Unchained - Bits + Bips: Bitcoin Miners Turn to AI for a Boost as BTC Falls

Episode Date: February 16, 2026

As miners approach historical stress zones, Bitcoin’s correlation with tech stocks is hitting at the worst possible moment. Enter AI. Thank you to our sponsor Crypto Tax Girl! Public mining companies are once again approaching breakeven territory, a zone that in prior cycles preceded forced selling and capitulation. But unlike past downturns, balance sheets today are cleaner, leverage is lower, and many operators are pivoting toward AI data center hosting as a structural offramp. At the same time, Bitcoin has been trading alongside frontier technology stocks. That correlation is resurfacing at precisely the wrong moment, as growth equities face renewed pressure. If growth portfolios were the marginal buyers during the rally, they may now be the marginal sellers. In this episode, Steven Ehrlich speaks first with John Todaro about miner economics, hash rate dynamics, and whether another round of selling could emerge if Bitcoin remains near breakeven levels. Then Zach Pandl joins to examine Bitcoin’s correlation with tech stocks, the mechanics behind recent gold volatility, and why the next phase for crypto may be driven by differentiation rather than broad beta. Hosts: Steven Ehrlich, Host of Bits + Bips: The Interview Guests: Zach Pandl, Head of Research at Grayscale John Todaro, Managing Director, Crypto & HPC/AI Equity Research at Needham & Company Links: Bitcoin Miner Danger Zone Major Bitcoin Miners Face Shutdown Risk If BTC Falls Below $70,000 Miner Pivot to AI America’s Biggest Bitcoin Miners Are Pivoting to AI The Tech Selloff Wall Street’s Anything-But-Tech Trade Shakes Up US Stock Market Learn more about your ad choices. Visit megaphone.fm/adchoices

But I've always considered it somewhat of a danger zone when you're at your break deep at cost. But if you get, you know, in the 50s, low 60s, you know, you're putting that margin a little bit more under pressure. And then you have to think about the next halving is coming up. That's starting to loom, right? So then that's another thing these guys have to start considering. There's not something wrong with Bitcoin per se. You know, nothing has changed about the function of the network and all the particulars. And we can talk about all those things. But what changed was risk taking in in market. markets. Hi, everyone.

Welcome to another episode of Bits and Bips, The Interview. I'm your host, Steve Rilick, and we've got a lot to talk about today. But first, I'd like to introduce my guest, John Todaro from Needham and Company. He is their point man on all things crypto equities. And in particular, he has a unique expertise in mining, and we're going to get into all of it. So, John, welcome. Thanks for having me on. Good to be back.

Yeah. I mean, you are a repeat guest. and I'm really interested to kind of see how the conversation is going to be different than it was a few months ago when all the Bitcoin miners were kind of re-rating as part of this whole AI HBC buzz, whose I guess Luster has worn off a little bit. But before we get to all of that, just a quick disclaimer, nothing that you guys see or hear today is financial or investment advice. For more disclosures, please see Unchained.com backslash bits and bibs. And with that, one more thing before we really get started, we need to take a very quick break so we can hear from some of the sponsors who make this show possible. This episode is brought to you by Adaptive Security, the first cybersecurity company, backed by OpenAI.

As AI makes deep fakes and synthetic identities easier than ever, Adaptive helps companies test and strengthen their defenses. Learn more at Adaptivesecurity.com. If crypto taxes feel overwhelming, you are not alone. That's why Crypto Tax Girl, a team that's been helping crypto investors since 2017, is offering $100 off on one-on-one crypto tax help. To get $100 off your crypto tax services, go to Cryptotaxgirl.com slash unchained. Again, that's Cryptotaxgirl.com slash unchained.

Okay. So let's kind of get started. I mean, John, when you were on the show a few, I guess a few months ago or late last year, The whole conversation centered around the ways that analysts were completely rethinking how they were approaching Bitcoin miners because of their power generation capacity, their hosting capacity, and sort of the insatiable demand from AGI providers to get as much capacity as possible. In many ways, this was a really welcome site because Bitcoin miners, I've always had a bit of a soft spot for them because they're kind of the unsung workhors of this entire ecosystem, yet their stocks always dragged the price of Bitcoin.

They dragged that's, demands was siphoned away from them for ETFs, and they were always sort of, none of this works without miners, but their stocks were always trailing the sort of like the base assets. That completely changed, and we spoke about that. But today, things are different. Bitcoin is struggling. I mean, it's below 70,000. It dropped as low as 60,000 last week.

That's creating some real dangerous economics for miners, and I want to get into all that. And sort of the shine has come off of the AI boom. I mean, we've seen huge tech sell-ups, especially in last week or two. So I just want to start off by kind of asking, what are you seeing right now and in how this environment is really impacting Bitcoin miners? Yes. So the Bitcoin miners are still very much going down the AI route, so providing data center capacity for AI workloads. That hasn't changed at all from our last. last conversation. If anything, they've gone more into that with the Bitcoin weakness. I think it's

kind of, because you're also seeing hash price continue to go lower too. So I think that's confirmed for a lot of these Bitcoin miners that the path they have chosen maybe six months or so ago is the path they ultimately want to be on. They want to be on the path for AI workloads. Now, there are some specific impacts to kind of data center operators for AI. right now, which is weighing on the stocks a little bit. And there's also just a broader tech sell-off that is kind of impacting names to an extent, too. But I would say that they're very much going down that route of supporting HPCAI workloads. We've gotten a few new leases in late last year.

So in December, Hutt signed actually the best contract we have seen so far. So that kind of reaffirms to us that the demand is still. very strong. And if anything has gotten better in the terms of actually improved for these Bitcoin miners since earlier this year when, or sorry, earlier last year around the summer when a lot of these deals got signed. So from that standpoint, you know, the terms have improved. The demand seems still very strong. You've seen those new CAP-X guidance numbers from all the major hypers, you know, a lot of that's going towards AI, right? And so that actually beat expectations by quite a bit.

So there serves very much demand for that. What's that? I think I saw the number, but it was like $660 billion or something. Across them, yeah. Yeah, and that's spook markets. I mean, that scared everyone last week. But what you're saying is that that's going to ultimately benefit the miners, like the capacity of providers in some shape or form.

Yeah, I mean, the spook is more so, are they spending too much on AI and could potentially put some of these companies in peril. From a Bitcoin miners standpoint, you want the major hypers to continue to spend money on data center buildout, sign leases, put more towards CAPEX. So I think from that standpoint, it's a positive signal for my miners that, hey, companies aren't pulling back from spending on AI. They're doubling down. I think the market is viewing it a little bit longer term and going, okay, you know, how much capbacks are we going to ultimately spend on this. What is the refresh cycle going to look like? And that's where things get a little bit more concerning. Why I also like my miners is they're doing a COLO lease for the

most part. So they don't have this aggressive CAPX treadmill like you see when you're buying the GPUs and that infrastructure. It starts to look a little bit like a Bitcoin mining CapEx refresh cycle, which I didn't love, which is probably one of the reasons why Bitcoin miners kind of always trailed Bitcoin and some of those other assets you had mentioned earlier. So, a lot of them are doing COLO leases, so you're not on the same kind of aggressive CAP-AC cycle. There's still a ton of CAP-X to build these data centers, but you at least don't have that very real and significant depreciation on the GPUs. So I'm not worried about the CAP-X numbers. If anything, I kind of take that as a positive for my minors. There's still a lot of demand

for what they're offering. Okay. Just a couple of follow-up questions to what you just kind of walked us through. One, you said HUDAID signed a very, I guess what's the word you used, a very lucrative. Very lucrative. Yeah, we're out of best skills. What does that mean specifically? Yes. So they got the full credit backstop from Google.

So that allows you to build at, you can get financing a little bit easier. So lower rates on your debt that you need to layer in and actually build the data center. So that was attractive. So that arrangement was done in, it's with fluid stack directly. And then Google is the credit backstopper. That was the first agreement. saw were Google extended credit over the entire length of the lease, which, if I recall, it's 15 years. So the other ones you saw, it was maybe five, six years. So it's over the full length

of the lease. The economics, in terms of kind of top line, the revenue per megawatt, was a bit more attractive, a little bit in line with some of the other leases. I would say higher than kind of your average one you saw when there is a major hyperscalor backstopping versus the ones over the summer. So I think that one came out to about 1.5 million per megawatt. In first year numbers, there's 3% escalators. So the revenue you receive every year goes up about 3%. But it starts at one point, a little over 1.5 million per megawat.

And then they also have longer to execute. So I believe they have 14 or 15 months for the RFS date, the ready for service date, on that contract. And so that's a big piece now we're seeing too, where if you're delayed, and you have execution, this is you do, there's normally discounted rent that, that happens within that. So we do like that you're getting more time to execute, so you're not up against a very aggressive date

where you have to deliver the data center. And also a lot of these contracts become cancelable after 90 or 180 days past that date I talked about. So if you're delayed 90 to 180 days. Press the RMS date. Yeah, that service date for the data center. the contracts become cancelable. With Hutt, that's not the case.

They don't become cancelable. There's still going to be discounted rent likely. I'm sure there's some discounted rent. But we do think they have a little bit more wiggle room on execution, too. So what that indicates to us is hyper-scalers are being a little bit more lenient with these counterparties with the Bitcoin miners. They're also looking to or willing to extend full credit over the entire length of the lease and make it easier to finance. So that all indicates kind of better terms that the miners have a little bit more negotiating. They're not up against a super tight window and they're not getting credit backstopping.

They are getting those. So do you see these Bitcoin miners as a bit of a more value play if such a thing exists within the tech sector because of the fact that they're getting these attractive terms and that and sort of there's more of a bullish case to be made despite this sort of dreary feeling in markets at this point? I would argue, yes. So most of these names, we are bi-rated on. We have, you know, we got price targets higher than we're current prices. It's a few different ways how you want to value it and look at these stocks, though, right? If you comp them to data, the large traditional data center reads like Equinix or Digital Realty, these are trading at a discount. I think if you're able to execute on some of these contracts, I think you start to close that discount gap very quickly.

And you also need to kind of continuously show that you can get access to more power. If you're just kind of one and done, then it's going to be very hard to go slap a data center reed multiple on these businesses. But if you can show you're able to continuously get power, they're signing better contracts in Equinex and Digital Realty get. They're building bigger and more complicated data centers than those names are building, the traditional data center reeds. In the Hutt example, that lease was a triple net lease, so very good margin.

So I would say, you know, if you're able to kind of consistently do this, you should close the gap and maybe even trade the premium to the data center reed. So from that standpoint, you know, maybe they start to look value relative to those names. I think where the market has more concern is, are you going to be able to continuously get power or are you going to be one and done? Because if you are one and done how you should value these names, you should apply a data center reet multiple to them. You should more so just value the cash flows from the contracts they have signed. and when you do do that, we've done that, Matt, it does equate to about 40%, maybe 50% lower in the equity value than where the stock's trading today.

So, you know, you do need to show that you can continuously get power. And that is a big question in the market right now. And then, too, you need to show that you can execute. Because if all these guys start falling down and aren't able to execute, maybe leases start getting canceled, and you really should trade it a significant discount to the Data Center reads that can execute. So those are the two pieces that need to be. you know, that need to give the market out.

I have one more question about all this, and then we're going to actually turn a little more back to Bitcoin mining. But you talked about how sometimes the CAP-X is cheaper. It's easier than procuring Bitcoin miners by themselves. I mean, we both remember going back to even like the heady days of 2021, the pandemic, when miners were paying nine months, sometimes a year in advance for machines that weren't even built yet in order to kind of get first in line because there was never going to be enough capacity

from the bit mains and micro-b-tis of the world to satisfy all demand. And, I mean, the outlays were nine figures, sometimes ten figures, to get these devices. How is it different when it comes to acquiring GPUs and sort of like building out the infrastructure inside these hosting centers? It's not all that different. The argument I was making is these Bitcoin miners aren't responsible for the GPU cap-backs. So that's where there are tenants in most of these. It's called a co-location lease where the tenant brings in their own GPUs.

So for most of these, Irons different because Iron is going down more a cloud compute route. So they have that contract with Microsoft where Iron is spending KAPX on the GPU. So it does look a little bit similar to that Bitcoin mining kind of KAPX you were talking about. The other names for the most part are doing Kolo leases where they're not responsible for the GPU. Okay. So like a marathon, for instance. I mean, they would have to get the capacity or some sort of vertically integrated minor. They'd have to get the capacity, the power, everything. And then they'd have to procure the ASX. In this case, the companies themselves are doing steps one, one and two. But when it comes down to the GPUs, the actual engines, it's like Google or FluidSack or whoever is the client is supplying it on their behalf. Exactly. Exactly. All right. And I'm sure that's, yeah, I mean, that's easier from a cash flow. point of view for some of these companies. So, all right, let's turn directly back towards Bitcoin mining because you pointed out how hash price is down. I mean, it's been continuously going down for years at this point. But this is a very precarious point for Bitcoin miners. I know the

answer to this question is it depends because every miner has a different sort of cost of production. but it seems like the 60,000 range is dangerous for almost everyone, even though everyone's talking about strategy more. Their danger point is like 8,000. So, I mean, what do you see right now? I mean, hash price is continuing to go down. If Bitcoin does not break out of this range to the upside, are you seeing a lot of stress on the finances of these miners?

Is it going to mean that they keep turning even more? I guess he even said more towards AI and not buying more miners themselves. Are they going to have to start selling Bitcoin to cover expenses? What are you seeing there? Yeah, I would say, so it is more topical now than it's really been kind of around this cycle, right? So we were just on an earnings call today, and it was one of the, I think, the first time kind of this cycle where we heard, hey, are you going to turn off rigs given where Bitcoin prices are and where hash prices? So it is starting to become a much more topical question, which we didn't really have before.

There was definitely some margin in there. At these levels, you're pretty close to cash break-even costs. In some cases, some miners might be higher on cash production. When you factor in the depreciation on the GPUs, a lot of them are above where the Bitcoin prices are or kind of right around it. So from that standpoint, yes, it starts to be a little bit more of a concern than obviously it's at when Bitcoin was 85K and hash price was a little bit higher. What I would say, though, in terms of the Bitcoin miners pivoting to AI, I don't know if any of the names in my coverage universe are looking at it going, okay, Bitcoin is here.

I'm going to push more into AI because the AI component was already just so much better from a stock perspective. You're talking about, you know, 15 times on an EV-EBadat basis is maybe what the market is paying for an AI data center. A Bitcoin miner, they're going to pay like three, three, four times EBITDA. So you already had a massive difference in the multiple. And then the underlying kind of the dollars per megawatt you could generate and the stability of that too, because these are stable 15-year contracts, right?

So you know the margin. That profile also looked a lot better for AI. versus Bitcoin mining. And then you look at just the ultimate AI demand. I mean, one of the reasons a lot of software stocks have been weak is AI. You know, AI is going to eat software and all that. So it is kind of, you know, AI is reshaping a lot of the economy, you know, financial markets. So that demand also is just significantly stronger too.

So it's, I would say none of the miners are necessarily going, oh, man, you know, Bitcoin's now down 25% versus this, we're going to pivot a little bit more towards it. I think it was more so of a lightball moment of if you can go into AI workloads and felt comfortable in your execution. And if your sites were set up for it, you're going to go down that path. I don't think Bitcoin being a little bit lower here really changes that. I think they made up their mind that the train has left the station. Most of these miners are going down AI workloads.

And you would need something on the AI side to break for them to pivot back and mine. Understood. Okay. So let's stuff a little more than about hash trade. I mean, it's pretty much been going down since, I guess, October. I mean, October 10th, middle of October when Bitcoin hit an all-time high of, I think it was $126,000, and it's been a continuous trend downward since then. You mentioned how, I guess, one of the companies you were on a call with today talked about perhaps reaching that point where they start turning off machines because it's no longer economic to mine.

But where has the draw? all down been coming from so far over these last few months. Yeah. And in fairness, this company said on the call, we haven't reached that level yet. So, but it is becoming topical. You know, as another sell side analyst who asked that question. So it is, it is popping up. It's just, you know, on prior analyst calls, I don't think I've heard that. So that was one of the first times we're not starting to hear it again. And it makes sense. I mean, the prices were Bitcoin's that. That's, you know, it makes sense to ask that question. Yeah. So, um, So in terms of kind of why hash is maybe coming off the network, I would say it's a combination.

You're likely have high cost miners exiting, right? Older rigs being taken offline that are no longer profitable. We are seeing that. So a lot of these companies do want to continue to kind of refresh. Some of them have more access to rigs. And so you're able to slate in more efficient rigs versus older rigs. And so you're taking older rigs off. And then you are seeing, you're starting to see a real effect from,

at least in the U.S., your public U.S. Bitcoin miners moving data centers towards HPCAI, and that's resulting in some hash coming offline. I would say still a lot of these companies, like CleanSpark, for instance, they're going to be doing Bitcoin mining at one of their sites up until the AI data center is ready to go, and then they're going to be able to kind of switch, you know, kind of fairly close to that date for when the AI kicks in. Some of these other ones need to start making the allocation now, where they're taking some of those data centers down that are for Bitcoin mining and putting in HBC AI.

So you've seen some of that. The point I'm trying to make is you're going to see more of it. So if you look at the Bitcoin miners in the U.S. the public ones, they still have a lot of data centers dedicated towards Bitcoin mining, but those are earmarked for AI, and the work on kind of retrofitting those towards AI is happening. And at some point, when those contracts start kicking in for AI,

there won't be Bitcoin mining at those sites. They will have to take that down. So that's also another chunk of hash that will likely come off the network. You're seeing some of that today, but keep in mind, most of these AI data centers have not been built yet. Okay. So that's actually really interesting. So is it, I'm talking like one to two years in the future? I mean, give me a timeline.

And also, what do you think hash rate is going to settle at once we reach that point? Because perhaps it's time to, perhaps some people listening here today might think, well, I can try calculate what hash price should be once we reach that point where the competitive environment for mining is a little less arduous. Yes. The timeline about that like a 12-month time frame, you're going to see more of the public miner hash go down for some of these companies. Now, other ones are growing it a little bit, so it's not kind of, you know, everything will happen in tandem. But I would say on average that public U.S. hash, the percentage of the hash and also just absolute hash, should come down.

And that's likely going to happen over the next 12 months as these data centers get built out. And then it's going to accelerate on probably a 24-month time frame. If I'm looking out, who's trying to secure AI leases now and when those data centers ultimately get built, you're kind of on a 12 to 24-month time frame. And so more hash will come off the network over that frame. in terms of the kind of net impact, it's hard to tell, right? Because there's more efficient machines. Some are growing hash a little bit.

Will they be able to find a little bit more power and then put Bitcoin mining back to those sites? Right. So there is also a conversation among some of these Bitcoin miners is, hey, maybe I have a big site that I want to do AI with and it's suitable for AI. But maybe I can still go procure in that 24-month time frame, some more remote site or a site that, maybe isn't suitable for AI data center workloads, and I can go put my rigs over there and do Bitcoin mining there. So if they don't find any extra capacity, I don't know, it'd be a decent chunk, maybe five,

but also not everything, right? I mean, keep in mind, the miners are, you know, I think maybe only, what, 20% of the total network? It's not like they're, you know, 50%. Yeah, I mean, that's the important point. Like publicly traded Bitcoin miners is not the entire Bitcoin hash rate. Right. Most people listening here probably know that, but it's always worth kind of reiterating.

Yeah. So I would say probably if you just take all their hash they have today, I would say probably about 25% of that comes offline over the next like two-ish year timeframe. Okay. That is interesting. And probably a bit of a welcome respite for the ones that are still committed to doing it. Yeah. I had one more question along these lines, but I'm actually blank. Yeah, here it is.

Last time that there was a big bear market, we were actively tracking how much Bitcoin was being sold by miners. And that became a big hurdle that needed to be overcome in order for the price to sort of go back up. And obviously all that changed with in the middle of 2024 when Donald Trump embraced Bitcoin and away we went. Are you tracking right now, Bitcoin miners, have any been selling in mass? and our conversation's happening about having to liquidate some funds in order to cover expenses. So they have been selling, but not necessarily to cover expenses. The ones going down AI routes, if you're signing a hyperscaler agreement, so like a Google, Amazon, you're able to get financing.

Cipher just closed that very attractive financing, right? It was very low rate on they were able to get on that. So, you know, no one's really, if you're going on the AI route, needing to necessarily sell Bitcoin to fund operations. You do have, at least the public ones. They have access to the capital markets, and the capital markets are willing to lend to them if they have these contracts in hand.

I guess I was going to ask to, like, aside from that, just like operational expenses, overhead for operating the mining part of the business. Yeah, so some of them, yes, but that's been their policy for a while. Right. Like Cipher, I think, sells a good chunk of their Bitcoin always to just kind of support their operating business for their cash costs and running that business. And they've done that for a while. So it's not necessarily kind of a change with where Bitcoin prices are. The ones we have seen sell more Bitcoin than they otherwise would have has been more so related to AI. And you started to see them selling a bit more even before Bitcoin really broke down and started to sell off. So, you know, I guess the, the, The overarching point I'm trying to make on this is, yes, they are selling down Bitcoin, but more so to one signals of the market, hey, we're really going down AI. We're taking it seriously.

We don't want to be as closely correlated to Bitcoin. We want to decouple a bit from Bitcoin and the price of Bitcoin. And we also want to take those proceeds and maybe invest them into AI versus any miner going, hey, we're strapped for cash. We're at, you know, very negative margins here. We need to sell Bitcoin to fund our operations. I haven't really seen that, at least among the public ones I cover. Private companies likely different.

You might start seeing that, but not among my public. One last question to just kind of distill the main question that I think some of our listeners might have is, is there some sort of big sell wall coming if the price of Bitcoin drops into the low 60s or below for a sustained period of time? Everyone's wondering, like, when are we going to reach the bottom? What does capitulation mean? do you think we're sitting at, is there a danger zone that people should be paying attention to? I don't know if there's necessarily a hard sell the miners would have to do, but I've always considered it somewhat of a danger zone when you're at your breakkeeping costs.

And to your point earlier, we're at that for a lot of these public Bitcoin miners or you're likely a little bit higher than that. But if you get, you know, into the 50s, low 60s, you know, you're putting that margin a little bit more under pressure. And then you have to think what the next halving is coming up. That's starting to loom, right? So that's another thing these guys have to start considering. So that's always, I've always viewed that a little bit as a danger zone. But I wouldn't say, you know, there's not necessarily kind of a hard point where they need to sell. And it was different from last cycle because last cycle, they did take on a lot of debt to fund the CAP-X cycle for Bitcoin mining machines.

Many of those companies went bankrupt. In what emerged, you didn't have Bitcoin miners taking on debt for their Bitcoin mining initiative. So a lot of them, if they're doing pure-apply Bitcoin mining, you don't have kind of certain debt that you need to pay down or anything like that, big payments that are coming due. You are starting to get a lot of debt. but it's all linked to AI. They're not being lent these funds for Bitcoin mining. They're being lent this for their data center builds. And so they are layering in debt, but it's specific to AI data centers.

In some cases, they're kind of borrowing at that data center level versus at the corporate level. Gotcha. Okay. Thanks for all that. Before we just touched from a couple of other small topics before I let you go, is there anything else related to the AI Bitcoin mining conversation that you'd like to mention? Yeah. I think what folks need to be considering too right now is, you know, if all these miners are going to be able to get power, right?

And that's been a question. It's been a question since they all started to pivot. But you are seeing a bit more pushback from a political standpoint at the state level around, hey, you know, should we really be granting all this power to data centers and to build all these data centers throughout our states and maybe localizations? you're seeing protests in some cases. So I do think, you know, that isn't fully flushed out yet if there's going to be more political blowback and there starts being kind of less power that these miners are able to get than in what everyone has in their pipeline. And the market's trying to sniff that out a little bit right now too.

The big thing to look for right now is the ERCOT, their new batch processing. It's not yet decided. It's unclear kind of where that ultimately shakes out. or what those rules will be. If the miners all get the power they expect, many of them have said, yes, we do fully expect us to get the power

that we're kind of in. Some have framed it as grandfathered in. The reality is I just don't think we know yet, but we are starting to see a little bit of pushback from kind of at the state level around all this power and compute going to AI workloads. Okay, got it.

All right. Well, thank you for walking us through all that. Just a couple of other crypto-related topics to discuss. Coinbase is reporting earnings later today. I guess after market close, expectations are like every other company that's already reported a disappointing quarter.

But what are you looking for and what do you want to hear from Brian Armstrong and the rest of the leadership on the analyst call? Yeah. So in terms of results, I think our number, our estimates are a little bit lower than street consensus. So if you take that view, you would say, okay, there's going to be kind of a narrow miss. But I would say the buy site has already kind of brought numbers down.

I think what's also going to be a bigger deal because Q4 should be okay. We have Robin Hood out there, Q4 was okay. What is going to be the bigger focus is what's happening right now in Q1 and also the outlook there. What Brian Armstrong, you know, so first off, what we're me focused on is retail take rates because retail is such a big part of that business. It's one of the items we don't know kind of where a cake rate ultimately. landed. And then the total, the actual share of retail volumes, you don't know those actual numbers. Yeah, you can have a pretty good estimate, but you don't know those actual numbers until earnings.

So we were, they've been really sticky for Coinbase for years, despite some people. They've been fairly sticky. Yeah. Yeah. But a good chunk of that will be mixed ships. So I would expect it to come down some, which typically happens in these type of environments. But, and you saw that a little bit with, with Rob and Hood as well. So, but the bigger question is going to be kind of, where does the crypto industry evolve from here, right? Because a big chunk of Coinbase's business at the end of the day is still altcoins. There's altcoin activity, right, and that trading activity. And they're in a precarious spot.

I think the retail demand to trade those coins has really pulled back a lot. And so we'll definitely be looking for any commentary they can give us on that. They're trying to diversify their products suite to actually sort of be less correlates. with crypto prices and crypto activity. I don't think anything is going to show up. That's all too moving for Q4 and likely not too too moving in the first couple months here of 26. But we would like to see their framework for prediction markets, some of these other assets beyond crypto, where you can grow in that, how you're looking to try to become a super app to compete more squarely with Robin Hood. And then the stable coin business, the stable coin business should be relatively in line.

I mean, that's pretty easy to model out and estimate. It's a great business, right? It's very stable for them. USD supply, that market cap has come down, but not all too much. They likely lost maybe a little bit of share to start the year versus circle, but relatively that should be a fairly strong business segment for them or a stable business segment. I think where it gets a little bit more concerning, too, and what we'll look for is where some of these bills ultimately shake out, right? because Coinbase is in the unique position where you have the trading business that you don't want restricted, right?

You don't want defy restricted. But then you also don't want that yield payment on stablecoins restricted where most crypto companies aren't in both. Like you look at Robin Hood, they don't care as much about the yield on stable coins, right? And then maybe Circle cares about that, but doesn't care as much about some like trading restrictions because they don't have a brokerage business. So Coinbase is one of the few companies where it's, you know, it's almost negatively impacted with any, a, you know, kind of consolation, right? So Brian Armstrong needs that bill to basically go his way or his business gets, gets negatively impacted versus what they're doing today. Yeah, I mean, I'm glad you kind of led into that because that's where I was going to take the conversation next,

the Clarity Act and the yield issue with regards to stable coins. I think we've reported on it at nonsium, and it's one of the worst kept secrets, at least in crypto, that Coinbase makes, I think, orders a magnitude more from USDA than CircleD us because of the distribution costs and the, I guess the yield sharing that they make from it. So if that goes away, that could be a significant problem. And I'm curious how you try to model something like that when you're figuring out what to do because it's such a binary outcome. It's going to go one way or the other. And you kind of have to live in this multiverse and plan for both.

I mean, how do you account for that? Yeah, I would say it's very hard to determine how much USDC on Coinbase is ultimately just to get yield. I think we can get numbers and say, okay, a large chunk of it is getting yield on Coinbase. But that's not the same thing as, hey, you're going to pull assets off Coinbase if you're not able to get that yield. So maybe you have USDC on Coinbase for other reasons. And there's an opportunity to earn yield. So of course you're going to lock in and sign up for that. but I don't know if it's necessarily the same thing as the only reason you have USDC on Coinbase is because they're paying a yield.

I would think, though, there is a non-negligible chunk that likely does leave Coinbase if they're not able to offer those rewards on USC or if there's not some loophole that they can try and utilize to do that. So I would think that that's fairly negative, which is why Brian Armstrong would say, hey, no bill is better than what he would term a bad bill. and a bad bill is the one that impacts their business. And that's because right now they can do both, right? There's kind of unfettered activity in defy. There's kind of no real restrictions there. So Coinbase and these crypto companies can benefit from Defi continuing to grow or just not contract as much as it otherwise would have.

And then you can also do the yield component. So it's hard to determine really kind of how much USC leaves the Coinbase platform. But that's where they get the benefit, you know, the way the circle coin base relationship works and if the assets are held on coin base they get the full share of the interest income on that if it's on 30 third party platforms they split at 50 50 less any kind of distribution payments to those like finance um and so if you do see us DC siphon off from the coin base platform then that interest income would where they receive 100% of it um does go away um now they're also paying they're paying out on that too so it's it's not

like you get the full 100. percent effectively. Understood. And then just quickly, because we're almost at time here, going back to sort of like the, I guess, negative sentiment in particular surrounding alt coins and how that can impact Coinbase's trading business, which is still, obviously, its main workhorse.

Yeah. Wondering, I know they just announced her partnership with Calci. I'm not even entirely sure how up-to-date it is. Or, I'm sorry, how far off the ground it is. I mean, they are moving into a couple of other. areas. They've launched a perps business. They're getting into tokenized stocks. They're doing some more agendasic commerce stuff, especially on base. Are there any particular markers, signposts that you kind of want to look for? You want to hear to get a sense of

even if it's early days, the type of traction that some of those new offerings are getting. Yeah. We would love to start seeing, you know, well, one, just commentary on customer adoption. So is it new customers coming out of the platform to participate in prediction markets? Is it existing customers going into prediction markets? Is it cannibalizing? So would management expect more prediction markets related to crypto? And that's not great because that just means the crypto person is expressing a view a different way. And so maybe it cannibalizes the traditional trading volumes.

Is it more sports folks? So that's what we're mostly going to be looking for. And then any growth in that activity, Robin Hood just had one of their best moments. months ever. I think January was their best month ever in terms of prediction volume. So that's a positive tailwind would hope to see some of these other companies replicate as well. Like Gemini now is prediction markets, right? What I would say, though, is it starting to become fairly commoditized. And that, you know, Robin Hood has these. It's not like if you roll this out, you have something that that Hood doesn't have and vice versa. You are starting to see,

you know, it's just kind of competing for market share at some point here versus total. little gains. Okay. Gotcha. All right. Well, one last one last one, and it's a hard one. So I want you to think carefully. All right? Okay. You ready? Yeah, I'm ready. All right. What did you think of the Coinbase Super Bowl at?

Oh. So I actually didn't catch it live. I didn't have the Super Bowl on for the full time. I only caught a little bit of it. But I did see a lot of the reaction in fairly real time on different social media networks. I think what concerned me the most was just how much, like your average person

is not a big fan of crypto right now. So I didn't love that. I didn't, I mean, sentiment is obviously way low in crypto, but it's, it's, it was very negative. It's, it's almost your, your average person, I think, has a very negative view

of crypto and crypto companies. And maybe to some extent, rightfully so. Like, you know, meme coins didn't really pan out. A lot of folks like they lost money there. Crypto is down a little bit in the dumps. I would say the only positive takeaway is sentiment's really low. And when sentiment gets really low, that usually means, you know, it's a good time to buy crypto assets.

But in terms of volumes coming back and in terms of Coinbase, attracting more everyday people who want exposure to crypto, there's likely some room we got to go to get your average retail person where they like crypto and are interested and excited about it. because it did seem like the reaction, just everyone's, or a lot of these people's reactions just to immediately seem negative, which I was little surprised by it.

Let me, not that you asked, but let me tell you my experience with it. So we're watching the aim, and my daughters say, why are they playing an old-fashioned song on TV? And I'm like, I think I was 18 or something when the song came out.

So I immediately felt old. And then I didn't get it. So I texted someone at Coinbase in PR to ask them, what was the point of that ad? Because maybe I'm just not cool, and I didn't get it. it. And then they told me it's basically a way to kind of like could

make people want to be in like Coinbase. And I got a lot of people talking. I guess that's the point of the ad. Although it's it's tough to sell something when it's so hopefully you have to be brave to buy. But it did get a lot of people talking. So we'll have to see what happens. And we will leave it up there. John, as always, thanks for joining us. And thank you to everybody for watching and listening. Please stick around because we, I'm going to be coming back in a couple minutes with Zach Pandal, the director of research at Grayscale, to talk more about how Bitcoin and tech stocks are trading and that's a divergence between Bitcoin and gold. And I'm going to get his reaction to the Super Bowl ad too. So, so please stick around. We will be right back. This episode is brought to you by Adaptive Security, the first cybersecurity company backed by Open AI. As AI becomes more capable, attackers no longer need to break.

into your systems. They just need a convincing imitation of someone you trust. That could mean a deep faked voice on a call, a synthetic coworker on Zoom, or phishing emails written by AI that are nearly impossible to distinguish from the real thing. Adaptive's platform is designed for this new reality. It runs deep fake, vishing, and AI-generated fishing simulations so your team can see exactly how these attacks work and practice responding before it happens for real. Their AI content crater also turns new threats or compliance updates into interactive multilingual training within minutes. You can learn more at adaptive security.com. If you're looking for help with crypto taxes, Crypto Tax Girl is offering $100 off for Unchained listeners. They provide personalized crypto tax

reports and returns and spots before April 15th are limited. Go to Cryptotaxgirl.com slash Unchained to save $100. Once again, the link as Cryptotaxgirl.com slash Unchained. Hi, everyone. Welcome back. As promised, I'm here with Zach Pandel, the director of research at Grayscale Investments. And unfortunately, he's a fan of the New York Giants and also the Green Bay Packers, two teams that haven't had success in a little while. And he has to deal with me talking about my Eagles, who are just one season removed from winning their second Super Bowl championship. But as we, as I promised, Zach, what did you think of the ad?

Hey, Steve, hey, everybody, thanks for tuning in. Look, maybe I just have positivity bias, but I love the ad. I thought it was great. I was in a big party with, you know, friends of family, their kids, my kids, that sort of thing. And everybody kind of stopped to listen and started humming and singing along, not sure exactly what was going on. And then we were all surprised when it was Coinbase. So I don't know how successful these things are.

I'm not a marketing guy. But in terms of, you know, we're an attention-starved kind of world and very hard to break through, at least in the event that I was at, it definitely broke through more so than anything else that came up on screen. Got it. Okay. All right. So let's get into it. You published an interesting report this week, really talking about how Bitcoin has been trading more like tech than gold, despite its sort of prevailing narrative as a form of digital gold. There's been plenty of times, as you've pointed out, that it tries to sort of. or thread the needle or straggleable lines between both. But right now, it doesn't seem to be trading like gold at all. And as opposed to trading up when tech goes up, it's going down with tech. So talk to me about what you saw and what you wrote. Yeah, this is sort of the key observation. And let me just talk about the facts first and the narrative piece second. And I think that's maybe the more challenging part. But the facts are relatively straightforward. The price of

Bitcoin, you know, went up with other frontier technology assets, and it went down with those types of assets as well. And this is software companies. This is defense tech. This is quantum computing stocks. I think that's important point to emphasize, you know, the charts look very similar with, you know, quantum stocks and price of Bitcoin. And what that tells me is there's not something wrong with Bitcoin per se.

You know, nothing has changed about the functioning of the network and all the particulars and we can talk about all those things. But what changed was risk taking in in markets. And I think it was a pretty clear tell that the marginal investor that came into Bitcoin in the last a couple of years probably was a growth portfolio of some time. And we can talk about, again, the narratives. But I think growth investors see public blockchain technology as a secular growth industry with tailwinds, regulatory tailwinds, adoption tailwinds, related to stable coins, tokenized assets, these sorts of things, and bought Bitcoin, bought Ether, for that reason, to build it into a growth portfolio. And as those types of portfolios were derisking,

that meant derisking in crypto, selling crypto also. So I think that that's transparency, transparently what's going on in the market and not something broken about crypto. What it is is a challenge to the narrative. It's a challenge to the digital gold narrative, at least over the short term. Price of gold, price of silver. We're running earlier this year. And I certainly consider myself a deep believer in this idea that macro imbalances are driving demand for scarce commodities. And that crypto should be considered part of that thesis. So it was sort of a disappointing to people that own. Bitcoin for that purpose as a dollar debasement type of thesis and didn't perform as he would have expected in that sort of scenario. So it's a challenge to the narrative. I don't think it's a challenge to the technology. And I still believe in that thesis, that narrative in long run. But those are the

facts that I think, you know, what is causing some, you know, debate for sure and puzzlement among many Bitcoin investors at the moment. I'm curious, like your thoughts, because we talk a lot offline, we haven't had a chance to speak about this. All the rumors are maybe more than rumors, retail buying of gold in particular from the Chinese market because we track central bank buying. In fact, some central banks have been deleverging their gold because of the price appreciation has been so high that they have to sort of maintain certain portfolio allocations. Are there any sort of like market structure and balances like that, for lack of better term,

to explain why certain precious metals are going up and Bitcoin's not? I mean, Bitcoin is obviously banned in China, even though I know there are ways for people to get it. I think in this case, it's more about the things that we're causing the squeeze on the metals side rather than something problematic necessarily with crypto. Of course, in the crypto asset class, the exposure and the access are getting broader and broader, grayscale and important piece of that story, you know, introducing more ways to access crypto through ETFs and all this sort of thing. your listeners, very familiar with the gray scale story in that regard. But what you did have was some squeeze happening in the metals markets. Some people are familiar with this, but if not, the kind of backstory is that the U.S. threatened tariffs on lots of different products, including potentially precious metals. That caused some precious metals to leave the London market, come to New York

to avoid potential tariffs. And so when you had speculative inflows into the ETFs, into other things. There wasn't necessarily enough inventory to meet that to demand, and you got really squeezy price action, this sort of parabolic move in silver, and then a big retracement, and it continues to fall today. And I think that that tells you that while there is clearly demand for scarce physical commodities related to the debasement trade, and I think that that's something that continues for many years, frankly, we probably overshoot, shot by a significant margin on speculative capital inflows and shortages in the London metals market. And so we've given that back. I think my own view would be precious metals trade kind of weak for the short term for those

reasons. I think we overshoot a shot. I think there's retail losses there. You know, the correlation with stocks is now positive, just like Bitcoin. Everything is kind of derisking. Crypto often moves first. It hit us obviously significantly over the last couple of months. affecting precious metals. I think these are some of the same market dynamics at play. All right. So just have a couple of minutes here, but I want to look ahead a little bit. The FT actually had a really interesting headline. I think it was earlier this week. It was something along the lines of the rise of the everything but tech trade because there were these huge sell-offs from, I guess, fears about the big CAPEX for the AI developers that I spoke

about with John earlier. And then the impact of what that could mean for like tax software companies and the like. So if we're in this world where people are selling off in tech, and Bitcoin is now trading with tech going down, what do you see happening next? That's a great question. I'd love to tackle this. Look, in markets you very often see a shoot first,

ask questions later type of dynamic. You know, you worry about AI disruption and the first instinct is to retreat from all. types of software stocks. But I think the next stage is going to be a more thoughtful differentiation between the things that seem most likely to be disrupted by AI. You know, the legal and compliance barriers are lower in some such a way and they're more readily disrupted. And then things that are not obviously readily disrupted or maybe even complementary to AI. They may be software, but it doesn't mean that they're disrupted by AI. There's a lot of things going on in crypto, but

I do want to emphasize that I think public blockchain technology is more like the latter than the former. It's certainly not obvious to me why large language models are going to displace what public blockchain technology is doing. You know, creating trustless systems for finance is completely different than what AI models are doing. And I think there are some pressures from AI to crypto, things like privacy, you know, is an important question and what that means. But by and large, I think these technologies are complementary, that, you know, public blockchains probably will be part of the financial rails that AI agents are using. So I think what we had was a shoot first, ask questions later, sort of dynamic, both in software stocks and in other things. You know, quantum is hardware technology. That felt, you know, public blockchain technology's own special thing.

All of that stuff sold off. But together, I think you're going to see a differentiation trade looking ahead. My guess is, you know, crypto, we certainly have some challenges that we're working. through, but there's some potential positive. So we get the market structure bill passed. If we see some wealth platforms onboarding Bitcoin and Ether, you know, we could find a sustainable bottom here and begin a recovery process. So that's my view. Differentiation trade is the next phase in following the sell-off that we saw really across the board recently. What does that differentiate, differentiation trade look like? I mean, tech was sort of a canopy across, or anyhow, it was a canopy

be across all of tech, but clearly now we're seeing some segmentation here. How long might it take for some of those lines to be drawn? What are the different sides? And how do you get Bitcoin to fit into the right narrative so that people sort of put it into the correct buck when it comes to figuring out how assets should be correlated with each other? The message that we are sending to our clients is that you should focus on the key fundamental trends, the mega trends in the crypto asset class, that's where you should be deploying

capital. What are those things? To me, those are regulatory clarity driving adoption of stable coins and tokenized assets, so we're use case of a public blockchains. And then what we're calling maybe because it's easy to remember, the three peas, privacy, prediction markets and perpetual futures. To me, those are the innovation trends within the crypto asset class. So we're encouraging investors to allocate capital to those places first. So, you know, the obvious beneficiaries of things like tokenization, stablecoins are the big smart contract platforms, Ethereum, Salana, and other critical middleware technology like chain link. You know, these are things that are likely to benefit from growing adoption in general. And of course, there's lots of other assets on privacy, prediction markets,

perpetual futures, Zcash, hyperliquid. You know, your audience knows these stories. These are assets that we are fond of with. So I think that there are important structural trends and you're supposed to allocate capital of things that are most closely tied to those fundamentals. What about Bitcoin needs to overcome to make sure that it is leading, if it's going to lead the asset class. And some of these things are the quantum question and its correlation to gold. If Bitcoin struggles to answer those questions over the short term, it's possible that the kind of asset that drove the asset class primarily to this point, you know, begins to lag. We will see. We will see how that goes. But it's possible that in a scenario where stable coins and tokenized assets are really the thing, the engine driving

the crypto asset class forward, that could be a scenario where Bitcoin specifically lags some other assets. So these are the kind of open questions I think are still unanswered at the moment.