What Bitcoin Did - THIS TIME IS DIFFERENT: BITCOIN, WALL STREET & ENERGY w/ Harry Sudock

Episode Date: May 27, 2025

Harry Sudock is SVP at CleanSpark, one of the largest publicly traded Bitcoin mining companies in the world. In this episode, we explore why Bitcoin mining is reshaping America’s energy landscape, the evolution of corporate Bitcoin strategy, and the game theory behind early adoption by individuals, companies, and nation states. We also get into how companies like MicroStrategy and Metaplanet are unlocking powerful financial leverage through Bitcoin balance sheets, the risks of derivatives-based exposure, and whether institutions pose a threat to Bitcoin’s long-term consensus. Follow: Danny Knowles: https://x.com/_DannyKnowles or https://primal.net/danny Harry Sudock: https://x.com/harry_sudock THANKS TO OUR SPONSORS: IREN: https://www.iren.com/ RIVER: https://river.com/wbd ANCHORWATCH: https://www.anchorwatch.com/ LEDGER: https://www.ledger.com/ CASA: https://casa.io/

There are companies out there who are looking at the growth rate of their business and looking at the growth rate of the appreciation of Bitcoin and saying, you know, if you can't beat Bitcoin, join them. I think the corporate strategy is incredibly interesting and probably the fastest point of proliferation for hyper-bitquinization right now. More energy equals better outcomes for every single society on the planet. burden that is on us as individuals is to continue to express the highest and best version of our views

as to how Bitcoin can be a tool in your daily life to continue to drive continuous improvement for you, your family and your community. What Bitcoin did is brought to you by our lead sponsor and Massive Legend, Iron, the largest NASDAQ listed Bitcoin miner using 100% renewable energy. Iron are not just power in the Bitcoin network. They also provide cutting edge computing resources for AI, all backed by renewable energy.

So whether you're interested in mining Bitcoin or harnessing AI compute power, iron is setting the standard. Visit iron.com to learn more, which is iri-n-n.com. Vegas, baby. It's already beating me. You know, we've now spent

five years doing these, almost every Bitcoin conference. Well, yeah, but the big conference we've now done shows 21, 22, 23, 24 and 25. This is our fifth year in a row of doing a Bitcoin 20 to 20X show. I missed the first one. You did.

Because it was during COVID and I couldn't travel. Yes. But yeah, four years with me, which is fucking cool, man. You were absolutely crushing it. Thank you. You are too. Can I tell you about what happened in Vegas last night? Yeah.

After we went out for a few beers, I decided to go and try hand at blackjack how much i don't think we should talk about that how bad um how many sets did you not buy in 10 years it'll be generational wealth oh shit it didn't go well oh i'm sorry to hear but you can win it all back here can you that's what they tell me that's what they tell me so tonight tonight this time this time will be different um but that's why i want to talk to you about this time being different um because we're basically all-time We're like 107K or something, but basically all-time highs. Trump admin, super pro Bitcoin, at least seemingly.

We'll see what they actually do with their strategic reserve and stuff like that. Corporate strategy is popping up all over the place. We're getting more and more every week or whatever. Do you think this time truly might be different? You know, I use the analogy that over the early years, a compounding, geometric exponential curve is indiscernible from a very slowly moving line. So think about it this way. You go, you know, imagine you double every year.

You go from 0.002 to 0.004 to 0.008 to 0.016. Like that movement when you look at the graph is indiscernible from a very slowly increasing line until you get to the out years. And then it looks like you're going from 10 to 20 to 40 to 80 to 160. And that's a totally different shape on the graph. It's the same exponential function, but the out years look dramatically different than the early years. And so I think this time is not different. It's more of the same, but it is the period of time that a larger amount of value, mind share, adoption is getting expressed. And so it's very visible. It's very in your face now.

Whereas before there was only a smaller group of people who knew the secret about Bitcoin. And I think, you know, any, you know, any great business, any great idea, any great innovation starts as a secret. And then slowly more people get told the secret and figure it out. And what we're seeing now is that a lot of people are hearing the secret. They're reacting to it differently than maybe we did in 2016, 17, 18, but they're expressing their view around the secret Bitcoin in new and different ways. And so I think that, you know, what we've seen is that is that Bitcoin is an incredibly effective political tool. If you look at, you know, we're at Clean Spark. We're part of the Bitcoin

voter project. And so we co- Is that? So it's basically a get out the vote effort around Bitcoin related candidates. We typically go down ballot. We're, we're, one of the co-founders alongside of Marathon and Riot. And basically, you know, we think we flipped a seat and we have great data. Wow. But basically what we found is that there is a large, highly motivated, narrow issue-focused group of voters who just need to be brought data and activation. And so we wanted to just contribute that. So Margot placed at our VP of Government Affairs, she, you know, leads that with us in

conjunction with her counterparts at the other companies. And so we're seeing Bitcoin as an incredible political tool. It has nothing to do with, you know, buying Bitcoin yourself, right? Although that's something that many of those voters have done in their lives. But it's a political tool. It's an incredible corporate tool, right? There are companies out there who are looking at the growth rate of their business and looking at the growth rate of the appreciation of Bitcoin and saying, you know, if you can't beat Bitcoin, join it. And so they're making Bitcoin a strategic growth priority for a business that wouldn't be otherwise able to grow as quickly as Bitcoin will. And so I think the corporate strategy is incredibly interesting and probably the

fastest point of proliferation for hyper-Bitquinization right now. I think that pendulum will swing to nation states, that pendulum will swing back to individuals. And so, What we're seeing is that there's really sort of three major cohorts that are interacting with Bitcoin right now. It's the individual. It's the company and it's the state. And all three of those are in what I would consider a game theoretic superposition where by being early, you get to be right. And so the adoption curve is really, really interesting. if you look back at the arc between early cipher punks, El Salvador, and Microstrategy is sort of the first movers of each of those cohorts as Bitcoin has proliferated across those circles.

And the motivations that each of those groups had to adopt Bitcoin are each totally different and very, very interesting as we look to see, you know, this unique asset make its way into different circles and change them profoundly. and to the benefit. So I want to talk about the corporate strategy more, but just before we do, how big a voter block do you think Bitcoiners are now? Because it's one of the things that I've never been quite sure of. I think as Bitcoins,

we get excited about everything. And so when we say Bitcoin helped swing the election, how true do you think that actually is? So I think you should do an episode with the Bitcoin Voter Project folks. Yeah. And they'll walk you through all the data. It's very compelling.

When you're doing that, are you going out and talking about Bitcoin or are you talking about like the jobs that Bitcoin mining can bring to the area? It's really all of the above, but it's Bitcoin first. You know, so I think mining is an incredible story. We, you know, we've benefited from revitalizing a number of communities through just paying our power bills. So, you know, I use the example for us. There's a town called Sandersville, Georgia, town of like 15,000 people.

It's where we have our largest site. We originally acquired an 85 megawatt Bitcoin mining site. And then we grew it up to 235 megawatt. So it's our single largest site in our portfolio out of 32 facilities and our power bill that our power bill there is like close to double digit millions a month. Wow. And we pay sales tax on that because that's how power bills work. And then we also pay margin to the city because in Georgia the utilities are oftentimes municipalities. That town had been running and the mayor there has been you know in one elected office or another for I think 44 years. years. Oh, shit. The first 42 of those years, they ran a budget deficit. The last two years, they've run a budget surplus and a big budget surplus to the point that that town is considering eliminating property taxes for households. Wow. That's very cool. Which is a really weird and interesting niche Bitcoin benefit. Yeah. And I assume there's towns like that all over Texas and

all over the country. All over the country. And so, you know, that's why we've taken this view that rural America is the right partner for for Bitcoin mining. It's the places where we're not competing with another use for that energy. They don't have the infrastructure to support a 2,000 person auto plant, which might be the other type of buyer of that energy. You know, they don't have the hospitals. They don't have the schools to have another 2,000 people move there, right? It just won't work. What's the power source there? In Georgia, we predominantly located there as Vogel one and two or three and four, I lost which pieces of that project were going live,

but it's all nuclear. Okay, oh cool. I came online in Georgia most recently. So we're operating in Georgia, Tennessee, Mississippi, and Wyoming. And what's fascinating is that, at least Tennessee and Georgia, are two of the most nuclear-rich power grids in our country. Tennessee's 42% nuclear in Georgia, it depends on where you are in the state. there's some complexity there.

But, you know, we've always been, you know, firm believer that energy innovation creates environments for Bitcoin mining. And you just saw the TVA submitted a proposal to build SMR nuclear power at the Clinch River site out by Oak Ridge. And so you see Georgia is the only state where a new nuclear reactor has gone live in the last, you know, 15 years. And now Tennessee is going to be following them. And those are our two biggest markets right now.

That's very cool. And so I assume that that nuclear plant in Georgia, they just don't have the demand for the energy they're producing. Yeah. So Georgia, when we built out there and we're running, you know, somewhere in the 500 megawatt range across the entire state, they were a huge net exporter of energy. And so, one, that creates a great environment for demand response dollars because they need a flexible load during those narrow windows when things get crunched. And two is that they've got huge pieces of generation coming online in the Vogel plant. And so being able to have us soak that up with positive revenue was a huge benefit as that new generation was all coming online. And Trump's just signed an executive order older about nuclear. He sure did. I just saw that he did that.

I don't know the details of it. What's happened? So there's really two components to that piece of, of, it's not legislation, but that piece of governance. The first is that we have not been the place where uranium is mined and refined. And that makes us dependent on foreign sources of which much of it is Kazakh, much of it is Russian, and elsewhere. And so there's a strategic imperative to be able to be a producer of nuclear here. Can I ask you a stupid question? There is uranium here, though, that they can go and mine.

The US is one of the most incredibly resource-rich environments in the world here and Canada, the entire continent. We just need to have the will to be able to go and do it. Go and do it. The second piece of the executive order, and he signed a couple in conjunction, is around the regulatory piece. And so, you know, there's an incredible thread. Do you know Isabel Boeemichie? No, I don't think so. Isidope on Twitter.

she's um i think she's a model turned nuclear influencer i love that i didn't know there was nuclear influences she's awesome she should be on your show yeah that sounds great she's really really cool and then um there's another uh uh woman who who left galaxy to join um melton at her at her fund um named kelly greer she just did a uh she just did a thread on the executive order and what it means and so there's those are two people who are really sharp on what all of this what all of this what all of this means and and I believe they've made an investment in one of the new refiners of uranium here in the US but there's a huge there's a huge regulatory burden so the the perhaps dumbest and most frustrating example of the red tape is you you have to

build your own weather monitoring system and run a prevailing wind study for multiple years at this at the facility NOAA has all that data already and they're just making you do it a second time and delaying things two more years and putting up all red tape all regulatory capture all all frustrating challenges where you know we need to generate more electrons in a low cost and reliable way if we're going to be a thriving society yeah bitcoin mining is playing a huge role in facilitating that because we represent brand new revenue that the utilities never had access to before but that's the demand side of the equation there needs to be a supply side response to increasing demand, whether it's AIHPC on a flat, you know, base load redundant basis or Bitcoin mining on a flexible load basis, which we think makes us a more attractive customer for these power sources. We need to marry additional generation and additional supply to the changing demand function that our society is demanding at this point. This episode is brought to you by Anchor Watch. The thing that keeps me up at night is the idea

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That's r-I-V-E-R.com slash WBD. I also want to give a quick shout out to the Human Rights Foundation's Financial Freedom Report. This is their weekly newsletter that drops every Thursday and it covers how authoritarian regimes use money as a tool for control and how people are pushing back against that using privacy tools and of course Bitcoin. It's an amazing newsletter, it's Pure Signal, and you can subscribe for free at Financial Freedom Report.org.

I'm getting a lot of new listeners at the moment with price being high. Can we kind of go back? We've covered this probably multiple times on the show before, but I think sometimes people get tripped up on the idea that we want to produce and consume more and more and more electricity, more more energy. Can you explain why that's good for society? Yeah. So when you look at, I look at societal biomarkers, right? What are the, what are the pieces of data that indicate a healthy, growing, and flourishing society? The number one most predictive metric is how many megawatt hours are we producing on a per capita basis? That means, you know, the U.S. is, and there's a great chart that we should link in the show notes, which is from our world in data. And it basically just maps the number of megawatt hours produced per capita and per capita GDP.

Now, GDP is a tricky metric, but we'll hold that aside for a moment. And basically, the more megawatt hours you produce per person, the better your society is on an economic basis, on a infant mortality basis, on a childhood nutrition basis, on a access to health care basis, on an education basis, on a how many startups are there happening in your, you know, pick your, pick your benchmark. More energy equals better outcomes for every single society on the planet. And so I think that we've gone through a period of Malthusian Dumerism around energy over the last 30 plus years.

A lot of it is, you know, born and bred in the environmentalist movement, which was well-intentioned, but very, very negatively implemented. Yeah. We're going to, we're going to conserve our way to prosperity. That's a fake argument. We're going to produce and consume our way to prosperity. We're going to do so in an environmentally responsible way. We're going to do so in a fiscally responsible way.

And we're going to be better for it. But at the end of the day, we need to produce more electrons. We need to produce them cheaply, safely, and environmentally sound ways. And that's where we get to where we're supposed to go. And Bitcoin is a key technology that's driving the boat on that. And we as miners are the reason that there is a, relationship between our energy system and sound money that's going to be changing the world. It already is. So I have boots on the ground experience sourcing this power, talking to utilities,

understanding their constraints and their pain points. And what Bitcoin does to fundamentally change the energy equation is we represent basically an indiscriminately large consumer with absolute flexibility around how and when we consume. And so why is that important? it's because the power grid system is only challenged somewhere between 80 and a couple hundred hours a year. There's 8,760 hours each year, except for leap day. And ultimately, the pinch points are very narrow. They're weather related and typically system mechanical related. Being able to have a customer who represents double-digit, mid-double-digit percentage of your system,

being able to flip up and down is the reason that there's going to be long-term prosperity and resilience. We represent revenue every single hour that we consume, and we represent capacity with every single hour that we're able to turn down. And so these systems get a new dynamic customer who's able to unlock completely new behavior and make possible the investment in the generation assets that are going to make us a more prosperous society. And nuclear is clearly going to be the thing that we need in this. So on like the old version of what Bitcoin did, we did two interviews, probably two-ish years ago in Nashville. One was with a guy called Anthony Jared and one was with Jared Everett, I think he was called.

He's at Oaklo. The one with Anthony Jared is maybe my favorite show we've ever made. He was just this guy that he's, I think it was his son listened to the show. And we've been talking about nuclear just like passively. And he reached out and said, you should speak to my dad. And this guy used to work in the nuclear navy doing this for like 40 plus years. And he laid out basically the bull case for nuclear. And he completely, like I didn't have a negative perception on it, but I didn't really

understand it properly. And he completely flipped that. And he made it very clear that this is what we need. And I think people have a kind of aversion to it because of like Chernobyl and Fukushima and that stuff. But in that, he laid out how it's actually, if you do the sort of statistics on it, it's the second safest form of energy production after wind, I think it was. So clearly nuclear has a role to play.

In this executive order, what is Trump's plan? Like, is it to unlock people's ability to build, like, big nuclear reactors? Or is it going to be these, like, small, medium-sized reactors? So I think it's important to talk about, like, what the technology scope of nuclear implementations look like now. So if you watch The Simpsons and saw that nuclear reactor, or if you look at sort of what the 1970s era, 60s era till present,

what those technologies look like are gigawatt plus. Oftentimes if you do two reactors, you're sitting at 2.2 to 2.4 gigawatts per power plant. That is massive. That form factor, I think, will still work great. When you look at, you know, you look at the countrywide data around, around nuclear reactors.

Those are our best performing assets. If you look out in Diablo Canyon, they just got an extension for an additional 20 years of useful life. Diablo Canyon, I believe, is like 10% of all of California's baseload. Wow. Wasn't they trying to shut these down as well?

They sure were. And they did. You know, they shut down three mile island. They shut down one in, in Michigan recently. That's now being tried to, you know, to reopen. And so we went from like 130 reactors down to 99. And now we're trying to turn the boat as quickly as possible and keep the ones that we have today, most important priority.

Extend useful life. Extend licensing approval and keep what we have. Step one. Step two, turn on what got turned off. Microsoft's talking about doing a deal with Three Mile Island to restart that reactor. And they should. The next step is going to be building all of these new gen reactors as well. And if we can build old gen, great, we should.

But what's interesting is, so you know, you take the previous version where you're looking at like gigawatt plus per reactor. The new ones are very different. So let's use, you know, let's use some of the, some of the raw numbers like what Oaklo is doing between two and 10 megawatts, very small scale, very tactical. if the regulatory environment eases significantly, I think they've got a great product that can come to market. And what would the market fit there be?

Would it be like basically going and co-locating with a Google data center or whatever and just powering that? So there's behind the meter applications to these for sure, but there's also grid interconnected ones where, you know, you've got, you know, taking a step back, how does our energy system function? There's three key roles that any grid has. There's generation, transmission, and delivery. Generation is anything that generates electrons. Transmission is how do you move those electrons over long distances?

Delivery is how do you move those electrons over short distances to businesses and houses? So if you've driven by those big lines that are really high up, those are transmission lines. If you drive by a substation, which is like the thing with the fence that says keep out danger beware, that's the beginning point of delivery. So the transmission brings the energy into the substation. And then the substation on a lower voltage line brings the power to your house or your business. The interesting part is that what the form factor that Okloos proposed would start to be able to marry generation to the delivery system rather than going through the big long distances. If you're on a long distance transmission line, you're looking at anywhere from 100 to 500 miles of capability to move power. that system works great, but it has pinch points and fragility because the longer the distance,

the more complex the orchestration that's required. And the more you lose along the way. And the more you lose along the way, you can lose up to 30% of your power on a long-haul transmission line. The, the Oklo design is really to be able to bring generation either behind the meter on-prem to a large consumer or the, you know, to a large consumer. or to be able to marry additional generation to the delivery systems that are in place today.

But there's other designs as well. So if you look at the new scale, X energy, Terra power, GE-Vernovas of the world, they're kind of middling it, where they will do like anywhere from four to 12 reactors at a single location, and they'll produce 7 to 950 megawatts-ish at that location

and then serve as more of a traditional generation, source, you know, maybe you're choosing between building a combined cycle natural gas plant, or you're looking at a 12-pack of G.E. Vernover reactors, which would be 924 megawatts. That's utility scale generation that's able to go through the normal transmission and delivery process, but you're able to build very large scale, very high reliability, very low cost power over a long period of time. And what's really interesting from a cost perspective is these plants, typically amortize over 40 years, but they can be run for 80. And so you're building these multi-generational assets that are going to be able to power our

economy for many, many, many decades. And so it's an opportunity for us to take a very long view on useful life and be able to build a lot of resilience into the future because at the end of the day, data centers are only getting bigger, automation is only getting bigger, and it's a war for power gen. And the way that China is doing it, they're much more aggressive. than we are right now. They're building much more than we are. They're building a ton of hydro, a ton of coal, and a ton of nuclear. Are they building something like 80 coal plants this year or something crazy like that? Something crazy. So, so, and this was a good segment from this week's All In podcast where

they talked about us versus China on a generation basis. And they made a really interesting point, which is that if we were able to build, you know, one, one terawatt, which is, you know, a thousand gigawatts that right now our capacity is roughly one terawatt at a given time we've generated about for the entire country for the entire country we generate about 4 000 terawatt hours which means that we've got one terawatt running at about 50 percent over the year 8 760 hours in the year 4,000 terawatt hours get generated by the u.s right now china's trying to build another terawatt of capability like every year holy shit we need to take the same type of Manhattan project level of focus to our power It means deregulation on things that don't make sense.

We want to be safely regulated, but we don't want to be onerously regulated, which is where we stand today. And we need to take a very, very aggressive view on being able to generate more power because ultimately the productivity and efficiency gains that we're going to be able to realize out of that additional capacity will solve things like the national debt over a long enough period of time because we will have so much domestic production capability. that these types of heavy power usage industries will be able to flourish and thrive here in a way that they haven't historically because we've taken sort of a just-in-time development process with our generation. And it makes sense why Trump would sign those executive orders, because if he's truly looking at reshoring, the country is going to need a hell of a lot more electricity. Just quickly, when you say things like 924 megawatts, I really struggle to contextualize what that

actually means. If you took one of like the Oklo small modular reactors and put it on the Texas grid, what kind of percentage would that make up of it? Yeah. So right now Texas is running somewhere in the neighborhood of 80,000 megawatts. Oaklo's largest, I think, represents 10. Okay. So it's pretty small. Pretty small.

But these are complex systems where if you inject 10 or 100 in very strategic places, the benefits are enormous. Okay. Because it's baseload rather than being wind or solar. Exactly. There's no fluctuation to that production capability. So nuclear will run somewhere in the neighborhood of like 92 plus percent capacity factor. Capacity factor, which is there's a nameplate of what it can generate. And then over the course of a year, how much does it produce relative to that nameplate? Wind and solar are somewhere in the 30 to 40 percent range. Nuclear is in the 92 plus percent range. dramatically different load profile than some of these other generation sources that don't have the uptime and the reliability that a nuclear plant will have. Now, you need both. You need it all. But making an investment in base load is materially more beneficial to the overall system than variable load.

Yeah, that makes sense. Okay, we went down a bit of a nuclear tangent there, and we don't have too much time to take, because we've got to check out at this place. But I want to get back to the corporate strategy thing. There's nuance to this because there's people doing it in vastly different ways. Like you at Clean Spark are doing this in a totally different way to strategy. So let's start with the strategy style balance sheet. What do you think of what they're doing and the kind of longevity of that? I think that taking a step back, like what is the playbook for Bitcoin, right? For a company, for an individual, however you slice it. And it's basically a time-bound arms race where the sats that you're able to acquire today have more value than the

stats that you're able to acquire tomorrow over a long time scale. Bitcoin is an appreciating asset. It has an incredible track record of basically going up into the right with volatility along the way. And so the incentive is to own as much Bitcoin as soon as possible. Yep. Strategy is taking a very specific view of how to do that. They've massively innovated in the financial market.

their financial engineering unlock is incredibly incredibly valuable from a capital formation standpoint, and they've been able to express that view super successfully over the last four or five years. Sailor is right. Raise money and buy Bitcoin is an incredibly accretive playbook that has room to run even from here. The biggest question in the way that they and their cohort is accomplishing this goal is, is that their company's valuation runs ahead of their Bitcoin holdings on balance sheet. So the term that gets used in the industry is MNAV, which is multiple on net asset value. They are right now achieving a positive multiple on their net asset value, which means

that if they're able to sell $1 of stock and buy $1 of Bitcoin, they get $2 of market cap out of that activity. And as long as that continues to work, they will be a huge indiscriminate buyer of Bitcoin. Yes. This is why Sailor doesn't care about buying the top versus buying the mid versus buying the VWAP. He's just buying. He's just buying because think about it this way.

He's getting $2 of valuation for every $1 raised. So if you buy Bitcoin 10% up or 10% down, that pales in comparison to the multiple that he's achieving with each dollar raised and each dollar of Bitcoin. purchased. There may come a time when that multiple compresses. I mean, it has to find some kind of equilibrium at some point. Well, maybe, maybe, you know, so I mean, I don't think that's close, to be fair. I don't think it's close.

And there's, and there's a lot of idiosyncratic structural reasons why these capital formation exercises and these geographies potentially create a multiple effect. The first is that you've got biocentric. of debt who can only buy debt by mandate. He's selling convertible debt, which converts into equity, which is pegged to Bitcoin. So if there's an investor who can't buy Bitcoin or can't buy his stock directly, being able to buy the convertible product is the best way for them to achieve outsized returns relative to the other fixed income products that those dollars could be put into.

So they're not comparing buying Bitcoin. versus buying micro strategy. They're comparing buying a treasury versus buying micro strategy convertible debt. And so their calculus is just fundamentally different. And essentially all that really means is it's a treasury or a derivative of Bitcoin. Correct. And if you look over the last 10, 15 years, buying exposure to Bitcoin, no matter how expensive that exposure is, is more productive than buying treasuries. Yeah. Now let's talk about Metaplanet because I think they're a really interesting example. They've been crushing. They've been absolutely crushing. they in Japan have a totally different reason why they're going to be able to generate a multiple and a premium.

In Japan, if you own Bitcoin, you have a I think 55% tax rate on the underlier. That doesn't apply if you own an equity. You have a 20% tax rate. And so there's a 35% spread between owning an equity and owning a digital asset like Bitcoin. that creates a community of forced buyers of the equity product rather than the underlier. And so they deserve a premium because they live in a different tax regime than we do. Yeah. And to add to that, their bond market is completely fucked. And their demographics are in trouble and their central banking activity is in trouble.

So the Bitcoin thesis reads through to the Japanese economy in a different way than maybe it would elsewhere. And there are structural reasons why expressing that Bitcoin thesis through an equity is more beneficial than the underlying asset. So these are the types of geographic and idiosyncratic complexity, why these multiples are more durable than you would necessarily see or expect if you're just running a pure Bitcoin versus stock, you know, apples to apples analysis. This episode is also brought to you by Ledger. If you're serious about protecting your Bitcoin, ledger has the solution you need. Their hardware wallets give you complete control over your private keys, ensuring that your Bitcoin stays safe from hacks, fishing and malware.

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Kasa have options for all Bitcoiners from a two of three multi-sig to a three of five and a private client option for absolute best in class security. Kasa also do inheritance which I very recently set up and it really couldn't be easier. My inheritance plan has gone from a vague treasure map for my wife to a rock solid security plan that I have total confidence in. To find out more about CASA, go to Kasa.io, which is c-a-s-a-o. I want to get into the idea that people are now by derivatives rather than Bitcoin and whether that leads to essentially capture of Bitcoin or potentially can. But let's leave that for a second because I just do want to talk about the miners. Because Marathon are now the second biggest holder of Bitcoin at a corporate level. Obviously every miner will have

been watching their play very closely. We talked about this a little bit on the last show we did, but do you think that that is a sensible strategy for a mining company to issue debt to buy Bitcoin rather than to issue debt to invest in infrastructure and mine more Bitcoin? Because you're mining Bitcoin, I don't know what it is, like 60% under spot price or like roughly, I don't know. So how is the kind of industry watching that play and what's the take on it? I think that it's a question of quality. I think that a great miner should invest in themselves. That's what we've done historically.

We're the second largest producer of hash rate on the planet. We hold, you know, as of end of April, 12,101 Bitcoin on our balance sheet. Every single one of those Bitcoin we've mined. We've not been out in the market, you know, purchasing Bitcoin to add to our treasury. And that's very deliberate from where we stand. We think we can be a very large holder. I think we're the fifth largest holder of all the corporates. And so we've taken a very specific view.

And the reason is because we have the level of operational excellence that's required to stay a pure play. I don't know that other people are going to be able to replicate that. Well, Ireland have done a similar thing, haven't they? They also issue debt to invest in themselves rather than just go out and buy Bitcoin. But they don't hold Bitcoin on their balance sheet. They sell it every day. And so their mining operations are very high quality. And we think they've done a good job with the operational leg of their business.

They've just made different treasury decisions where, you know, I think that they've left a lot of money on the table by not holding a strong Bitcoin position. And part of it is because their goal is not to be a huge Bitcoin miner. They want to be a data center company. And they want to use alternative compute applications as the way that they continue to grow. And that's a fair and different choice. But what they haven't done is built a corpus of Bitcoin on their balance sheet to utilize over time to, A, benefit from the appreciation. And B, benefit from the suite of financially engineered products that make that Bitcoin more productive over time. And that doesn't mean lending it out and risking it and getting a little bit of yield.

You know, what we've done is we've taken our Bitcoin. We've created a revolving line of credit relationship with Coinbase where we've got $200 million in dollars to be able to pull down, invest tactically on an accretive basis, be able to grow our operations without having to sell equity into the market, which makes us among a very rare few, and then be able to leverage the productivity from those expanded operations to pay down that debt rapidly and continue to rinse and repeat. So, you know, our goal is to create a Bitcoin-enabled flywheel where we've got mining over here. We've got a huge treasury position over here.

And we're able to continue to leverage the expertise in both of those to continue to generate a lot of Bitcoin, hold a large percentage of that on our balance sheet and increase our position over time and continue to be able to reflect what we believe is a differentiated value proposition to our shareholders where they're getting exposure to our treasury, exposure. exposure to our highly productive operating business, and the confidence that we're going to be careful stewards of dilution and careful stewards of growth so that when we deploy capital into these new opportunities, especially within our mining business, those are going to be highly, highly, highly productive. Yeah, and so Iran have also pivoted, or at least partially pivoted pretty hard into AI.

Do you think you're going to see more miners do the same thing? Because I think that's worked pretty well for them. I think it's a super complicated question. It's not the decision that we've made. And the reason for that is, you know, I think there's some incredible deals and opportunities, but I think there's also a tremendous amount of operational complexity to running an AIHPC data center. You know, the example that I always use is that, you know, if you're going to run a really high quality customer relationship compute load, they're going to be looking for five-nines.

And so when you think back to those 8,760 hours in the year, that means that you can be down for less than one of them. What does five-nines mean? It means you're running 99.999% of the time. Oh, I see. 99-999. Okay. 5-9%.

We have not structured our power contracts in a way that is designed to support that level of uptime. Most other miners power costs will not be. be able to be transferred into an AIHPC compute environment because they're all relying on being able to give back a piece of those hours. And once you're not able to give those hours back, your price structure significantly changes. So could we do AI HPC? We're running 32 data centers. Some of those are candidates for an AI customer potentially.

But right now we're looking at what does it take to build a super high quality AIHPC environment? The CAP-X is somewhere between, it's, so if we're gonna build one megawatt of Bitcoin mining, it's between, you know, $500,600,000 a megawatt. If you're gonna build one megawatt of AIHPC, it's eight to 12 million. Oh, wow.

So the cost differential is huge. The time to market is very different. You know, the best operators get AIHPC up and running in about a year. The average is probably two to three years. And so do I want to wait two to three years before I see the first dollar of revenue from that customer? Or do I want to wait six months mining and start generating revenue immediately? And the amount of CAP-X that's required is almost in order, more than an order of magnitude smaller.

Interesting. Okay. I do want to talk about the risks of the corporate strategy. Basically, actually, I'm going to rephrase that because it's not a risk of the corporate strategy. It's a risk of Bitcoin is not holding Bitcoin, holding derivatives of Bitcoin. or with things like MSTY, like derivatives of derivatives of Bitcoin. Yeah. And whether there is like potential for, I guess, Wall Street capture.

Like protocol level impact? Yeah. So I was talking to Jack Mowers last week. That show won't have gone out before this. It's going to go out on Friday because we talked about some of the announcements he's going to make in Vegas. But he put that number at basically 0%. And the thing that I struggled with was I gave him an example of, like, take the quantum argument. as an example.

And let's just assume quantum's real. We don't need to talk about that. And in five to 10 years, we have a real threat and we have to do something about all the coins that held in like Pace Pubkey addresses because they're now vulnerable. And the argument is going to, like the debate is going to be around, do we freeze those funds

or do we let them be stolen by a hacker? When I was speaking to Jack, the thing that I said was that Sala wants to freeze his own coins. So I assume he's going to fall on the side of freeze other peoples as well. Assumption there, but let's say. if that happens, I think Saylor has both economic weight and a huge amount of influence over Bitcoin. And what does that mean to like the future trajectory of Bitcoin?

Yeah, you know, we talked a little bit about this yesterday. And you had the best argument I've ever heard on it. Well, I'll try to make it again, which is that the corporate and custody and third party custody providers have a different set of incentives than I think. think the market understands. I think that, you know, there's a, there's, whether it's a meme or a narrative that all the ETF holders are going to be able to exert a lot of influence over Bitcoin. And I just don't really buy that. Mostly, but black crook, my. No, I don't think so. The reason being that these are businesses that are so big and so

valuable and doing so well in all these different areas, they have one primary concern, which is to not get sued. And so they don't want to do things that will open up their overall business to lawsuit exposure, basically. And let's use, let's use like a more concrete version of why I think this. So Bitcoin is an important business to BlackRock, but it's still a relatively small percentage of their revenue in particular because the fee structure is so low. why would they risk their overall operating business in lawsuits over a business that is not core and primary to them?

So my expectation is that in a contentious fork environment, their game theoretic superposition is to do nothing. And then now let's extend that to their custodian. Because at the end of the day, the custodian of the coins who's running the node that is validating and working in conjunction with that UTXO or set of UTXOs, they are the ultimate decision maker on what happens with the fork coins. Coinbase is the largest custodian of the ETF providers. You know what Coinbase doesn't want to do?

Get sued. Large scale, public companies do not want to get sued. And so Coinbase is now the second layer. So let's walk through the legal structure. I own one share of I bet. I'm the beneficial owner of that security. BlackRock is the ETF administrator who orchestrates the back end of the market by which they issue me the share and they buy me the equivalent amount of Bitcoin that then gets held in their treasury environment. That treasury environment is a Coinbase.

BlackRock has delegated the UTXO to Coinbase. Coinbase is running the node. They're now the third layer of legal structure. So I'm the beneficial owner. BlackRock is the administrator. Coinbase is the custodian. Everywhere south of me. in that stack has a primary objective to not get sued. And so that means that their superposition

at both layers is to do nothing. If we enter a contentious environment, the best thing for them to do to not get sued is to sit on both coins and watch the market play itself out and deal with it at that level. So if we are dealing with a contentious fork, assuming everything you say there is right, which I think it is, we're kind of in the same dynamic as we would have been in 2017 for the block size wars. And that worked out great. Yeah. Interesting.

And so we were talking about this last night, and you would explain the difference between what you described as like hard power and soft power. Do you want to explain that? Yeah. So I think there's a really interesting dynamic in Bitcoin development and consensus implementation,

where there's really two tracks with power dynamics in the network. There's what I'm calling network hard power, which is the ability to exert direct economic influence in a contentious environment. So what does that mean? Bitcoin has a contentious fork. I'm now left with the decision to sell one fork and buy the other. When I press sell and when I press buy, I've exerted hard power on the network in the fork environment.

And everybody who holds a lot of Bitcoin has the ability to do that unless their custodian does not enable them to do those. things, aka Black Rock to Coinbase or Micro Strategy to whatever custodian they haven't disclosed that they're using. So those players are much less likely to exert economic hard power in the fork environment because they have massive constituencies that they're obligated to and don't want to get sued by. Then there's soft power, which is running your own node, you know, signaling a flag. tweeting, talking on message boards. It's like the social layer.

It's the social and technical layer combined. So that's all the soft power stuff. So, you know, what's great about this, this maddening operturn debate, which we're not going to talk about the details of, is Bitcoin's white blood cell network is incredibly robust. This is a pretty de minimis change. There is very low impact relative to it on both sides. Yep.

And everybody is losing their minds and fighting with each other like good Bitcoiners do. There's a former bitcoiner who has passed away named Marcia Poppescu, if you're aware of him. Was he the crazy guy who died on a beach in Mexico or something? Yep, he sure was. You should tell the story of him because loads of listeners won't know who he is. Okay. So for those of you listening, go back. His blog is all still live. It's hosted. It's all out there. He's a nut job. And inflammatory and, and, and, and, you know, politically more politically incorrect than I'm willing to endorse.

But he was a very deep Bitcoin thinker. And one of the things that he said that really resonated was a change in Bitcoin is indiscernible from an attack on Bitcoin. That's very accurate. And we're seeing that all around us every day. That a good upgrade looks exactly like an attack. and we as a distributed community of participants in this software project need to have the muscle and the intelligence to wade through the indiscernible ability to come to consensus on the other

side. And so any change to Bitcoin positive will look exactly like an attack on Bitcoin because that's how Bitcoin is designed. I love that. The thing that when you were explaining this to me last night, the thing that made it all make sense to me is I think you're 100% right on the hard and soft power analogy because you can look back to 2017 to the block size wars and even jiham who was like king mr evil in that scenario when push came to shove he still didn't turn all his miners over to mining bitcoin cash because he knew

deep down at some level that was a bad economic decision correct and so you think really would you agree with jack that we're at basically zero percent chance of an actual zero is the wrong number in bitcoin always. Owning zero Bitcoin is the wrong number of Bitcoin. Zero percent risk is the wrong number of risk management. I think to be fair to Jackie, you think he said close to zero. I don't think you said actual. I agree with him close to zero. Yeah, I agree with him largely that the risk profile of hard fork and change to Bitcoin, those risks are are quite unlikely to come from sort of Bitcoin corporate as it stands today. Interesting. I really do think that your argument on that is the strongest I've heard, and it genuinely has changed my perception on it from being, from thinking it was, I still thought it was low risk, but I now think it's significantly lower.

To try to take this back to the start of the conversation, we're talking about this time being different. Do you think there's a chance that we are done with Bitcoin cycles, with everything, like, taking into context everything we've said here in terms of corporate treasuries, Bitcoin moving into like the political sphere? I think we're closer to being done with cycles than we were before. But I also have been around long enough to say that we're probably still going to live and die by cycles. So do you think that the kind of corporate strategy could actually be the kind of euphoria that we see that gets us another 80% drawdown? I think maybe. I think, you know, I think that that risk is actually lower than the market is thinking about it. I think there's concentration risk in ownership. But there's not the same type of leverage.

that there was in the system in in in other environments even with all the derivatives on top of derivatives what but those aren't going to those don't make me buy or sell bitcoin those derivatives are not fundamentally going to drive bitcoin hard power in the market ultimately so like let's use some examples right misty doesn't ever touch bitcoin all it does is trades volatility options on micro strategy and then i own some treasuries that's what the misty product is you know so i think it it it gets, you know, boogie-manned a little bit because Bitcoiners are two things that I think about Bitcoiners.

One is we're cheap dates. We get excited very easily. For sure. Two is we have deep and comprehensive PTSD. Mm-hmm. We have hard fork PTSD from 2017. We have market PTSD from Mount Cox and FTX and all of these, all of these other, you know, bucket shops that, that introduced, you know, financial crisis style exposure. to Bitcoin, but the, you know, but the, the market structure that drove, you know, the GBT

blow up that blew up three arrows capital, that blew up Celsius, that blew up FTC, like that, that style of market structure doesn't really play out in the same way as it does with the Bitcoin Treasury companies. So let's look at where the leverage is. Convertible debt. If that convertible debt comes due and gets called in cash, they will be for sellers of. Bitcoin potentially or huge diluters of the stock to raise the cash to pay for the bonds. But Micro Strategy isn't super levered. They own a lot more Bitcoin than they do owe debt. And so, you know, as long as those pieces of convertible paper are well managed, I think the

leverage in the system is not unreasonable today. Now, will we see large high profile blowups? Are there, are there, you know, let's let's use a hypothetical that, you know, micro strategy has to sell 10% of their holdings to pay for the debt. I don't think that them selling 50,000 coins blows up the Bitcoin market, the same way that them buying 50,000 coins didn't send us to a million. The market can digest that level of volume even in its current state today. So the social signal of seeing some of these companies sell pieces of their holdings, maybe that's the cascading variable and it becomes a behavioral cascade rather than a leverage cascade.

Because once they sell one sat, you then, you have no confidence. When do they dump? Yeah, exactly. You know, this was always like the meme around the Mount Cox coins, which is, oh, once the creditors get their funds back, they're going to dump them all. Yeah. Or the government, they're going to dump all their Bitcoin or the German government dumped their Bitcoin, much to their. I mean, they've just been missing after missing. Yeah, they turned off their nuclear reactors and sold their Bitcoin.

Two things I never recommend. So I think that, like, there's maybe some behavioral risk. and concentration risk in the economic node that is micro strategy or that is a large treasury company. But that's not a credit risk. That's a behavioral signal risk. And that means that it's fundamentally different than what we saw, you know, with the GBTC levered premium trade, for instance. Yeah.

I've been trying to figure out what the next like FTX will be because like it will obviously look different. But every cycle we seem to have these companies that blow up. And I can't quite pick who it will be. Who's lending out their Bitcoin? And well, I think there's nuance to that as well. It depends how they're lending it out. Absolutely.

But I don't know who is lending out their Bitcoin. Well, so right now we're functionally lending out our Bitcoin. We're posting collateral way. We're posting collateral to borrow dollars against our Bitcoin. That Bitcoin sits with Coinbase. And we're only using a de minima, you know, let's say we had to, you know, collateralize all 200 million. We have not done this.

But collateralize all 200 million of our line, we'd have to post 3, 312 million in Bitcoin. That's less than 25% of our position. So we could always top that up for many, many, many percentage of drawdown over that period of time. So that's not a risky position size from a collateral perspective. And we've sized it that way on purpose. I think the lending market is probably one of the most misunderstood by Bitcoiners. And I understand why. Again, it's like back to what you said before, there's this huge PTSD around that, and I understand it.

But I think markets are maturing to a way where there's very real, very good use cases and good examples of lending out Bitcoin. Do you think that's one of the things that might stop a future like FTX in that the market is just matured to a level where that kind of degeneracy? I mean, that was just fraud, but maybe use like a blockfire as an example. Well, let's use a traditional, we have an actual experiment right now, which is we saw 2008, which potentially, could have bankrupted the entire financial system. We most recently had, and this was in, in I think March of 23, had the consumer bank crisis. We saw SVB go under. We saw Silvergate and Signature Bank go under kind of. Get shot behind the shed. Yeah, exactly. Got got, you know, got regulated into conservatorship. That was another financial crisis, but it was

was orders of magnitude smaller than what we saw previously. Now, government intervention played a role in both of those, you know, avoiding catastrophic outcomes. But at the end of the day, the first event was massively larger than the second event and hopefully will be massively larger than the third event, whenever that may or may not come. So, you know, the goal is that as we get bigger, as the equity positions on balance sheets get stronger, the risk of, the risk of at a systemic level should shrink, there will still be idiosyncratic and specific risks where companies fail, but systems shouldn't fail or shouldn't fail in the same ways or with the same order of magnitude as they have previously. And that's part of a maturing marketplace.

We've kind of had to speed run this interview because we're going to get kicked out of the hotel room. But what are the things that you're kind of most looking forward to for this, the next like 12, of 18 months. I mean, I think that, you know, the, the, the emotional answer is like, we were, we were right. We were so right. We were so long. For so long. And, you know, I think the, the goal is going to be to make sure that in being right, we don't

lose the properties of Bitcoin that make it special. Take control of your UTXO. Run your own node to validate them. I'm a big proponent of greedy node runners, which means own Bitcoin. take custody of that UTXO and run a node to validate that they are yours and the rules around that UTXO are the ones that you believe in and can enforce. And so greedy node running, I think, is going to be a big theme over the next 12 to 18 months and that we see that type of behavior happen. It gives me a tremendous amount of confidence in Bitcoin the project. Yeah, that's one of the areas where the up return walls has actually been quite good in that it is making people run nodes, run the exact implementation that they want to run.

even if I disagree with the reasons they're running it, like, I love that it's pushing that conversation more and more. Yeah. And it's, but the key, the key subtle distinction is, it's not just about running a node. It's about taking custody of your coins. Yes. In conjunction with that node. Yeah.

Do you want to explain the difference for people that don't understand? So it's a complicated topic, but basically, you know, what is a node? A node is a full history of all the transactions that have ever happened on the blockchain. And it's a soft. It's, you know, a note is just a piece of software. And then you're able to, in a sovereign way, because all of Bitcoin, you know, Bitcoin Core and some of the other implementations are open source, you can validate that the software that you're running that governs how you interact with your Bitcoin is based on the rules

that you agree to and implement. So it's not enough to just spin up the software on a Raspberry Pi and say you're contributing. The fully sovereign mechanism by which you interact with your node is you spin it up, and then you take custody of your UTXO into the software implementation that is running on your node. That is the most foundational way to use the Bitcoin open source software project to bring about the full sovereign value set that sound money in a digital, in a digital, in a digital, is able to bring to bear. Yeah.

And that would be one of the areas that I think we could and should be doing a better job. Like I said before, like I think it's great that people are running these different implementations and kind of put in their money where their mouth is in that regard. But I feel like that's Bitcoiners doing Bitcoin things. And the thing, the area where I think we've struggled in the last year or two is getting normal people buying and holding Bitcoin. I think more and more people are running to these derivatives. I think the retail euphoria that we get in every bull run, this time hasn't come to Bitcoin.

It's gone to the equity market. And I'm doing everything I can to try and change that by doing this podcast. But how do you think we actually move the needle on that? Do you think they're a gateway drug, essentially? I do. And I think that there's a huge amount of value to owning ETF Bitcoin. Because at the end of the day, Bitcoin's job is to preserve your purchasing power into the future. And if all you do is own an ETF,

it's better than not owning an ETF. Is it as good as holding a UTXO outright in your own implementation? Not for me. But at the end of the day, Bitcoin is going to exist in a myriad of forms. It's going to bring tremendous benefit to the participants in those forms,

as long as we continue to be right. I wish we will. Which I think is quite likely. And then, you know, but there's, but there's a lot of ways to use Bitcoin as a tool to improve your life. And that's the goal, right? The goal of Bitcoin is to use it in a way that improves your life. And that means there's lots of ways to do that.

Some of them I prefer. Some of them I think are less values aligned with the Bitcoin project. But at the end of the day, these are all better than the alternative, which is not having Bitcoin in your life. And this is just a symptom of the market growing essentially. Yeah. I think that, I think that, you know, this was, you know, the, the financialization of Bitcoin, the nation-state adoption of Bitcoin, the political adoption of Bitcoin, these are all game

theoretic absolute likelihoods. Because if Bitcoin works and scales to the global level the way that it has, of course we were going to have these other, you know, alternative access points to the network and to the movement. The burden that is on us as individuals is to continue to express the highest and best version of our views as to how Bitcoin can be a tool in your daily life to continue to drive continuous improvement for you, your family, and your community. Everything's good for Bitcoin. Everything is good for Bitcoin. Well, I think that's the perfect place to end it, Harry.

I'm glad we managed to do this. Yeah, man, always good to see you. Thank you. You ready for a fucking wild week? I think that we are going to run a lot of risk of having a good time. I think so too. I'm going to lose some more money. Yeah. Good man. Thanks, Harry.

Thanks, Danny.