https://twitter.com/scottmelker Web: https://www.thewolfofallstreets.io Spotify: https://spoti.fi/30N5FDe Apple podcast: https://apple.co/3FASB2c #Bitcoin #Crypto #trading Timestamps: 0:00 Intro 1:20 Bitcoin price and hash rate 3:00 Bitcoin mining cycles 5:50 Mining in China 8:20 Geography of Bitcoin mining 10:00 Geography diversification 13:10 Environmental issues 17:55 Anti-crypto agenda 23:35 Threats to Bitcoin mining 32:00 Russia & Bitcoin 35:50 Fred Thiel’s way into crypto 39:00 What is Bitcoin? 42:00 Bitcoin vs other blockchains 45:20 Existential threat to Bitcoin The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. This video was created for entertainment. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor. Nothing contained in this video constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to "Buy," "Sell," or "Hold" an investment.

Bitcoin mining has taken the brunt of the FUD and negative news and attacks from regulators and legislators historically for the entire crypto industry. But most of what they're saying is completely false. And Bitcoin and Bitcoin mining have a very, very bright future. I spoke with Fred Thiel, the CEO of Marathon Digital Holdings, about all of the promise of Bitcoin mining, what's happening in the industry and what the future holds. In the crypto space, there's long been a debate about the relationship between Bitcoin price and hash rate. And we used to see these trends where people would argue with which one followed the other, but they would generally trend in the same direction. That seemingly

stopped happening over the last year, right? As Bitcoin hash rate continued to rise massively and price went down. What do you think the relationship is between those two at this point? Well, I think Bitcoin hash rate's growth is more due to miners who are finally executing on their growth plans that were laid in 2021 really so what typically happens is hash rate lags the rise in bitcoin price by six months in this case it took about 12 months so you had a lot of expansion you ourselves included were growing 3x this year over last year from a hash rate perspective. And so those plans take time to execute because they're kind of large at scale. We're going from 7x a hash to 23x a hash in six months, basically. That's a lot of growth

to do. So yeah, so miners were procured last year. They have to arrive. The sites have to be prepared and all that. So I think what you're seeing now is just kind of serendipity in that global hash rate's continuing to grow. Prices come up nicely this year in the first quarter. And you're now seeing people kind of, OK, we're back to kind of a profitable place. How much more do we want to grow? And it'll be really interesting to see what happens between now and the halving. And do we see global hash rate kind of plateau towards the end of this year, or are we going to see it kind of blow through

and keep growing early into next year? Certainly for smaller miners, it seemed like it was touch and go for a while there at the end of last year. I know that anecdotally, some people I spoke to said they really kind of bought more at the top, right? Bought a whole bunch of ASICs and machines when Bitcoin price was in the 60,000s. And those are now a fifth of the price, right? The actual miners. So I think that speaks to sort of that delay, right? There's no way to really time it perfectly if you want to be ahead and getting machines online in a year or in two years. Yeah. I mean, if you look at this industry, it's typically profitable for two years

and then two years are kind of less profitable because you're down at the bottom of the Bitcoin pricing kind of swing. So traditionally you grow and you invest in growth during those cold winter months when machines are cheap. The challenge we have this cycle compared to the last cycle is in 2020 and 2021, capital was easy to get. The equity markets were open. You could get debt equity. You could get machine financing. The guys that weren't public, they could go get equipment financing from NYDIG and others. And now you're in an environment where conditions are getting better, but people don't have capital. And so you look at a lot of the miners have sold Bitcoin. We sell Bitcoin just

to cover operating expenses because we don't believe it makes sense for us to sell equity to pay operating expenses at this point in our life. And so the smaller miners are definitely squeezed in between a rock and a hard place because they don't have the money to buy more miners when miners are cheap and they don't have the ability to invest in more infrastructure. And so it's really the big guys that are at scale that are going to continue to grow ahead of the small guys, I think, other than some niche players who are doing a good job. But it's interesting. Yeah, it's interesting that even in this niche industry, it still follows the same patterns

of human behavior that we see in every market, which is effectively that people are forced to sell the things that they don't want to at the bottom, and they've never raised enough capital to be prepared for buying, right? Having cash on the sidelines. That's the story of every bear market and cycle in human history. Yeah. Yeah.

And, you know, it's, I think you get a lot of people who came into this business who haven't lived in a very cyclical industry before. And they think, you know, number go up. Oh gosh, you know, price of Bitcoin is blowing through 50, blowing through 60. Let me raise some money now and everything I can raise, I'll put into my infrastructure. And then when the infrastructure is ready, I'll go raise some more money to buy miners. And then lo and behold, the window for raising capital disappears. And you've got infrastructure, but you don't have miners or you paid deposits on miners. And you just look at the glut of equipment on the market today and it tells a pretty pretty sad story.

Yeah. How much of a boon was it when China went offline? Because obviously that we saw that was the major decline in hash rate. But a lot of people pointed that to that as a major opportunity, certainly for mining companies in the United States. Yeah, I mean, definitely the people that had hash rate on when that happened, you know, became hugely profitable because you had a 40% drop in global hash rate. And all of a sudden, you know, you're minting Bitcoin at a rate that you hadn't minted before. And then as that hash rate slowly got caught up, as it either transitioned to the States or some miners in China were able

to turn their machines back on discreetly. Things got back to the normal curve. If you look at the graphs today, the global hash rate is growing on a nice linear line. That little blip that was the China ban is buried in the noise at this point. Which is interesting because at the time, it seemed like the pundits believed that everything was over, but it was really just another opportunity. Well, it's just like, you know, you look at with earlier this year, you know, people were again saying, you know, Bitcoin's dead. It's going to get stomped out of existence. And, you know, here we are a little bit of a banking crisis and Bitcoin is touching on 30,000. That's everyone's favorite opportunity is when you say something's dead, right? Isn't that the greatest bottom signal that there is? That's probably when you guys are

salivating to get more miners online, I would imagine. But interestingly, you touched on the fact that some miners quietly came back on in China. When you look now at where the hash rate is coming from, they're a meaningful percentage again. Yeah. About 21%, I think, is the number most people are quoting these days. How is that possible? Part of it is people operating high-performance computing data centers, which are allowed. It's just, what are those machines actually doing? I think in that regime, there is a certain amount of under-the-table stuff that happens. And then there are just some miners that operate in places

where officials kind of don't have oversight of them. But- So part of it is tacit approval from the local government. Absolutely. Yeah, definitely. And so where are we seeing now the rest of the hash rate? I mean, I'm assuming that the bulk of it now is in the United States or North America. The US is about 37 to 39 percent. Russia is coming on strong. There was a recent report that came out that said they had about one gigawatt of power dedicated to Bitcoin mining. And they have all the reasons in the world to mine as much Bitcoin as they can, right?

And they have very inexpensive power. They have a lot of nuclear power plants that basically are quasi-idle in Siberia and in Murmansk, places like that, where before the Ukraine war, we saw sites on the market that were available at 1.9 cent energy. Preston Pyshke I'm certain though. Almost 3. David Sherman Yeah. I think you're going to see Russia continue to grow. Then obviously, Europe in general is getting harder and harder to mine. Sweden just increased the taxes on Bitcoin miners, the energy tax by 6,000%.

So it's making what was an attractive energy price in Sweden now unattractive. And I think what's looking interesting is the Middle East. We have a big site in Abu Dhabi, about 250 megawatts, that'll come online here in the middle of this year and be done by the end of the year. And you're also seeing some stuff in Asia starting to come on. Africa is looking potentially interesting in some locations, but you have regime risk. And then Paraguay, Latin America, there's some other places there that are looking interesting as well. As a company, what drives your decision

to diversify locations? Is there a reason that you wouldn't be wholly in the United States mining? Why do you look to Abu Dhabi to build facilities? What's the motivation? So Abu Dhabi was based on a couple of factors. They have an asymmetric power issue there. What I mean is in the summertime, they generate four gigawatts of power for air conditioning.

That heat that comes off that power generation drives their water desal. So that's how they get their drinking water. In the wintertime, they only need one gigawatt of power, but they still need the heat from the energy generation to drive their water desal, and they consume about as much water in the winter as they do in the summer. They have to keep the generators running. They have this essentially upside-down period of the year where they generate a lot of electricity and they don't use it. at the same time, the government subsidizes energy to the population. So the idea here was to partner with essentially the owner of the power infrastructure in the country, which is the sovereign wealth fund, in a way to solve their energy problem and

do it in a way that would generate revenue for them such that they wouldn't have to pay subsidies to the populace, but the populace would still get the benefit of low-cost energy. And so that's essentially why we chose to do it. And it'll be the largest data center in the Middle East when it's done. So really excited. It's interesting because that implies, obviously, that Bitcoin mining is helping the electricity situation and is helping their grid. That's not the narrative that we're hearing from the United States government or from New York state and such. I mean, I've gone swimming right at Greenwich Miner in Lake Seneca or Seneca Lake. And I can tell you that it's very cold. It's not boiling as, as was reported in the articles that lake is freezing even in the summer. Yeah. Yeah. It's, you know, it's a shame

that the New York times, uh, has gone from being, um, what I would have said, uh, you know, in my childhood days, a critically acclaimed, uh, newspaper reporting the news, all the news that's fit to print, I think is on their headline, their banner, their masthead, to a very politicized, very polarized piece of media, not unlike Fox on the other side, right? So I think the research that was done for this recent hit piece was incomplete. Energy is not a zero-sum game. We generate more energy than we consume. Lots of energy is stranded in this country. The biggest problem we have in the US is lack of sufficient transmission lines. And renewable energy is the last energy to be used by the grid and the first to be shut off by the grid. And unfortunately, the editorial team that decided to put that piece together were more focused on painting Bitcoin badly than doing good reporting and good fact finding.

And I think you'll see that over the next few months, a number of pieces will come out kind of showing where that article was definitely lacking in rigor. Right. But even outside of that specific article, I still think that one of the overarching narratives about Bitcoin is that it has a negative environmental impact. Yes. Right. And that's been a very hard one to dispel. I mean, first of all, is it true? I have my feelings about it, but. Well, I mean, think of it this way. So running a data center doesn't generate carbon, right? We consume electricity.

So where does that electricity come from? Bitcoin miners, according to data from the Bitcoin Mining Council, over 50% of the energy used for Bitcoin mining is renewable energy, right? So that's clean. The e-waste from Bitcoin mining, there are less than 5 million mining rigs in existence in the world. There are less than 5 million mining rigs in existence in the world. There are 8 billion cell phones. A cell phone has more e-waste in it than a Bitcoin mining rig does, and you swap them out with a high degree of frequency. Bitcoin mining rigs live for 5 to 10

years, and there's very little waste in them. So from a perspective of pollution, Bitcoin mining doesn't generate a lot of pollution. It uses a fraction of 1% of the energy generated globally. People playing video games, people running holiday lights, the electricity used by bank ATM networks all consume more energy than Bitcoin mining. It's just a very easy industry to kind of isolate and focus on as an enemy. And, you know, listen, go back to 1995 and look at the rhetoric that was being pointed at the Internet. The Internet is useless. It adds no value. You know, why can't we send stuff by fax machines, et cetera. Right.

So is that. Yeah. But is that nefarious or is it ignorance? I think it's a bit of ignorance um you know the thing is for example politicians think that um having a uh essentially a uh an asset that is not controllable by them they think that's a bad thing and they want to control it well you know they're trying their best to stamp it out, it seems. And yet they don't realize the benefits. And, you know, you look at people in the third world, the benefits they get from having an asset like Bitcoin, where they can move their money when they have to leave Ukraine. You have, you know, farmers in parts of Africa and Latin America who, because of cryptocurrencies,

can actually operate. You have countries where 70% of the Latin America who, because of cryptocurrencies, can actually operate. You have countries where 70% of the population are unbankable. They're unbanked. They can't get bank accounts, yet they can use cryptocurrencies as a way to pay. El Salvador, for all the hype and noise, it's a very simple use case. 23% of GDP in El Salvador is from foreign remittances. The average foreign remittance to El Salvador is $150 to $200. If there's a $25 or $50 fee, that's money that's not going to families in El Salvador.

And if you can do that with Bitcoin without fees, a lot more money comes into the country. So there are lots of very valid use cases for it. And I think the younger generations in the US view Bitcoin and view crypto as an asset class that allows them to control their destiny, if you would, independence from banks and the banking system. And we just had a perfect example of it with the banking crisis that happened. Yeah. It's interesting that you did specify cryptocurrencies and not just Bitcoin in that conversation, because we used to only talk about Bitcoin in that regard. But I do think that stable coins have solved a lot of problems for people in foreign countries who are looking for access to dollars. As much, I think, as Bitcoiners, we would love to say everybody in every one of these countries should be doing this with Bitcoin.

It's the best for remittances. This is how they should be storing their wealth. I think to be intellectually honest, more of them, or at least a huge proportion, just want access to dollars that they can't get, and they can get that through stablecoins. Correct. Absolutely. I mean, listen, there's a historical precedent for this, and it's called the Eurodollar Index. The Eurodollar market exists because the us forced people to use dollars and yet tried to control the currency and so that market grew up in england and is larger than you know the money supply going around um circulating in the us so uh this is not the first time this has happened i think the us is uh hopefully not trying to do what they did in 1933 with gold,

which essentially people were investing in gold instead of in US savings bonds. And so they made holding gold illegal as a way to force people to put money into savings bonds. And the problem is if they prohibit Bitcoin and Bitcoin mining and crypto in the US, it'll just move offshore and they'll lose total control over it. And we've been seeing quite a bit of that, obviously, not necessarily, I think, targeted at Bitcoin. But clearly there's been an increase in rhetoric, enforcement action, you know, threats of negative legislation in the United States just in 2023. I mean, what do you make of how much is coming out of Gensler and how much is coming out of Elizabeth Warren and all of these others that have really been pushing this anti-crypto agenda? Well, I think the, you know, prior to Celsius three-arrow capital FTX blowing up, I think there was a fairly, you know, I won't say isolated group in Washington, but the administration was certainly more open to crypto and Bitcoin digital assets.

And in January, February of this year, that swung around to, all of a sudden, a very antagonistic position. You look at the White House's economic report and the position they took there. Senator Warren's now raising an army against crypto. And I think a lot of this is driven by constituents who feel they may have been harmed by what happened to FTX and three-year capital, Voyager, etc. Politicians, basically, if there's a squeaky wheel, they're going to try and silence that squeaky wheel. Because many politicians don't really understand how digital assets work, the good that they provide, how they help balance

the grid, etc., they just play whack-a-mole. They say okay let's just stomp this out and you know that way people or voters will like us well the challenge they have is that the younger voters actually are all interested in crypto and digital assets and so what's interesting is where before crypto and digital assets were not a polarizing um political hot potato if you would, or topic, it now is definitely becoming something that the Democrats are anti-crypto and digital assets, and the Republicans seem to be pro. And I think it's going to become a divisive issue, especially demographically in this country. And it'll be very interesting to see the simple fact that individual states are passing you know right to mind laws and trying to do things to uh you know limit regulatory

overreach which is something that you know the sec and other regulators have been practicing in this topic um it'll be very interesting you know the the whole way the signature bank thing went down was you know They were seized. I'm sorry. I don't do tin hats. I don't make conspiracy theories. I literally don't allow people to pander that in my show. But they were closed on a Sunday by the FDIC.

And I'm yet to see overwhelming evidence that they were going to be the next to fail. Exactly. That's what happened. And that's because, obviously, of Signet and Sen. And so it leaves the industry effectively unbanked, which is interesting because I spoke with Caitlin Long almost a year ago now at Bitcoin Miami in 2022. And she said to me, the CFTC and the SEC is a bit of misdirection. The people we really need to worry about are the OCC, the Fed, and the FDIC because the banking rails are the real threat. Of course, she's Custodia Bank and has a vested interest in

talking about banking, but that really is what we've seen happening. And I don't know if it's truly Operation Chokepoint 2.0, as people have said, but it does seem that the banks that will service this industry are becoming few and far between. And the ones that stick their heads out are the victims of that game of whack-a-mole that you sort of mentioned. Yeah. Listen, I think the industry is under a huge microscope and the regulators and the administration are trying to figure out how they can bend it to their means. But I think it would be a shame if they drive the industry out of the US because it's just going to thrive. Europe has a great regulatory framework they've agreed on.

In Germany, the most conservative of the EU countries, today you can go and take a real estate development project and tokenize it and fractionalize it. They have great rules for how that works. And it's a wonder that the US, where normally innovation should thrive, is busy being Luddites effectively with this technology. Yeah, I agree with most of what you said as to the reason. What I disagree with is their read of the constituency. I mean, anecdotally, I speak with quite a few people, obviously, in this space. And even the people who got burnt, I don't think are anti-crypto. I think they're angry at the platforms and they're angry at the people that they were scammed by or the fraud. But I think that's a

misread by politicians. In fact, I think that all of those people who got scammed would be interested in reinvesting in crypto if they had the money with sensible regulation or legislation. Yes, absolutely. We totally agree with that. That's what alarms me. So that leads me down the road of just believing that largely these specific politicians or perhaps that party just got egg on their face from SPF. Yeah, and exactly. It's interesting. I was speaking with a former supporter of Elizabeth Warren the other day who said that where they had supported her in the last election cycle, they felt they no longer could because of the ridiculous stance she had taken regarding crypto. Yeah, I think that we're also seeing, listen, I know that our echo chamber

isn't as large as we would love to believe and that when we're in it, it feels like we're a huge piece of the constituency. I don't necessarily believe we are, but I do think we're getting a lot of one issue voters in the crypto space. I can't speak to how big that is, but I think that there's a lot of people putting Bitcoin ahead of party now. And that trend does not reverse. No. Yeah. I mean, even I can say that that's probably how I feel now. So it's hard to argue with it. But do you think that anything that they're doing is a legitimate threat to your business, to the industry? Specifically, let's talk about Bitcoin. I think it's a huge threat to a lot of other things. But for Bitcoin itself, which I think is clearly been deemed a commodity, even the SEC is not arguing that that's a security. Do you think that there's any threat here to your business? Could the banking problem,

for example, be an issue for you? Well, we were a customer of Signature and Silvergate. So we had to move our money from Signature to other banks, which was a process. But there are, thankfully, banks that are open to banking companies like ours. Obviously, we don't take customer deposits. We're not doing trading. We're not a custodian. We're a relatively safe bet. We basically run data centers. Where I think we will likely continue to see threats are in things like specific taxation, moratoriums on permitting, things like that. Where similar to what happened in New York State, which I think is kind of interesting. It's just Bitcoin mining operations that revitalize a fossil fuel generator. If you're taking energy off the grid and essentially competing with consumers for it, per the New York Times, that's okay. But you can't revive a defunct power plant. But I think we'll see it in things like, you know, you look at what SB 1751 in Texas, which was basically the ability for Bitcoin miners to participate in load shedding programs that they are compensated for. You know, that was lobbied for by legacy industries that had previously received

the lion's share of those essentially fees. And it's just Bitcoin miners are better at shedding load, more efficient at shedding load. And so they get more of that. And so, you know, that's a group of people trying to limit Bitcoin miners benefit there. And then, you know, tucked into that bill was also a tax abatement for data center operators where Bitcoin miners were not going to be considered data center operators and not get to benefit in that property tax abatement. So, you know, while I don't think that is going to pass the Texas House, you know, that's the way that this is, you know, miners are being attacked. It's by permitting, it's taxation.

But even in Texas, right? I mean, for the last few years, Texas has been the holy land for Bitcoin mining in the United States. Everybody moving there, building huge facilities, using flared energy, right? I mean, with a reasonable government that was passing favorable laws to give those benefits. I mean, shouldn't this be putting us on high alert that even in Texas, we're now seeing sort of even if they're quiet attacks, this kind of legislation proposed? Yeah, I mean, it's definitely something everybody is very attuned to right now. And, you know, there is a there's a lot of work being done by the industry and reaching out to politicians, to lobbying organizations both in Washington at the state level, at the community level, to really start

building a grassroots kind of movement around understanding and educating people about what Bitcoin mining is all about and how it benefits the communities and the industries. Riots operations in Rockdale, they generate hundreds of jobs. They're the biggest taxpayer in the county. The problem is that, you know, there are, you know, 70% of the population in Texas that votes on these types of issues is in Dallas, Austin, Houston, and not in West Texas where a lot of these operations are. Yeah.

So how do you reconcile that problem? Yeah. Well, it's just, it's interesting. I was speaking, I was in Washington a few weeks ago talking with a staffer for the Senator, one of the senators that represents the state of Nebraska. And the staffer said to me, you know, listen, you know, we like Bitcoin mining. You guys bring us jobs. We're rural communities with 300 people that live in a town. If you can create 50 jobs, that has an impact on our community and our economy. Right. And you're paying taxes. So, you know, it's this the rural states where you have it's easy to generate renewable energy because you have cheap land, you have space, so the energy developers go there. The problem is the energy developers don't have customers for their energy, and the transmission line operators won't build transmission lines unless the site is actually built out. So that's where that beautiful partnership between Bitcoin miners and renewable energy

generators really shows its best. And that's why from Texas north to North Dakota, that middle of the country is where you're going to see the heart of Bitcoin mining really develop because you have good wind energy there, good opportunities for solar energy. This country is going to need a lot of renewable energy if we're going to electrify all the vehicles. If we're going to, like in California, have no gas cooking, no gas heating, and it all has to be electricity.

We're going to need lots of renewable energy. Which to me is so just hypocritical when you listen to the politicians talk about it because electricity is electricity. Why does a Bitcoin mining rig worse than an electric car that's being charged? It's electricity. Yeah. And this is one of the things that New York Times omitted. It's the fact in Texas, 20% of the time, energy can be negatively priced. And that means there is so much excess energy that people want to give it away, essentially. The problem with renewable energy is there's this concept called the duck curve. Think of the silhouette of a duck. You have the tail, then the stomach, and then the neck and the bill. The tail is in the morning, so people wake up, they turn on their lights, they turn on the heat,

they cook breakfast, and then they go to the office office and there's a dip where the duck belly is. And then at about four in the afternoon, people come home and between four and nine, they're cooking, they're heating, they're washing. So that's when peak demand for electricity is. Now let's look at renewable energy. When does the sun shine? Nine a.m. to three p.m. Right in that least demand period.

When does the wind blow? Typically in the afternoons and evenings, but only spring and autumn, generally. So you have nuclear energy in the bottom of the energy pyramid. That's base load, right? You don't turn it up, you don't turn it down, it just runs. Then comes coal energy, which you can't really regulate. It takes a day or two to turn a coal plant higher up or lower. Then you have natural gas, which, yes, you can move up and down.

They're essentially peaker plants, as they call them. They're made using jet engines. And you literally turn it on, and in 30 minutes, you have energy being generated, and you can turn them off. Then comes solar, and then comes wind. So unless you're at peak demand, solar and wind aren't being used. And so if people are complaining about fossil fuel having to be turned on because Bitcoin miners are using the renewable,

they just don't understand the way the energy stack works in this country. Renewable energy is the last one to be turned on by the grid and the first one to be shut off. And unless somebody is there to buy that energy, there is no incentive to build more solar and there's no incentive to build more wind. And it just gets wasted.

Exactly. Which is just, yeah, I think that's a hard learning curve, though, to educate the public on that. We have to, but how do we do that? Why would they care, I guess, is the real question. Yet again, the echo chamber, we care to look into that and to explain that to people, but they just care that their lights go on. Yeah. I mean, at the end of the day, people only complain when electrons don't come out of the plug in the wall. Yeah. When the electricity is off, which is a

problem a lot of the time in the rest of the world. I want to go back to something you said earlier that you expected Russia to continue to ramp up hash rate and build. You said something that seemed kind of obvious probably to us is that they have the incentive to continue to mine as much Bitcoin as possible, but maybe the reason is not so obvious to the audience. So why do you think that Russia will continue to ramp up? Do you think that that's private industry or is everything in Russia effectively the government and does that then mean that the government is actually stacking Bitcoin well I let's look at it this way the largest minor in Russia is a company called bit River um and I would assume to have the right to do what they do they pay certain people certain fees. And it may be that the only way for them to monetize their Bitcoin is to sell it to the Russian government. So they kind of act as a proxy

to the Russian government. Why would the Russian government want to have Bitcoin? Well, it allows them to effectively transact with people when they can't use rubles because their dollars are frozen and they can't use dollar rails. What the regulators seem to kind of forget when they talk about how Bitcoin is used by criminals is that you can trace every Bitcoin transaction from source to wallet, right? So it's very easy to see where Bitcoin is moving. And if the regulators really want to control the Bitcoin, then make sure that most of the Bitcoin in the world is mined in the US, and you'll have an ability to do that. You can't do it if it's all mined outside of the US. Preston Pyshko

But is the implication there that countries like Russia are actually holding Bitcoin in the central bank, like they do gold, or that they could potentially be stacking sats for, you know, believing in the asset long term or just to, I guess, I don't want to say evade sanctions, but just to protect themselves because they don't have access to their dollars, as you said? Well, I think you have to look at kind of the scale, right? There are 900 Bitcoin awarded every day. That's mined every single Bitcoin every day, it's not really going to have a huge impact on their ability or their needs to fund the war and their other efforts. But you did mention something that's key. Who are the largest central bank buyers of gold today? It's China and it's china and it's russia and it's saudi

arabia it's countries that are worried about you know the u.s weaponization of the dollar and the swift system uh you know and they're buying gold because you know they don't want to buy treasury bills anymore and you know this um dependence that the that the US has had on foreign nations holding their reserves in dollars and Treasury bills is going to make it harder if countries stop doing that to keep pumping out debt, which the US government needs to do. We're about to increase the debt ceiling by a couple trillion dollars most probably here. Somebody's got to buy that debt. And if the US keeps going down this route, it's going to be very difficult to find buyers for that. And what that means is the dollar is just going to be debased and keep dropping down. We live in the fiat world of dollars, so we don't really see the difference that much. But if you

look and you talk to people in europe or other places um who these countries have to pay off their debts that are dollar denominated when the dollar uh goes up because the fed raises interest rates it has a huge impact on these countries and so the us is just creating incentives for countries to move off the dollar right and potentially a bitcoin can be a part of that. I need to know then, what got you into mining? What got you into Bitcoin yourself? So I've been in tech for 40 years. And my first foray into tech was actually writing software in banks. And my stepmother was the senior economist at the OECD, responsible for bank regulation and equity trading regulation. And when the Soviet Union fell apart, she was very involved in helping attempt to instantiate regulatory rules in the Russian Federation. So I'd grown up kind of in a world where banking regulation and financial regulation was kind of dinner table conversation.

And fast forward to about 2015, 2016, and I started looking at Bitcoin as something very interesting. Digital currencies and digital payments was a great way to facilitate more rapid payments. If anybody has ever tried to operate an international business and wire money around the world, the fact that you can only wire money nine to five in the US Monday through Friday, and it can take days or weeks to get money someplace, when with Bitcoin, you could do it instantaneously. The promise of what Bitcoin and cryptocurrencies had to offer was huge. And so as I looked at how people were buying and selling and trading these things, I realized that there were these isolated islands of liquidity pools, if you would, exchanges in different countries where you had pricing arbitrage. And if you could create one

exchange that kind of traded or exposed the order books globally so you could trade in one place, that would be something very beneficial. And so did the research in the US, couldn't get it built because the regulators would never approve it. And you needed each of the 50 states had to approve it. So it made no sense. Went to Switzerland, had long talks with the Swiss regulators, and they said, Yeah, we could do this, but you'd have to have a banking license and we still don't have real crypto regulations. And then went to Liechtenstein. They said, Well, we'll write a law for this.

And Liechtenstein, being an EU country, wrote one of the first European crypto laws, essentially designating the trading of Bitcoin and Ether as foreign exchange trading. And so didn't need a banking license, didn't need to be a securities exchange. And so built an OTC operation there. And at about the same time, a good friend of mine who had just taken over the CEO role at Marathon Patent Group, the predecessor company of Marathon Digital Holdings, needed a board member who understood crypto because they were going to transition from

being a patent troll into mining Bitcoin. And so I joined the board in 2018. And then fast forward to April of 21, when I became CEO. And the rest is kind of history. We've built one of the biggest Bitcoin miners in the world. Very proud of it. As well, you should be. So you've clearly stumbled down the rabbit hole progressively over the years. What is Bitcoin to you now? Because we've seen this sort of evolving narratives of what it could be, what it should be, what it is. Where are we in 2023 in your mind? Yeah, I think Bitcoin is an asset for acting as a store of value, just like gold. I think the correlation to gold, which has been growing this year, for the longest time, Bitcoin has been more correlated to NASDAQ and equities and risk assets. The risk-adjusted return of Bitcoin for the first three months of this year is amazing. It tops the list of any asset. And so I think that's one place

for it. The other is as a settlement layer. And we're going to see more and more applications built on the Bitcoin blockchain that use the Bitcoin blockchain as a validation layer, essentially. So think of it as where Lightning essentially settles on the Bitcoin blockchain, you're now going to see other applications like that start appearing. Ordinals is the first iteration of NFTs migrating to the Bitcoin blockchain. Why? Well, it's the most secure blockchain in the world. is the first iteration of kind of NFTs migrating to the Bitcoin blockchain. Why? Well, it's the most secure blockchain in the world.

It's fully decentralized. And you have an ability to actually store the images on the blockchain, which you don't do in Ether. The other thing you have is the ability to build side chains. So think of it as if you wanted to build a side chain that tracked the ownership of ships or airplanes or whatever, you now don't have to worry about proof of stake or proof of work. You can simply store your hashes on the Bitcoin blockchain in block headers. And in that way, as long as that hash that you have matches the one on your sidechain, you know that there haven't been any changes to your blockchain. And so it dramatically decreases the cost to build security into any new blockchain. And so the only thing somebody has to do is build a sidechain. And you can readily take

a copy of the Bitcoin blockchain, build your own sidechain. And then there are tools being developed by companies that will allow you to then store the hashes on the Bitcoin blockchain, build your own side chain. And then there are tools being developed by companies that will allow you to then store the hashes on the Bitcoin blockchain such that you don't have to build a whole new validation system, proof of stake or proof of work. And I think that's where you're going to start seeing more and more economic value being built on top of the Bitcoin blockchain that is separate and apart from Bitcoin, the currency. It's interesting because that idea is a bit contentious in the Bitcoin community, because we obviously have Bitcoin maximalists, but that's become even split camps themselves, as the argument over ordinals, as you sort of alluded to.

There's some people who believe that nothing else should be built on Bitcoin and it should be just bitcoin i obviously fall on the let people innovate and iterate you know and and build things but do you think that as a result of i i'm not going to say because of that tribalism but it seems that bitcoin is far behind on a lot of the things that have been built on other blockchains right i mean smart contracts obviously are far more advanced on Ethereum than they are Bitcoin for now. Yeah, I think a way to look at it is, you know, Ethereum is a programmable blockchain.

Bitcoin is literally a ledger. It's a simple ledger. So and because of how the governance model works within Bitcoin. Any changes to the core code require major consensus being formed between node operators and miners, etc. And the Segwit wars of 2017 are an example of 93% of miners wanted to implement a change and it couldn't be done. So the innovation at the base layer is slow, but the fact of the matter is, just like TCPIP

and the internet, today 60% of the internet still runs on TCPIPv4, even though v6 has existed for decades. Why? Because it's good enough. I think the Bitcoin blockchain doesn't have to evolve to any huge degree. It's at the other layers where you build in all this additional value. Why is that important? Well, the inherent security of having a very simple protocol is huge.

The problem when you get a programmable base layer is the risk for exploits and bugs get more and more heightened. And if you look at all of the issues and attacks that have been done against crypto networks and stablecoins, other things happen at bridging points around the EVM. And that's where you get these complex problems. So I think the simple nature of the Bitcoin network itself is its biggest asset in that it's very easy to maintain the security of it. And the other fact of the matter is you can do all sorts of innovation on top of it. And again, just like the internet analogy, TCP IP is the base layer of the internet. You don't have to change it. Now look at all the things we're building on top of it. All those things are built at higher level

layers. So effectively, everything that we're seeing built on other blockchains, all of that innovation could eventually be moved to Bitcoin with a more secure base layer and that's it. No need for any of them. Absolutely. Well, I don't think it's no need. I think one of the best things about Ethereum is it's a great place to innovate. It's super easy to innovate. And so that's great. And it's not like one obviates the need for the other. There are use cases and needs for multiple blockchains. I think that Bitcoin being the most secure one, things that need ultimate security, it's a good place to build those on. So identity, healthcare data, financial data.

I think if a bank wanted to build a system on a blockchain, while the programmability of Ethereum is attractive, when you start looking at the security aspect, maybe we could do this on Bitcoin instead. That does make a lot of sense, obviously. So, you know, I know we're kind of running out of time here, but do you think that there's any existential threats, even outside of regulation at this point to Bitcoin? Or do you think that we're just going to continue through our four-year cycles, come into the halving and continue up and that all of this will somewhat be laughable in retrospect? That's what I think. I think that in hindsight,

you could have followed on your head, missed all of the macro for the last two years. And as you described earlier, it's just another cycle. Bitcoin goes up two years, goes down 80%. Everybody freaks out and we go right back up. Yeah, I think that Bitcoin will survive this latest rash of headwinds and come out the other side even stronger. A certain amount of tempering, it's like with steel, right? You heat it up, you put it in cold water. You heat it up, you put it in cold water when you temper steel. And it's the same thing with Bitcoin. Every time it gets tested, it comes out stronger.

And I think we're going to just see it continue to evolve. We're going to continue to see crypto evolve and become stronger and more adopted. Adoption hasn't slowed down. Even through the winter, adoption continued apace at its rate. So I think we're going to continue to see adoption happen. We're going to see new use cases continue to develop on a global level. And yeah, the noise in the US is going to be a problem for a while, but there is an election in two years. And I think there are some members of the political parties who actually understand crypto and know where the pluses and minuses are and how to best use it and where it fits in. And I think saner minds will prevail

over time. Well, anyone who saw Gary Gensler take a public beating and flogging in the square the other day in a congressional hearing knows that there are a few people there who clearly get it. Yes, I saw that. I think you tweeted a scene from Game of Thrones, Walk of Shame. Shame, shame. Listen, I'm not going to say I feel for him because I don't, but there was no winning in that situation for him. But it was good to see the cognizance from so many members of Congress of what was happening there and then a defense sort of a Bitcoin in the asset class. It's important. I don't know how many of them there are.

I've sort of joked it like, again, it's our echo chamber. There's a few very pro Bitcoin and crypto legislators. There's maybe a few more who are anti. but then the vast majority literally just don't care. Right. And by the way, there are a lot of members of Congress who do have an opinion, but don't voice it because they either don't want to lean too much towards one side or the other, because at the end of the day, they're running for reelection every two years in the House of Representatives. I blame Sam. Sorry, I blame him for that. Because last year, I would have said that

at a year ago this time, we were getting to the point where there was reputational risk for not having a position on Bitcoin, and you would probably have to at least lean slightly favorable. You didn't have to outright be a supporter, but you couldn't be outright against it. But then after everything that happened this year and finalizing with Sam, like I said, I mean, he's meeting with Maxine Waters and Gary Gensler. These people are his friends at some point. Literally the worst person in the worst case scenario. It's so sad. Novogratz said to me he thinks it set the industry back two years. Yeah, maybe more. Yeah. Sad way for us to end.

But everybody, follow you and check out everything that Marathon has going on after this conversation. Great. Thank you very much. Appreciate it. Thank you.