We Study Billionaires - The Investor’s Podcast Network - BTC079: The Bitcoin Energy Revolution w/ Shaun Connell (Bitcoin Podcast)

Starting point is 00:00:00 You're listening to TIP. Hey, everyone, welcome to this week's episode of the Bitcoin Fundamentals podcast. On today's show, we dive into the fundamentals of the Bitcoin Network by talking to energy grid expert Sean Connell. This was such an eye-opening interview for me because it's not something that most of us hear or see when we think about the growth in the Bitcoin infrastructure. During the interview, Sean talks about how advantageous Bitcoin mining is to the energy sector to help offset surplus base load generation.

Starting point is 00:00:28 As you'll find in the interview, his decades of experience in energy is a fascinating angle that many might not have considered or thought about when considering how impactful Bitcoin is to this particular sector. This isn't an episode you're going to want to miss, and it's definitely a show to forward to all your friends that say Bitcoin consumes too much energy. And with that, without further delay, here's my interview with the thoughtful Sean Connell. You're listening to Bitcoin Fundamentals by the Investors Podcast Network. Now for your host, Preston Pish. Hey everyone, welcome to the show. Like I said in the introduction, I'm here with Sean. Sean, I saw some clips of you talking on the internet.

Starting point is 00:01:21 And I was like, oh my God, I got to get this guy on the show immediately because you were just spitting fire, man. Absolute fire. So welcome to the show. Great to have you here. Cool. I appreciate it. Thanks for having me on. I've been a big time fan for a long time.

Starting point is 00:01:35 Awesome. Well, I'm very excited to have you here. Let's start off with just your background because what I like about your background is you started off in energy, correct? Yeah, that's right. I love this because this is not the normal path. So talk to us about that background and then talk to us about how Bitcoin just kind of popped up into your everyday life.

Starting point is 00:02:00 Yeah, sure. So my background is that I came into energy in 2002. And so I was, I'm from the east coast of Canada. I got a one-way plane ticket for graduation gift. And I moved out to Calgary, Alberta. And I was essentially looking for anything and everything, any job opportunities here. I'd had like a real fascination around trading for a long time and a real interest in it.

Starting point is 00:02:22 And so one of the places that I put a resume out to was called Trans Delta. And it was energy marketing. And so I just finished a business degree. And I thought that marketing was, you know, kind of traditional marketing. I didn't realize that it was, you know, the energy marketing of, kind of marketing power. And so this was right at the time in 2002 that power markets were just deregulating, right?

Starting point is 00:02:42 And so what that meant was is that, you know, companies that used to, you know, have customers that were really just rate payers, right? They didn't have a saying anything. Essentially, markets were deregulated where they separated the generation from the transmission from the person that sends you the retail bill. So in this process, a lot of these generation companies found themselves in a position where, you know, they had a lot of generation that they had a lot of generation that they they now need to find a home to.

Starting point is 00:03:06 And so that was kind of the genesis of trade floors coming around around the year 2000. So I started in 2002 where I found a company here that was energy marketing, got a interview and took me for a tour of the trade floor. And I fell in love with it and was super excited and kind of said everything I could to get a job. And then spent the next pretty much 20 years with that company where essentially starting on a kind of an hourly desk and a real-time desk and then kind of growing up and helping kind of build this desk and leading this desk that was responsible for. optimizing a fleet of natural gas generation assets in Ontario and some other assets in different

Starting point is 00:03:40 markets. And what was really neat about it and kind of has this overlay with Bitcoin is that when markets were just deregulating at this time, so 2002, there was no books on how to trade power. It was kind of like the Wild Wild West and you're trying to figure out how to make this work. And the people that figured out fastest and earliest were the ones that really did well and the companies that did well. And so it has an overlay with mining right now, right? because it's kind of this place where there's no kind of books on how to do mining. And there's no agreed-to commodity of saying that the, you know, I believe that there's a megawatt of power and MMB2 of gas.

Starting point is 00:04:16 And I think in the future we'll talk about XA-Hashes, which I believe is like a billion-billion hashes. And I think that's going to be the commodity. And so there's no kind of playbooks on, you know, how do we value the X-A-Hashes or Ford Market for X-A-Hashes? And what does that mean? And it really ties into miners because miners have efficiencies, that how many X a hash per megawatt hour they can produce based on different miners.

Starting point is 00:04:38 And so really, it's a perfect overlay with power plants, right? Because there's natural gas plants and they have something called a heat rate, right? So a seven heat rate plant uses seven units of gas, produce one megawatt. A gas piquor will do something like a 13 heat rate. But it's really this kind of this perfect overlay where you see kind of what happened in power markets and how that evolved over time and really kind of matured. And then you see this kind of thing at the start of, you know, Bitcoin, right? And my introduction to Bitcoin was a friend of mine gave me a call in 2017.

Starting point is 00:05:04 And a longtime friend respected his opinions. And he was telling me about how, you know, had I heard of Bitcoin. And I was like, yeah, I've heard about it. And he gave me kind of the digital gold narrative. And, you know, I bought into it quite quickly. Then the question was, I said, okay, well, how much does it cost? Right. And at the time, it was 10,000.

Starting point is 00:05:21 And I said, well, how much does it cost to make? Like, how else can you get? He says, well, you can buy it or you can mine it. And I said, okay, what's the price is it's like 10,000 to buy? And it was like 200 to make, right? And, you know, so coming from a background in commodities is just, you know, over time, commodity prices always converge, right? They arbitrage away the spread.

Starting point is 00:05:40 Yeah. Right. And so there's this mining industry, right, where it's just this, you know, this hype happening, this excitement and you see this kind of pulling apart and you say, you know, like, you know, $10,000 of Bitcoin, like can make it for $200. So like, you know, something's got to give, right? And it's going to be, you know, what's the correction? So that was kind of, you know, where I really, you know, fell in love with understanding mining for,

Starting point is 00:06:02 because, you know, for me is to invest a meaningful amount of time or money in something, you really got to understand it. And so for me, that kind of started the journey or went down this kind of rabbit hole of kind of understanding the fundamentals of mining and how they kind of, you know, the polls on those. And so over time then, so I was at my company there at Transelta and then, you know, we were considering kind of, you know, should we do doing mining, right? And we're looking at what's the opportunity to do that and realize just how much of a tremendous opportunity this was going to be. And, you know, I think about, you know, you think about just kind of like this new technology where when I was first introduced to the company them with right now, it's called Lancium, right? And what they do is they essentially take these large Bitcoin mining facilities and they turn

Starting point is 00:06:46 into a power plant, but in reverse. Right. And so what that means is you can dispatch down these facilities the same way as you can with a natural gas plant or a coal plant or whatnot. And you provide all the insulary services that are kind of like, you know, backup power for a grid. And so, you know, for me at that time, it was just, I realized, like, how big of a role this could play. And just like, and I didn't think that. So it was more than a light.

Starting point is 00:07:10 It was more than a light bulb moment, right? Like, it was like, what did I just discover? It was kind of like a, there were stages of the light bulb, right? Like the light bulb goes off. And then you find out more, you're like, oh, my goodness, this is a bigger light bulb. Yeah. And then more and more and more. So that was a very long-winded way of saying that, you know, I started energy markets,

Starting point is 00:07:29 did that for 20 years, realized the comparison of energy markets and Bitcoin mines, how they're maturing. And the first 10 years of those energy markets were so exciting that I wanted to have a repeat of that and to kind of take the opportunity to say, I'm going to go join this new space with this company that's in this space and have another fun, you know, 10 plus years. Well, let me ask you this. So when you were understanding this and you're explaining it to other. executives in the energy space, what was the reaction?

Starting point is 00:07:58 It's a great question. And so this is now my kind of go to observation and a little bit of opinion. So if you're an energy company that is already involved in fossil fuels, like say you're an oil and gas company, you're probably going to be more receptive to it, right? Because you're already kind of labeled as fossil fuels in bad, right? That, you know, taking on this initial initiative of something like Bitcoin mining, it's great because it's another way to monetize an asset, like at one of your facilities. Power generation is different, right? Because power generation is where I'm grateful for being

Starting point is 00:08:32 part of like a career in electricity is it's every fuel type, right? Because there's renewables, there's coal, there's natural gas, there's oil peakers before. So like you get to kind of have an exposure to all of these. And, you know, over the past 10 years, as this kind of narrative was developing around essentially this energy transition, right, like moving to sustainable energy is a lot of these companies are very cautious about being the first mover. Yeah. And so, like, if you are, you know, a power generation company that's trying to brand yourself as renewables, what will the market say?

Starting point is 00:09:09 Like, what will the market say if I've got renewables and Bitcoin mining? Is that good or bad? And this is now talking into the kind of opinion is that I think it's going to take a large power generation company to be the first one. right? And then once they take the brunt of kind of was this deemed to be excellent, a good idea, right? And based on the outcome of that company going forward, I think that you're going to get the companies to follow in behind, right? Because it's a remarkable way to, you know, monetize generation that previously required wires and now you can do with, you know, Ethernet cable.

Starting point is 00:09:46 So I would describe what I think I just heard you say is they're open to the idea, but there's a massive education gap for the population to fully understand what it would even mean. And it kind of poses a potential branding issue for them until the population understands or somebody else goes out before them and kind of lays the path that's a major energy, producer that basically sets the precedence for it not being a branding issue. Is that correct? Yeah, that is correct. And I put on one other layer to that is that so in 2017, what I was hearing around for other power companies was that the lack of understanding what Bitcoin was, is it a Ponzi scam? Is this going to be around for a long time? Right. If you think about like the traditional model for

Starting point is 00:10:44 power generation companies is that they have, you know, they're going to be connected to the grid and they've got a couple choices to monetize that. They can, you know, one is they can inject that power into the power grid and you're going to get paid whatever the spot price of energy is for that injection point. And the second part is that you can have, you know, customers that are, you know, behind the fence. Like there's like industrial customers where they can take steam, electricity for some big industrial processes, right? And so by being behind the meter with a power plant is that you're avoiding a lot of the costs that would do with kind of the transmission distribution costs and whatnot. And so that that's the normal playbook is saying, you know, we can have behind

Starting point is 00:11:21 the fence so we can do the grid. So now go back to 2017 again as saying how much of the value chain do we want to partake in? And is it really our time to extend the value chain of saying, you know, we're a power company. We produce megawatts and we sell them to customers that use those megawatts, right? And so there's, do we want to just have the same model of having miners co-locate with us the same way as these other industrial customers, or do we think that this is something that we've developed for competencies over the past 20 years for optimizing assets that we could do a better job of saying, we're essentially going to think about this as upgrading our facility to refine local megawatts into global megawatts, and we're going to take

Starting point is 00:12:01 the value side of the mining, which I think is a natural fit. But that's a struggle that I think some companies will have, and just especially back in 2017, is saying, is this thing going to be around in five years. Should we make this CAP-X investment in something that may or may not be here? So let me ask you this. On a scale from 1 to 10, one being nobody understands it and it's nowhere to be found in the power space to 10, everybody understands it, everybody has spent the CAP-X and has it on board and it's just part of everyday operations for pretty much any energy producer in the world. Where are we at today? And how fast is that, is that trend moving on that scale from one to ten? So my observation from a few years ago, so two years ago, was that we were

Starting point is 00:12:52 mostly about a one or two, right? And that means that we don't understand it. There hasn't been enough mining companies going public that we can look at the appendixes and really understand how do they calculate the value of mining, right? Because that's a black box. It's like, yeah, yeah. Another thing is just in the past, and this is the comparison of, you know, how I think about mining is what's the value of an X-a-hash and what is the revenue per megawatt hour for that mining. In the mining space, it's more about what is the dollar per day per tarahash, right? And so like, that's not linking to an executive or an energy company. You really don't know what that means, right? And so like it wasn't kind of an apples to apples

Starting point is 00:13:32 comparison. So we're transitioning to that. So I'd say that two, three years ago, was a one, people didn't know what it was. They didn't know how to value this, right? And I'd say that, you know, today is in conversations I've had with, you know, several friends that are work for other power generation companies is it's on everybody's radar. And beyond on the radar, I would say that some feel like they've missed the boat and, you know, they're frustrated, right? And then others are like, well, we're still nervous about this. And we don't, we see. still don't know what we're going to do. But we just, we now feel more confident that it's here to stay, though, right? Yeah. So, okay. One of the things that I heard Michael Sayler say in one of

Starting point is 00:14:11 his interviews was just the network effect that is now being constructed for proof of stake because of this, this integration with power companies and what it's going to do for them. Generically, the first question I got for you on that idea is, you know, if a power company has a top line of 100 and a bottom line. I don't know the margins here. I probably should. Let's just say the margins are what, 5, 10% after tax for a power company. So we'll just say it's 5% for simplicity. But let's say the top line is 100 and the bottom line is a 5. What if that power company would fully embrace Bitcoin mining as an additional strategy, what would that do to their bottom line of 5? Would it bump it up to a 7 or a 10 or?

Starting point is 00:15:02 What are we talking here? So this would require you to be looking back in hindsight because hindsight would tell you what you would have made for revenue per megawatt, given certain machines that you have set up. So you assume that we would say, like, hey, we're a company, a power generation company, we're going to do a look back over the past four years and assuming that we bought the latest gen miners at that time, right? Like what would in the payout difference for having that upgrade? And, you know, it's massive.

Starting point is 00:15:29 It's more than doubling the bottom line. I would say more than multiples of that, right? Because we're in this early, we're in this early time frame, though, right? And we'll get into more details because I sometimes get down on the way. It's too quick, too fast. But, you know, the punchline of later are saying that, you know, the people that are getting this early is saying, like, Bitcoin right now is the buyer of first resort.

Starting point is 00:15:50 And that means that it's willing to pay higher than the rest of the customers on the grid for the majority of hours, right? And then when it's, when energy is scarce and expensive, no problem to turn down. So it's going to be consuming this and it's converting those local megawatts into global megawatts. And they're getting that kind of that premium for being a first mover. So if you look back at the past four years, you might have received as a power generator of revenue, top line revenue, $35 per megawatt hour.

Starting point is 00:16:18 If you would have purchased these miners, right, you would have had something in the neighborhood of, you know, 300, right? But here's the other catch on this and this is really important, is that like you've got this CAP-X depreciation schedule. Usually a power generation is like depreciate over 25, 50 years. Miners are depreciating four years, right? So on a new gen miner, right, that costs like, say, one megawatt, $3 million-ish, that means you have to recover $100 per hour, every hour, every hour of the year for four years, right, just to recover your cap-x, right? But you're still multiples above. And so now I'd layer on the second part of saying, you don't always have to buy new gen miners,

Starting point is 00:16:59 So now think about like you're ignore the kind of like the base load natural gas plant or or whatnot. And let's let's go to a wind farm, right? And so you can look at this wind farm and you say in 2020 when Bitcoin price was I think it was like six or seven thousand and hash rate was high, right? The revenue per megawatt hour for an S9 miner was $30. And people were giving these away for free. They say like if you pick it up, you can take it, right? Or there were $20 a piece, And so what that works out to is you could have bought one megawatt of S9 miners for about $15,000, right? So compare that to the New Jim miner of $3 million for megawatt. Like this is those peanuts, right?

Starting point is 00:17:42 So you could then take these S9 miners and you're on some type of wind farm or solar asset. And you say, on hours when, you know, the price is too low, right, I now have an option of saying I can sell to the grid or I can sell to my, you sell the Bitcoin mining. because I have the flexibility of my CAPEX was so low, like I don't have to try and, I'm not chasing to try and recover that CAPEX spending. It's a one time spend for infrastructure, right? And then it's almost like free for those miners. Yeah.

Starting point is 00:18:10 Right. And so I would say the economics are, you know, significantly higher too on these intermittent resources that can get paired with like an older miner with a lower CAPEX cost. Let's take a quick break and hear from today's sponsors. All right. I want you guys to imagine spending three days in Oslo at the height of the summer. You've got long days of daylight, incredible food, floating saunas on the Oslo Fjord, and every conversation you have is with people who are actually shaping the future. That's what the Oslo Freedom Forum is.

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Starting point is 00:22:09 best business partner, Shopify, and start hearing... Sign up for your $1 per month trial today at Shopify.com slash WSB. Go to Shopify.com.com slash... WSB. That's Shopify.com slash WSB. All right. Back to the show. Yeah. When you just look at the energy expense, if it's truly stranded and there's just tons of energy seeping out of wherever and there's just no demand for that really, that energy and it's priced extremely low, you're going to find all these old rigs just naturally migrate themselves to those jurisdictions because they can still make money, plug them in, even though they're pigs and what they're consuming, but the energy is spewing out anyway. And I think that's something that's lost, majorly lost, with politicians and policymakers in

Starting point is 00:23:06 this space, is that idea. One other thing that I want to just kind of hit on from a depreciation standpoint. I love accounting. And I'm just looking at this, and you're talking about some of the multiples that come out of this, especially for new hardware. And, you know, I think if today, and you might have a better beat on this than me. But I mean, if you're capturing energy for six cents per kilowatt hour, five cent per kilowatt hour, and you've got a new rig and you're plugging it in, you're basically doing 100% on that expense of the rig. If the rig's 10,000, you're going to make 10,000 in Bitcoin in the first year. So if you can depreciate that over a three to four year period of time, that expense, that hardware expense over three to four years,

Starting point is 00:23:49 That's a nice expense to be able to write off on the income statement. And it hides a lot of what you're being able to retain in profits that I don't think a lot of people fully appreciate, especially maybe in the energy sector they do. But I know what you're saying. It's a lot faster cycle rate than what I think a lot of executives are used to where they're seeing 20, 30 years of depreciation on certain pieces of hardware. And the hurts on this depreciation is a whole lot faster, but the return is astronomical compared to what they're used to kind of getting from just a regular consumer.

Starting point is 00:24:28 So fascinating, absolutely fascinating stuff here. And I'll kind of chat more about kind of the stranded energy because this gets lost on most people. Please, yes. Is that there's a belief in the world that energy is scarce everywhere and all energies create equally, right? Like converted energy, laptop energy. So like you think about, you know, moving energy around is the easiest way to move something would be like coal, right? Put it on a truck, put it on a train, move it around. Next is, you know, oil, put it in a pipeline. Next would be kind of

Starting point is 00:24:58 natural gas and, you know, pipelines as well. So the hardest one is electricity, right? Because the network of electricity, it's not like you can have an excess amount of wind and some electricity in one area and say, hey, Europe, you need some electricity. We're just going to ship it. Right? It's in an area that's constrained by the wires in that area. And the investment that was made in kind of customers having a rate base that you're paying for these wires. And it's really kind of back to kind of like energy is very complex. It's like there can be real pockets of excess electricity. Yes.

Starting point is 00:25:32 Without having the ability to move a load to that area, the only option is building out transmission lines. And so there are cases like in West Texas where, you know, 10% of the hours, last year were negative, which means that the grid operator is sending a price signal that's so low that you should turn down. And so that means that energy is being curtailed. Right. And so that's not going anywhere. You can't ship that anywhere else and without some type of load that's co-looking right next to it,

Starting point is 00:26:00 you really are going to be like spilling wind, right? You're just going to say, no, we can't do it. So it's just kind of an important point that and most understand is that you can have energy abundance in certain areas and not in others. And I think about kind of the idea that I'm from Alberta and back in the 80s that, you know, people would go buy land for like the mineral rights or underneath them. And all you had to think was is oil going to be valuable in the future because if it is, I just got long oil just from buying some land.

Starting point is 00:26:28 And, you know, I think about this and kind of, you know, in the renewable space right now is that, you know, there's been these massive deposits of wind and solar in certain areas given the certain kind of the geography, the weather and whatnot. You couldn't tap into before because there was no power lines there. You couldn't monetize it. And so for the first time in history now, you can actually bring a load to this deposit of sunshine and wind that couldn't get tapped into before because you couldn't pull it out of there. So that's a neat concept.

Starting point is 00:26:58 It's that Bitcoin's really unlocking. It's almost like the ultimate capacitor that you could stick anywhere with near perfect efficiency. Would you describe it that way or would you describe it in a simplified kind of way? Would you describe it different? So I'd start with is that, you know, power generation provides two services, two main services, right? They provide energy to the grid for real-time supply demand balance. And they provide backup power, which is called ancillary services in case something unexpected happens. And you can come online and to make up for that, right?

Starting point is 00:27:35 And so up until now, like demand has been perfectly inelastic, right? Because what's the price of energy right now for you where you're at, Preston? I would say 11 cents per kilowatt hour, 12 cents, something like that. And you're guessing what the real time, five minute prices in your area. Yeah. But if it was really, really high, you wouldn't know and you couldn't turn down because there's no, you don't have the required equipment or telemetry in your house to respond to prices. Yeah. Right.

Starting point is 00:28:04 Yeah. And how much would you really turn down if a price signal went to a certain point is, you know, maybe limited. And they're improving on this and having loads of responsive to price. But so I guess kind of like, and I mentioned this on Peter's podcast, but, you know, just to zoom out, right? And to say that I think that when you frame Bitcoin mining as is it just or not, right? Like everybody's going to come away with a different opinion. And you're not going to get around board, right? It's a really hard thing to do.

Starting point is 00:28:32 But if you think about what we've been fortunate about in Bitcoin and mining how it relates to energy is that for the past several years, countries have been pledging to say net zero emissions by 2050s, one of the main timelines, right? It's a real noble thing to do. It's the right thing to do, but there's a ton of implications on that. And so what it means is that to go to economy where your net zero missions means that you need to electrify everything. And that means that cars go from combustion engine, you're going to go to EVs, right? The old things are going to be electric and so that means you're going to have a lot more electricity demand because you're going to electrify everything. And it works out to be about a 3x in electricity demand over a 30-year period.

Starting point is 00:29:17 Electrifying everything at the same time is that to decarbonize means that you're going to retire fossil fuel generation, which is your natural gas and fossil fuel plants and coal whatnot. And so what are you going to replace that with, right? So the answer's been that you can replace it with renewables, hydrogen is part of the solution. But in this example is that you're going to essentially negative 1x your fossil fuels. And you need to 15x your wind and solar capacity from current levels, right? Yeah.

Starting point is 00:29:44 That don't work on a variance level. Right? Right. So like, zooming out again, it's like, you know, three times electricity demand, negative 1x fossil fuels, 15x wind and solar. And so what that's going to do is it's going to create a lot more volatility for kind of intermittency on the grid, right? When is the wind blowing? When is the sun shining? And to balance that, right, is what you need to have is you need to have flexible resources, right? And new flexible

Starting point is 00:30:09 resources that, you know, aren't fossil fuels, but resources that can come to the grid and can balance during those periods. And so I'll use an example of in Urquot. There's 10 gigawatts of solar right now and their average demand is approximately 45 gigawatts. Over the next year and a half, They're going to go from 10 gigawatts to about 20 gigawatts. So on this average day, about half of your generations come from solar. So what happens when the sun goes down at the end of the day is you have this really big two-hour ramp period where you need to bring on a whole lot of resources to make up for the fact that you're losing your solar resources. And the current solution right now is natural gas, right?

Starting point is 00:30:48 It's a great load balancing resource, phenomenal. But what happens when you lose these is that you need to have new resources that can do this. And so going back to the example is with all this intermittency, you essentially need to have a 4x on your flexible resources that you have available to grid. And currently, 95% of flexibility comes from generation right now. And 1% comes from demand response in batteries. And then the IEA put out this publication. And their forecast that says that batteries and demand response need to do 50%. So you're going to go from 1% to 50%.

Starting point is 00:31:27 Right? And so what is Bitcoin mining? Right? And so like, yeah. Bitcoin mining is demand response. Yeah. And it's the, you know, the Rolls Royce of demand response. It's like it's the pinnacle.

Starting point is 00:31:39 And the way, the way and why this is is that, you know, think about, you know, the current Rolls Royce of demand response for industrial manufacturing would be the steel plant. And the reason why is it's got one single energy intensive application, which is the arc furnace. and there's literally somebody that's sitting by a switch and when they say, you know, we're going to come down for a couple hours. They hit the button, right? And they can come down for two hours, right? And they're going to drop 95% of their peak electricity demand, but they can only do it for like two hours. And the reason is because the steel is going to harden. It's going to turn

Starting point is 00:32:13 to Ignaw. It's going to cause a whole bunch of problems. So you've got to turn the arc furnace back on. And so that's, you know, an example of demand response. It's the best one that there is today. until Bitcoin mining. And so now the way to think about Bitcoin mining is the arc furnace is like that assembly line, right? So you're kind of going through this process and you have the arc furnace and then it goes to a ladle and I forget all the other pieces,

Starting point is 00:32:36 but it's kind of like an assembly line for like a car. You've got to go through these stages. And so you've got to interrupt the process when you do this demand response. And so Bitcoin mining, if you think about like a 100 terahash per second Bitcoin miner, that's the equivalent of saying you have a machine that can start, finish, and monetize 100 trillion jobs per second.

Starting point is 00:32:59 It's unreal. So there's no work in progress, right? It's completed jobs. So you didn't have wasted effort prior to that, right? Those throw away, right? You were able to stop it immediately and you turned down and as soon as their price changes or if you've been called on to provide one of these ancillary services, you can go back up, You've got the ultimate flexible resource now that can do this type of low balancing.

Starting point is 00:33:26 When I think about all the issues that you've kind of seen crop up in the last five to ten years with the inflexibility of the grid all around the world, I know you guys have had issues in Canada and the U.S. all over. This solves that problem. It makes the grid robust. And so when I'm thinking of it from just a policy standpoint, it just seems so. obvious that this needs to be embraced by across both party lines, whether you're a conservative, liberal, whatever, it just seems like such an obvious solution to a real world problem that both parties would once solve. Do you think that it's moving politically? And maybe you can only talk to on the Canadian side. Do you feel like it's moving in the right direction politically that

Starting point is 00:34:16 people, decision makers are understanding these very strong arguments as to why this needs to be built into the grid. Yeah. So I live in Canada, but the company I work for Lansing's Houston-based company, and I'm down there half the time. So I'm pretty well-versed with Urquot. So that's kind of where I've been spending a lot of my time. And about a month ago, the interim CEO of Urquhart, his name is Brad Jones, I was looking

Starting point is 00:34:44 on YouTube. and I saw this, it was a CNBC clip and it was Brad Jones and was talking about mining, right? And so I flipped it on and my jaw dropped, right? Because, so Urquat has been the early adopter of these controllable loads, right? And the controllable load is what allows you to determine these power generators in reverse. They have the benefit that they are an islanded electricity grid where they're not connected to the rest of the U.S., which allows them to do things without meeting FERC approval, which is a federal approval. So they can, they can experiment and do things faster than others and they've been very kind of, you know, I call it the entrepreneurial,

Starting point is 00:35:17 the mindset, like down in Texas. And so these controllable loads have been coming on in Texas and you've probably seen in the news, some of these large sites that are coming online. And so the interview was with Brad Jones and it was kind of like, it was the ultimate perfect interview that you would kind of say, what would you hope the CEO of the power system that is being kind of bombarded with massive amounts of Bitcoin mining? What is he saying about this? And his message was, one of them, he said, was saying, hey, we've got this amazing wind and solar resource in Texas. We want to build that out.

Starting point is 00:35:49 And we want to have some type of load that can soak up that access renewables because you don't want to turn down that resource. Right. So one part, he said, he also commented about how when there's a plant that could trip offline is that there's been a track record for these loads being able to do frequency response, right? And what that means is that the heart rate of the grid is at 60 hertz per second. And so if something trips offline, the heart rate changes and you can't wait for a dispatch, you've got to automatically sense, like these power generators do, they automatically sense

Starting point is 00:36:20 to change in the frequency. And then they kind of inject more power or for these controllable loads, they turn down, right? And so they do this right away. So he made a comment in his video about how that's been proven that this is working in the state. And then he's kind of tying back into that. There's certain types of flexible resources. There's four categories. There's power generation.

Starting point is 00:36:42 There's interties. So that's your grid connectivity. There's batteries and there's demand response. And so Ercot's an island. And it's an island that doesn't have hydro. And hydro is a great flexible resource. It's like a battery. It's storage.

Starting point is 00:36:57 So they don't have any batteries. And since they're an island of grid, they can't lean on their connections with the rest the United States to pull power if there's any type of problem. So they really got to be self-supporting, right? And so Brad Jones's message was saying that they've really embracing these miners because they're offering a lot of flexibility to their grid operators. And it's essentially like a grid, a grid operator is Swiss Army knife. Yeah. It's like, I can use this for backup power. I can use this for energy, depending on how the owner of the facilities offered it into their, into their grid. but it's this great resource for helping them, you know, balance their grids, especially as they're transitioning to more renewables.

Starting point is 00:37:37 Well, and they can give them what they want as, the miner is what they want as well, because they can give them a sweetheart deal in pricing of the energy that they're consuming as they're all, as the homeostasis back to the, to the power generator is that flexibility and having that there to have that ingredient in place to either turn them off or leave them on, right? So I would think that in the negotiation of some of these contracts with some of the larger miners, the incentives kind of align for them to get along, right? Yeah. And so there's, you know, zooming back out on like power markets is that, you know, some, I hear often in the news that said that, you know, a minor got paid by Urquot to turn down, right, which is, which is false, right? Because there's different types of, again, back to the components, there's your, their whole. sale generation, here's your wires company, your utility company, and your retail supply side. And so when you go into a market like Urquot, which is deregulated, is that if you go into some utility company area where it's an investor-owned utility, right, which is approximately, I think,

Starting point is 00:38:45 it's about two-thirds of Texas, that means that the rate for the transmission is set by the public utility commission, right? So there's no negotiating, right? It's just, this is what the rate is, and it's great because it's transparency, right? Like, it's not backdoor deals or something like that, right? So, like, you know what you're going to be getting. And on the energy side is that you're going to be purchasing energy from the grid operator who's Urquod, all they're doing is they're a clearinghouse, right? And they're essentially taking all the generation and they're saying, who's willing to sell power for what price? I'm going to stack it up. And here's where the demand is. I'm going to set the price at that marginal megawatt. And so if you're in one of these areas where

Starting point is 00:39:21 it's an investor-owned utility, you're essentially able to buy at the spot price, right? And so at as clearing price. And you can also do hedging for that location, which is essentially a contract for differences because you're going to buy your physical power from the grid operator. And you can have this financial hedge on the side that's like a contract for differences to kind of hedge that risk. So in the example where somebody says, for example, in Winterstorm, Yuri went through Urquat February 2021, caused very high prices. And there were a lot of miners that did very well. And the reason was is because they turned offline, right? And so they weren't consuming energy during this event.

Starting point is 00:39:58 And they had this contract for differences hedge, right? And so they'd entered into a contract for differences hedge where we're saying, you know, we bought at $50 per megawatt for X number of years around the clock. And then prices during that time settled, you know, there were several days that settled $9,000. It was the black swan of black swans, right? And so they got they got paid on this contract for differences, right? So they didn't get paid by Urquat.

Starting point is 00:40:23 They just did the right thing, right? They did what made sense. It's saying, this price is way too high for me, right? I can't afford to pay for that. I just need to be offline, which is good for everybody else because energy is scarce. And had that same miner said, I'm not going to, instead of turning it down, I'm going to be selling ancillary services. I'm going to run and I'm going to be the best low cost option providing ancillary service.

Starting point is 00:40:47 Well, Urquod's going to pay them for that insular service. And the miner's going to pay for the energy and you net those two together. And that's kind of like the net cost that they're going to be. would have had. But kind of back to the point of saying, Urquat's not making arrangements with miners on saying, hey, to turn down, it's what's great about Texas. It's very open market. And here's the rules. And so the essence of what you're getting at is humans that need power at emergency periods of time or in a more competitive space are going to out-prioritize Bitcoin mining just naturally through an open market competitive environment,

Starting point is 00:41:25 which I think people that are hearing this, that might be a concern that they have. Is they're listening to this? Like, well, these things are going to take over. If the margins are that fat, they're just going to take over, and the person who just wants to turn on the power at their house aren't going to be able to do it.

Starting point is 00:41:39 But what you just described is not that fascinating stuff. My gosh. So think about this. It's like, so for these new gen miners, their break-even right now is about $200 a megawatt. And the average price for the past five years or so has been about $50. Right. So like they're well above the average, but whenever those price spikes, they turn down.

Starting point is 00:42:00 Right. And so some of the education that needs to be shared with folks on this is saying that they're always going to be turned down when the price above $200. Right. But imagine the story of saying this minor only turns online when the price is below $20. Right. And so this minor is only going to consume like that super excess energy and you can tell it's excess because it's so cheap.

Starting point is 00:42:20 Cheap. Yeah. Right. Everybody, I think, would be saying, holy crap, right? That's amazing. We can put these, you know, facilities next to these renewables. And since power is mostly always over $20, right, they'll be turning off. This is the greatest thing in the world, right? So it's, you know, this is where I get excited about this as well is that, you know, where the power market started in 2000 versus where they are now in 2020 was much different, right? And so where mining is today and where it's going to be in, you know, 10, 20 years is completely different. Right. And so like, we're going to have a great. experiment in the next year because, you know, for a long time, these miners have had such a high break-even point. They're running 95% of the time, right? Because prices only go above that certain amount of hours per year. Over the past 16 months, gas prices tripled. And over the past four months, it's more than doubled, right? And in power markets is that natural gas is your marginal unit, right? It's the one that balances your real-time load supply. So for, again, back to

Starting point is 00:43:20 the past five years is, you know, $35, $40, the price of power for the balance of year across the United States now with this 3X and gas prices is north of $100, right? And in certain periods, like summer, you know, the average price for the, they call them peak hours, which is Monday to Friday, seven the morning to 11th night. That's priced in at $200. And the off peak, which are the morning hours, is priced at 100. And so the average for summer is 150, right? So what happens if you have an S9 miner in IRCA, right? And your break even right now is $80. Right?

Starting point is 00:43:56 Like that minor is coming off line. Right? And some of these other miners that are, you know, I talk about that $200 average. That means that there's going to be several hours above $400 or $500 if this materializes, right? Because it's just the average of, you know, the entire month's averages for those peak hours. So I think that we're going to see for the balance of years, and this is where, you know, mining has an opportunity to shine. is you're going to see this evidence of these miners turning down because if power prices have tripled, that means the economics and mining has gone down, right?

Starting point is 00:44:30 Which I've listened to you on other podcast and that you think about kind of the price of mining is the floor for energy, right? We've just tripled the floor. Yeah. And so like you've now priced out a bunch of these miners, right? And if they do another doubling of, you know, hash rate over the balance a year, you know, that means that it's, you know, twice as more difficult on the mining, right? And so, like, it's in kind of listening to you in the past, it sets up that kind of next push, right?

Starting point is 00:44:54 Yes. But the real story on this is like, I think we're going to have evidence at the end of the year on just how these miners were operating in an environment when power prices are very high. Right. And you'll see them turning down at different times that even when there wasn't scarcity events because the power prices were just too high, right? Which goes back to that narrative saying, you know, in the long run, Bitcoin will be the buyer of last resort. But we need to transition there and it's going to take time. but with this extreme vol that's happening right now this year in power markets, we're going to get a, it's going to foreshadow what that looks like, I believe.

Starting point is 00:45:28 So it would be pretty neat year to see that. Let's take a quick break and hear from today's sponsors. No, it's not your imagination. Risk and regulation are ramping up, and customers now expect proof of security just to do business. That's why VANTA is a game changer. VANTA automates your compliance process and brings compliance, risk, and customer trust together on one AI-powered platform.

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Starting point is 00:48:51 All right. Back to the show. And I think to your point as well is there's rigs that are in a geographic location that is not turned on because of the prices, they're going to sell them. They're going to sell them to other geographic locations where the energy costs, hey, maybe they've got a volcano, maybe they got something else that that is generating energy at an extremely low cost. And they're just going to gobble those things up for pennies on the dollar and plug them back in. Is there anything that's that, you know, you're seeing this from a different lens than most people in the space that I've talked to, at least.

Starting point is 00:49:29 Is there anything that's going to stop this or slow this down at this point? Or is there so much momentum in the energy space to lean into this? I feel very confident that it's going to keep going, right? I never want to say never on this stuff, right? But if you check the boxes and say, you know, what is Bitcoin mining? Like what's, it's kind of like, you know, that rabbit hole of, you know, for me, my experience was that you go into Bitcoin and then takes a three year rabbit hole of like what is money and what problems being solved. And it's amazing rabbit hole that gets you into all these books that you never thought you'd read and just it's phenomenal. Right.

Starting point is 00:50:03 And so I feel like we're now, you know, accidentally kind of getting the benefit of, you know, Bitcoin solving another big issue. Yes. What is, what is energy? Amen to this. I'm with you 100%. And, you know, like, I think that Nick Carter was early to recognize this. And so he's doing. Right.

Starting point is 00:50:23 And he's just like, I think this is like that, you know, that really important piece of information that we need to really figure out, right? So that we can. Yeah. And I share this on Peter's podcast is that, you know, something. thing I think is really important for everybody to be educated in the space and to understand, you know, the value is that, you know, if nuclear generation was invented today, it would be the magic pill, right? We wouldn't have all these, you know, like perceptions and beliefs about this being bad and it's going to be, right? It would be like, we found it, right? And so, you know, the concern I

Starting point is 00:50:52 have is that we're at this very pivotal place for Bitcoin where it's hard to put the pieces together about why this is, you know, amazing for energy, amazing for money and, you know, has these great characteristics. But if it gets, goes down this wrong path and then too many people start believing a certain thing and then it starts, you know, an executive order happens, right? And, you know, you have to ban mining. That's a fear where like you, I feel like we're ahead of the narrative now and it's starting to kind of pick up.

Starting point is 00:51:19 And, you know, my observation has that been for the past few years is minors are tremendously smart folks that know their business inside it out. But when asked for, you know, how is Bitcoin benefiting renewables? They're like, I'm not too sure, but I just know it is. Right. And so now it feels like, you know, the pieces are coming out where it's really data-backed. And you can see it. And you're like, yes, right?

Starting point is 00:51:42 Now I can communicate this and share that. So it takes a lot of effort. And it takes a lot of different voices of people to lay out all the evidence. And there's a lot of research there to kind of piece that. together and be able to view it from that lens. But I think we're at that point now where we have enough people and enough sources. For example, the Sailor and Jack Dorsey response to Congress just this past like three or four days ago responding to, I don't know how many questions that were laid out here. It looks like seven different, eight different questions in this document.

Starting point is 00:52:23 And, I mean, they just take it task by task laying out why there's confusion in some of these questions. Did you have a chance to go through? I'm curious. Did you have a chance to go through that document and see how they responded to some of these things? I did. And I think that I think Nick Carter might have been on there as well. I think he might have had an influence on the writing of that document. Yeah.

Starting point is 00:52:47 Right. And so I have, and I think that our signatures on the back on one of the last pages. our company. So yeah, it's just, yeah, it's great that we now have the information and and they did a wonderful job preparing that response. I'm going to read one here. I don't want to take away from the questions here, but I love this response to one of the questions here. And I just want to read this for the people listening. One of the questions, it states, we have serious concerns regarding reports that Bitcoin mining facilities across the country are polluting communities and having an outsized

Starting point is 00:53:23 contribution to greenhouse gas emissions. Less energy-intensive cryptocurrency mining technologies such as proof of stake are available and have 99.99% lower energy demands than proof of work to validate transactions. So this was the response in the paper. This is, once again, misleading. Proof-of-stake is not a mining technology. It is a technique to determine authority over a distributed ledger, but it does not achieve decentralized distribution. Moreover, it has, it has as a much more limited track record, is controlled by founders, has single points of failure, and it remains dubious as to whether proof of state can effectively govern a global, apolitical, monetary system in a manner like proof of work. And it goes on and on. And just

Starting point is 00:54:09 some of these responses in here were just absolute fire. And it's nice to know that we have a community of people that are, you know, taking them on blow by blow. Who eats who here? Do the energy companies eat the mining companies or do the mining companies eat the energy companies? I don't know if it's a framing of who eats who I think it's more of where does the market share go, right? Yeah. And you think about kind of the hash rate market share and I'm making this up and I'm

Starting point is 00:54:41 going to be wrong is that, you know, say it's public companies are, public mining companies are 75% and the rest 25%. Right? So in the future, what is the blend of public mining companies, public or private energy companies, other mining companies? And I think that there's the actors in the space on the energy side, right, they all see this value, right? And they recognize that the current customer they have, which is a grid, you know, sometimes

Starting point is 00:55:10 is a great customer, but you would, you know, if you owned a business, wouldn't you rather have two customers versus one, right? Like it's, you can almost look at this as like, and the way that I was thinking about it when I was with Trans-Lta, it's just like, you know, what would it cost to buy a, you know, strip of put options on power, right? And it's just like, well, you can buy the miners for cheaper than that. So like you're actually, you know, arbing the price of these put options as soon as you've got the capacity of doing that, right?

Starting point is 00:55:35 It was the same thing with those Bitcoin miners when they were virtually free in 2020 and saying, what is the cost of a strip of call options on Bitcoin price? It's like, well, what's the cost of a, you know, these Bitcoin miners because there's an arm there, but you need the infrastructure to plug it in. So I just see these as like, it's, it's not like these energy companies are going to be saying, I believe that these energy companies are going to be all in where all they're doing is mining, right? They're going to be saying, hey, we need to have different options for monetizing our energy. And there's certain benefits that go, the crew to all by them doing that. And so it's just, yeah, I see a future where another

Starting point is 00:56:10 big reason for, you know, education on the mining side here is that we often frame it, you know, this back in the category of kind of is a good use of energy. And one of the common rebuttals is saying that we just use a fraction of the energy of the world, right? Which is true right now. But if it does what we think it's going to do, right, then that means that, you know, the 15 gigawatts today in 10 years from now is more like 300 gigawatts, right? Which is not insignificant.

Starting point is 00:56:35 Right. And so that kind of, we probably have to shift away from that, you know, from again, of just like, is this good use of energy versus saying, you know, do we think of batteries as green or dirty, right? Because batteries are injecting power into their withdrawing power from the grid and then injecting back into the grid. Are we assessing, like, who's getting those megawatts that are coming out of the battery? It's like, no, this is a tool for the transition, right? Like, and if you think about kind of like an uptime, it's maybe like a 50%, it's half the time it's injecting and withdrawing, right, where his mining can be up 95% of the time. And for these miners

Starting point is 00:57:08 that are old gen miners, they can be at the money where they can be, you know, 50% up and down. But when you frame it more on saying that this is a tool that helps with these transitions, you kind of get away from that having to say this, you know, is it just use of energy? And we're just insignificant on the total quantity. But so my prediction in the future is that I use 20 years out because anything's possible in 20 years and it's hard to say that's wrong is that when, you know, the current cost for a megawatt of wind and a megawatt of solar is roughly a million dollars. And the infrastructure required for a racking solution for miners is call it a quarter million.

Starting point is 00:57:42 And so, now, think about you're doing this new wind project or solar project. Bitcoin's been around for 30 years, right? And you're saying, okay, I want to go to connect to the grid. And actually, you're probably not saying I'm going to connect to the grid. You say, how do I monetize this to your starting point? Right. It's going to probably be a blend of, you know, mining it and the grid. And so in the future, I predict that the decisions on when you're doing this capital

Starting point is 00:58:01 outlay for wind and solar projects will just naturally have this quarter million dollar purchase for your racking solution. And you'll have a strategy that, you know, after, you know, every one of these halvings or just during these down, periods where you have public miners with lots of capital that can replace these miners and essentially retire the old ones, you're going to have these renewables projects just sit on the side just as a floor like a bid, right? And so they'll say, we'll take whatever you got because we're just going to put this here and this is better than getting paid negative 10 if we

Starting point is 00:58:29 inject the grid, right? Yeah. Yeah. So I think it's going to go part in that decision. Wow. And that's every energy company will say, you know, how do we think about, you know, pairing this with some type of racking solution that allows us a non-wire's alternative. for selling our power. How do you think about the centralization of mining rigs with all of these mining companies? Now, anybody who understands the space knows that these miners participate in pools and they can reallocate their hash rate to whatever pool if they feel like, you know, one pool operators is not doing the right thing and that it's becoming too centralized or

Starting point is 00:59:10 whatever. But what are your thoughts on so much of the miners being controlled by large companies now? Do you have any thoughts around that idea? I think it kind of goes into the category of, maybe in the category of mining pools and hash rates and that there's, you know, now there's a blend of, and I haven't looked a long time, but say it's, you know, 10 big pools and 10 percent, and it's not a central attack. But, you know, I generally think that, again, it's kind of, you know, I bought a Tesla in 2014 where I flew out to Vancouver and I drove it back to Calgary and it was a nightmare because there was no charging stations and it took me like two and a half days and there's a lot of stories behind that. But that state of 2014 when there's no charging stations is much different now

Starting point is 00:59:53 in 2022 where I can go anywhere and charge these things, right? And so, you know, framing kind of the decentralized and mining is just like, we're now at a 15 gigawatts. So there might be pockets of centralization. But you go to 300 gigawatts and it's a global mining operating. It becomes less of, I think, less of an issue because it's not just focused on a region in the U.S. or in some such a states. It's gotten to some massive adoption level that it's very global, distributed, and in the size of the capacity of megawatts are, you know, securing the network is much larger. So I think it's less significant in the future. Yeah, I agree. Here's one I got for you, Sean.

Starting point is 01:00:30 When we look at the price action, call it five years ago, seven years ago of Bitcoin, and we look at how much hardware had to come online to capture the spread or the margin that was created out of those price runs, you could bring quite a bit of hardware online relative to that price jump and then capture the margin, capture the spread, and bring it back into a production cost. We saw this in 2018. Enough hardware came online. The price was coming in and I want to say like $8,000. And then you saw a big capitulation because basically all the hardware that kind of came online from that peak into the following year brought the spreads down significantly. And there just wasn't a whole lot of margin to be made. And you went into a minor capitulation and everything kind of reset itself.

Starting point is 01:01:25 That happened fairly quickly. I think today, when we look at the spread that currently exists, the margin that exists, it's still pretty massive. We've had a 50% for all intensive purposes, we'll just call it a 50% pullback from the all-time high that was set at close to 70,000. And the margin is still there. And it doesn't seem like the hash rate is picking up at a pace that would capture that nearly as quick.

Starting point is 01:01:54 And when I'm thinking about this dynamic that's playing out, I'm thinking, well, it requires so much more hardware now to come online to capture that spread. What in the world would happen if the price went on a real tear and let's say it went to two or 300,000? It's almost as if the price appreciation doing these big jumps. It's harder for the physical infrastructure to keep pace to capture those spreads as the price would continue to potentially run. Are you seeing that way, or am I out in crazy land with how I'm looking at this?

Starting point is 01:02:30 It almost seems like it's not a linear comparison as the price would continue to go higher. I think that over time, these come back and they make sense, right? And just like something that kind of got me excited recently with this power price move is, you know, it actually made the economics of mining not so good, right? And so like, you know, because if you have this miner that was in 2017 that was making $500 a megawatt hour for some months. And then in 2020, it was down to 30, right? And so, like, it was kind of like, and again, just like this overlay of power generation is like,

Starting point is 01:03:03 there's this kind of similar behaviors where it's power companies will build generation because even though the market says they don't need it, they think that when they put it online, it's going to be there, right? And I come from a trading background. I say there's a better way to express that view than to build an asset that's out of the money on the start, right? Like, you could buy call options on power that could accomplish that instead of buying this really big, you know, physical asset. And maybe you couldn't get off the amount of volume that you want to do. But so I see these behaviors that are happening in mining

Starting point is 01:03:35 that overlay the same behaviors because people, there's just people making decisions. And so right now we're at a point where I mentioned that, you know, summer power across the United States can be like $150,200, right? Which means that these new gen miners are going to be out of the money, right? And so So in Europe, the price of natural gas in Europe is something like $25 to $30 an MMB2. And here in the United States, today it's about $8. Right. So that means that like you can't do mining in Europe because gas is three times more expensive there, which means the power is way too expensive.

Starting point is 01:04:09 Right. And the power price is here, right? Like if you would have gone back in January, margins were fat, right? Like it was good because this big gas move hadn't happened. And so I think we're experiencing that right now. Wow. Is that these miners that were deep in the money are actually, you know, some are getting out of the money, out of the money.

Starting point is 01:04:27 Some of these new gen miners are, you know, might need to turn off for some, some, some periods during the summertime and later in the year. So I think we're kind of in that mode right now. So I don't think the margins are really good right now for these miners. Well, step back is like, they're okay right now for the last two months. But they're not nearly as, yeah, they're not nearly as fat as they were before the big macro energy moves that we're seeing. That's right.

Starting point is 01:04:51 And like the price of power year to date has been like $45. Yeah. Right. And the price for the balance of year is 120. Wow. So like comparing the economics for the past, you know, four months isn't the right proxy for, you know, what's coming up. And so, you know, back to again, your narrative where this mining said in this floor,

Starting point is 01:05:11 I think there's going to be some hash rate coming offline at that time because it's uneconomic and you're going to see some discomfort. That is fascinating to me. Yeah, right? Because I, so I'm looking at it and I'm saying, hold on a second. The infrastructure cannot keep pace with what, you know, I kind of suspect the price is going to do in the coming five to ten years. But I never thought of it from the perspective of the energy cost kind of blowing out in

Starting point is 01:05:38 Fiat terms and how that's going to cause, not issues, but that's going to help keep everything much more in balance and you're not going to see such a drastic spread because everybody's, everybody today is still denominating those expenses for the hardware in Fiat terms. And so they're looking at it in Fiat terms as they're paying their energy bills until we eventually get to a point where everything's going to be denominated in Bitcoin. We'll see where it goes, right? You've got some advanced thinking there, press. That's interesting.

Starting point is 01:06:12 No, I love your comeback on that because it comes. It combats, not that it combats, but it lessens the burden of it being so obvious to energy producers because the spread would be 300% plus and it'd just be super obvious. And I think that we're now maturing. So again, there's like reference of kind of power markets when they're deregulating 2000 to 2010. I remember trading New England power market, which is a lot of natural gas there. And there's expensive natural gas in New England because there's not many pipelines. It's kind of constrained up in that area.

Starting point is 01:06:51 And you would see the price of power for the next day at $200. And you do the math and you say, you know what? Like based on the price of gas, right? It makes more sense for them to sell back their gas and to not run their plant than to run their plant because it's, they'll be uneconomic. It would be a bad decision. Right. And I got burned so many times in the beginning in like, you know, 2003, four, five because

Starting point is 01:07:13 these companies hadn't developed the capabilities in-house or through third parties to essentially make those changes for how they're dispatching these generation assets. And so we're starting to see that now in the mining space too, right? Because you'll see, you know, some of these miners that maybe they don't turn down all the way because, you know, they're just realizing that they've got this, you know, this facility that can be dispatched up and down and has this additional flexibility. So it's, you know, kind of, you know, the takeaway on this is that the same way power generation had to mature as this due regulation happened, we're seeing that maturity happen with these mining companies as they get bigger and more sophisticated and kind of how they're operating their sites.

Starting point is 01:07:50 So it's a very similar reference. What is something that most people are misunderstanding or just totally missing about this particular space right now? I would say that, so I was making a presentation to an independent market monitor about kind of benefits, and this is somebody that would kind of look at an ISO, one of the jurisdictions for the rules and essentially make some suggestions on how could they improve their market, right? And so they're responsible for being this third party that can look at the market and then make

Starting point is 01:08:24 suggestions to the state or the utility commission on how to improve. And so I presented to them two years ago. And what I was trying to communicate was saying the same way you think about batteries that you can put them on certain parts of the grid to relieve congestion, right, because they can come up and down and they can, you know, respond to price signals, is that I would encourage them to think about these controllable loads as the same way. And the reason was is because, and this goes back to kind of how power markets are formed over the last hundred years and in load being not responsive, right? So load can't respond to prices, perfectly inelastic. And so generation will

Starting point is 01:09:02 get paid at essentially the node they injecting the grid. It's called the LMP price. locational marginal price. So they get paid at that node, whereas a load will take the average of the volumetric weighted average across all the nodes in a certain area. And they're going to get the average price. And so the message I was communicating with this independent market model, we're saying, encourage you to think about these as the same as batteries. And these should get actually LMP pricing, right?

Starting point is 01:09:28 Because, you know, they can actually relieve congestion at that point. And you also, you want to send the right price, right? You want to have the right signal. You want to have the right market behavior, market outcome, pardon me, that says, hey, there's cheap electricity up here. Go locate, load here. And if you can have like that nodal price. And so after winter storm, Yuri and, you know, the observation, some reading says that,

Starting point is 01:09:48 you know, when power systems get to about 25% renewables, so it means you look back in 25% energy came from winter solar. They need to do these market reforms on rules and products for managing the grids. Because when power markets were created, deregulated in 2000s, like there was no wind or solar, right? Of course, the market rules, you know, wouldn't have taken that into consideration. It's a long way of saying this is that, like, when I was sharing this information with market monitor, I was saying the reason why it's probably not on your radar is because on 2017,

Starting point is 01:10:15 this is Bitcoin mining. I showed a picture of a two-megawatt container in some industrial park and a transformer on, right? And then I shared a picture of what the Rockdale site looks like in Texas, which kind of Chad puts up there on his Twitter and copy and paste that there, and you can see this is what it looks like. And then I shared a picture and said, this is what it can look. look like in the future and it has like battery banks and located right by solar and wind, et cetera. And it was just kind of their jaw dropped. Right. And so what they're missing was it's

Starting point is 01:10:42 happened so fast, right? But you went from two megawatt containers to, you know, this rock-tale facility with, with riot is now like coming up on like north of 500 megawatts. I think it's coming online here soon. Right. And so it's happened so fast. It's not surprising. It's not on the radar, right? And so what's lost on people is just, you know, the impact that these facilities can have because of the size they are and how they can balance these grades and provide the same services as generators. But if you think of these is just like these two megawatt containers, it's like, come on, right? There's not enough scale there, right? And so what's lost on people, I think, is just how big it is. Yeah. It's unreal. Sean, I can't thank you enough. We have got

Starting point is 01:11:20 to do this again. You are such a wealth of information. Give people a hand off to your Twitter. I'll definitely, you know, when we post this, people are going to see your account. But, man, you need people following you because you just have such a breadth of knowledge. My gosh, give them a hand off to your Twitter and anything else that you want to highlight. Awesome. Yeah. Thanks for having me in the show press and I was excited that you reached out to me. So thanks for having me on. People to reach me on Twitter, it's at Sean Energy, so S-H-A-U-N and then Energy. And, you know, most of the stuff that we've shared here today, I post a lot of kind of, you know, pictures and slides and stuff like that on this. So yeah, I'd love for people to

Starting point is 01:11:59 reach out to me. And yeah, I think that's it. And one final question for you. If you have a quick message to any policymakers that listen to the show, what would your message be to the policymakers as they're trying to wrap their head around all this stuff? Yeah. So I think as the first stop, but I'd encourage them all to go listen to Brad Jones's five-minute CNBC clip. And you say, as a policymaker, saying, what is the CEO of the grid that has the most amount of mining that's had some challenges with some outages in the past years. Think about this, right? And that's a, you couldn't have somebody promote it any better than him. And then I would say just kind of like, list off like four bullet points on saying, you know, like, why is Bitcoin a great tool for

Starting point is 01:12:40 the energy transition? And the first, I'd say, this is a tool for energy flexibility is, you have a lot more intermittent resources. You need to have something for balance in the grid. This is something that provide second as ancillary services. So like all the backup generation that's been used in the past, like this is new flexibility for these, you know, intermittency, you've now got a global floor price of energy, right? So anybody in around the world can monetize a generation asset now with mining. And then last is just a cherry on the top is you've got a new off taker for renewables where some of these renewable projects that were kind of stranded in certain areas is struggling to find a buyer because, you know, they're being

Starting point is 01:13:14 curtailed or wouldn't have a buyer. You now have somebody that can come to this area and kind of support the growth of this renewable space. I'm going to have Brad's clip in the show notes. if people want to watch that. Sean Connell, thank you so much for coming on the show. My goodness, you knock this one out of the ballpark, sir. Thanks, Preston. Thanks for having me. Thanks.

Starting point is 01:13:33 If you guys enjoyed this conversation, be sure to follow the show on whatever podcast application you use. Just search for We Study Billionaires. The Bitcoin-specific shows come out every Wednesday, and I'd love to have you as a regular listener. If you enjoyed the show or you learned something new or you found it valuable, If you can leave a review, we would really appreciate that. And it's something that helps others find the interview in the search algorithm. So anything you can do to help out with a review, we would just greatly appreciate. And with that, thanks for listening. And I'll catch you again

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We Study Billionaires - The Investor’s Podcast Network - BTC079: The Bitcoin Energy Revolution w/ Shaun Connell (Bitcoin Podcast)

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