Bitcoin Miner Capitulation | Cassie Clifton & Kevin Zhang

Transcript

this episode is brought to you by core the brand new non-custodial wallet that offers a seamless and secure experience on avalanche you'll hear more about core later in the show the capitulation is only just now like the tip of the iceberg um well so this time around what was different was not only was it the leverage and the debt it was access to capital markets so everyone their mom was spacking right um and they raised all this money but this is completely dried up now so the capital markets have all the liquidity is gone and now they've got all this leverage on their books they need to unwind and that does take a little bit of time and i think in the next month or so i think people are still hoping that holding on to hope that bitcoin bounces and recovers if bitcoin doesn't bounce um there will be

massive capitulations um all across the board for different types of miners big and small [Applause] all right everyone welcome back to another episode of empire this is one of the most requested shows of the last couple of months um we've been talking about bitcoin mining kind of capitulation in the markets across all of crypto obviously we had tara and luna a couple months ago we've had capitulation in c5 we've seen some funds really struggling and just recently we've started to see some maybe commission capitulations the wrong word but uh some maybe for selling uh in the and just paying overall in the bitcoin mining market uh brought on two of the best people in the mining space

we have cassie clifton vp of biz dev at galaxy digital and kevin zhang the svp of mining strategy at foundry cassie kevin welcome to the show thanks for having us we appreciate it thanks for having us on yeah of course all right guys so here's here's what's going on uh 2021 bitcoin hits this high of 64k interest rates near all-time lows bitcoin miners were reportedly making close to 90 margins at the peak miners start signing all these hosting contracts uh power purchasing agreements other operational agreements that were kind of based on these bull market profitability models right from 2020 and 2021 fast forward to we're recording this uh mid july 2022 bitcoin's down 70 miners are starting to liquidate their

balance sheets margins are compressing a6 on fire sale are on fire sale i think a good place to go with this i want to almost with this episode like tell the story of what of what's been happening so instead of talking about the now and trying to predict the future by starting at today let's go back to the beginning of this cycle so maybe uh cassie if i could pick on you um can you take us back to the start of this bull market going back to like march uh april may june july of 2020 the market starts to heat up what goes into the mind of someone running a mining company as we're as we start to lead up into a a bull market yeah um i mean i think there's a lot of things

going on i think people are getting excited that you know things are starting to finally defrost after a long winter you know they realize that at this point they've made it to the other side um you know you hear time and time again throughout these cycles that like the number one thing that you can do is just to stay alive and like oftentimes your company has to change pretty dramatically for you to be able to do so um and so these companies are starting to think about what growth looks like again um you know it's not just like survival mode so they're they're starting to think about okay well how do i leverage the assets that i have like what does the next the next phase of mining look like for our company um you know we have x amount of time left until the next having like the name of the

game is time like time is money right now so how do i get as much hash rate online as quickly as possible um and so you see people you know whether they're going out and they're raising you know debt equity facilities or um you know whatever whatever their their mode of acquiring capital is they're going out there and they're trying to get online as quickly as possible um you know at the same time over the last couple of years we've really seen debt come into this market in a way that it wasn't here prior this is this is relatively new um and so you know this access to debt people kind of went crazy they just got like levered to the nines and and now they're kind of facing the ramifications of that of like you know they were long bitcoin mining bitcoin they were along bitcoin huddling

bitcoin and they were like ultra long bitcoin taking out loans against their operations that they could only pay if number one up um and so we're still seeing a lot of people anticipate number go up um we're hoping numbers go up to be able to to continue to fund their operations right now companies got drunk on debt i think that's a good i think that's a good almost framework to look at it um if you look back at like 2017 2016 2017 2018 the mining markets didn't have so much debt involved in them now you basically have a lot of facilities that will lend out to these miners why are so sticking with like 2020 here the start of the cycle you had the having in 2020 uh and excuse me in may of 2020 if i remember correctly so what's happening

at this at this period of time it's like summer of 2020 are miners rushing to find financing by okay so you've got debt you've got they're going public and they want to find financing to do what to to order asics to find mining sites kevin what were what do you do with this capital yeah so i love this question because um it's kind of uh timing is everything in our industry right and uh unfortunately a lot of miners a lot of uh actors they kind of miss time things were they they're a little either too early or too late um when we kind of made a big bet early in 2020 that the market's going to recover we ordered a lot of machines especially from micro bt and this was actually around march so

this is back during the covet crash across all markets but especially in the crypto and bitcoin markets um we were able to actually time and buy the bottom uh we sat down with mike collier our ceo and barry and we made a big decision to order i think at the time was like 28 000 and 30 s's we knew that if we wanted to launch a financing business we had to have machines coming in back then asics were also scarce and hard to uh source um the issue was from march all the way through may the having money economic economics only got worse so no one wanted these miners so we actually had to uh rethink and re-strategize our business where we had these miners that if no one's gonna be purchasing from us whether it's just with cash or with financing we had to mine with these

ourselves so we started deploying these miners at various different sites in anticipation that some of these sites and some of these kind of hosting providers they'll have customers and they themselves may be interested in buying the miners from us so really wasn't until towards the end of summer when people were finding convinced that oh money economics are turning around and bitcoin it always baffles me people always feel worried around having like will bitcoin survive like come on guys it's been already been a couple havings right so yes it will survive but um the fear is still in that a lot of the investors at that time so uh people usually wait two to three months and as the economics btc price recovers um the only then are people looking to actually procure miners and like cassie said the difference this time around was

people really took advantage of leverage hmm you guys are gonna have to bear with me as i ask some some potentially uh uh fifth grade level questions here what are the uh cassie what are the kevin's kevin's saying that it wasn't profitable it wasn't economical to get these miners to get these miners online and like maybe march or or or april or may of 2020 and it wasn't maybe until the end of the summer that it became economical what are the here's the fifth grade level question like what are the inputs for a bitcoin miner that make it economical what are the hash rate price of asics price of bitcoin like what are the inputs here and how do you make that calculation yeah um and kevin you trim in here too i would say the the number one differentiator at

least that we see um kind of when we're modeling things out for ourselves and you know other companies that we're looking at extending credit to um is the cost of power and unfortunately in 2020 we were at historical all-time low power costs and now we're like verging on all-time high power costs so the coin has really flipped um you know and the other thing is and these are these are power costs of of electricity exactly yeah so that's really the number one differentiator between you know not whether or not you're gonna make it like obviously there's a little bit more nuance there but like the number one differentiator to like can you build a sustainable mining model is your your input cost of power um and so thinking about it like you you know maybe you can get a contract but in order to get a

contract typically you need a deposit sometimes around 20 um of like the over overall cost over the term um so that's like difficult to come up with and then you have the massive like capex expenditure of you know the miners themselves um and then that hasn't even like you haven't even gotten to like the infrastructure part of the site um if that's not already provided or you're not just like using a quick container solution but then you still have to think about like the step down and you know the the wiring and so they're just a lot of different components and then you need the qualified people so there's you know there's barriers to entry and capex and and you're in a situation where you've like just defrosted and now you're starting to think about those things so like you need someone else's help to get

off the ground yeah so i think uh cassie had the nail on the head um it's obviously the one component that everyone harps on is electrical rates right what is your cost of power but the one thing that most people underestimate is the cost to actually bring that power online into plugable energized slots for the asics um it's the site development it's the procurements the permitting and then it's the timing too right so just because you find a cheap affordable project with a reasonable capex and these can be anywhere from 250 000 to half a million and sometimes you're pushing 750k per megawatt um in capex and that's only for the infrastructure um if it takes you six to nine months to spring online that's six

to nine months where your asups can't plug in and none of your capital that you borrowed is working for you sticking with the question of just inputs on cost for a second electricity costs these are what driven by like weather conditions and regulations and the transmission systems and the cost of running a power plant is that so it's a variety of different things it's all i think it all comes down to where your physical location is right um across the us you have many different grids right um you have different states and jurisdictions some with regulated and some with others with deregulated markets uh bitcoin miners tend to go to the regulated markets because they can choose where they purchase power from uh go to the lowest cost competitor but what we're seeing nowadays especially is that there are geopolitical macro risks to electrical rates right um the input

cost of natural gas and oil and everything else that eventually translates into what uh electrical rates that miners are paying for that's really interesting okay so let's go back to the timeline we've got like summer of 2020 these things start getting uh it starts to become profitable again to mine right price of bitcoin what uh march march 12th of 2020 what i think the price hit like 3 500 bucks that day or 4 000 ends up starting to climb by summer we're at like 10 11 12 13 14 15 k price starts climbing what so people are people are basically what racing to buy these asics and then once you and and that takes how long it takes six months to get a6 it takes 12 months to get a6 what do you do here cassie you just basically you call up a you call it but there's

what a couple vendors that sell asics you call them up and you say i want to put in an order for like 50 million asics how does this actually how does this go down yeah i think and kevin you guys can you guys actually have a business around this so you're probably better suited to to speak to this than i am um but there's really a couple different ways that it can go down i would say at that point like we didn't have the secondary asic market like as strong as it is today like there weren't quite as many secondary purchase orders floating around and so yeah for the most part you were either going to a handful of secondary procurement providers or you're going straight to manufacturers and lead times really vary just depending on the machines that you were trying to get your hands on um and then

obviously like there were some some real supply chain constraints uh during covet time so um you know you could have been looking at anywhere from from six to 12 months um and obviously you have to come up with some sort of deposit there so um you're looking at putting money down that's not going to be going to work to you uh for you for you know six to 12 months so um yeah so if uh if we take a step back and kind of address why foundry's even formed and what our kind of mission was it's to um proliferate and help institutional adoption of bitcoin money especially here in the states right um at the time this was early 2020 and summer 2020 um one of the key risks for kind of getting people interested in mining at an institutional

level here in north america was one that it's controlled by china uh or it's bad for the environment right so we'll ignore the esg environment piece of it but at that time much of the mining hash rate was located in china both physically and virtually on the software layer i would say 67 of the global network was physically based in facilities across china and then upwards of 90 of the hash rate was being collected and aggregated on pools based out of china so um when cassie says there wasn't a vibrant market she's referring to outside of china so the secondary markets and everything but everything is very fluid in china but we want to kind of decentralize the ecosystem and help build things elsewhere especially in our backyard

here in north america um so back then really was it was a fight and a scramble to procure asics because a lot of it was being gobbled up by resellers or by miners within china so we had a large part in kind of scooping up our allocation and a lot of that came back to the big bet we made back in march when we had confidence and we wanted to be contrarian thinking that the market will recover and there needed to be asics coming into north america it strikes me that one of the biggest differences from maybe 18 months ago versus today is that in the bull market the ability to get your hands on asics and mining rigs was this massive bottleneck perhaps now you fast forward 18 months there's this what i think is a big asic surplus from just talking to a

few folks in the market and prices of asics are starting to fall 50 to 70 from their you know 2021 highs is that a fair categorization i would say so yeah i definitely think that this is a surplus um and it's one to the extent that i don't believe we've seen one quite like this and this is like leverage plays a large role in this um we're kind of unwinding all of that leverage and and like people use money that they didn't really have and they definitely don't have now to buy these machines and so that's coming full circle um so we're this is the secondary market stronger than ever so folks when you when you're buying asics like how much of that can get bought with debt or i guess how much do you have to yeah how much do you have to pre-pay and what does that contract look

like maybe kevin if i get those do sure so uh it's constantly changing both on the manufacturer's purchase orders right so back in 2020 um these were still spot orders or future orders where people were depositing x amount of dollars usually 30 to 40 sometimes even 50 to get units purchased in the future or they pay a hundred percent and they get units right away um now uh bitmain and micro bt they learn from past mistakes where they have massive upfront costs and capex in having to make their deposits and payments towards the foundries or the chip manufacturers so they started um debuting their annual contracts this was a whole new theme this cycle where people were paying anywhere from 25 to 30 up front six

months in advance and then a couple months before delivery they pay another third of the per entire purchase order and then right before delivery they pay that remaining piece of 25 or 30 um and for us financing providers based off of kind of money economics at the time and how close we were towards the next having um we're off obviously offering different tenors but our rates and our ltvs are changing so when mining uh well when the entire ecosystem started defrosting and mining economics started turning around we were very aggressive with our ltv right we were only looking for 20 collateral so it was 80 ltv uh but nowadays like for one we actually stopped financing

towards the end of last year because we got really worried with where mining economics are heading uh how much leverage was in the system and the fact that we're only two years away from the next having uh but towards the end our ltvs got down to 50 uh and that's a big change from 80 they were previously i think we took a bit of a different approach there at least on the ltd front and obviously like you know everyone had this in mind where like the v is is really fluctuates a lot and the the loan to value calculation right because like first of all you had lenders who were looking at it you know as a the purchase price of the machines and they were describing that as the value and then you had lenders like us and foundry who were looking at it as the fair

market value but then how do you really calculate the fair market value is it what it's trading for on the secondary market is it what if if you bought it new is it what the liquidation value is and how do you like how do you define the liquidation value of let's say you're underwriting a loan for 40 against 40 000 a6 like that's really difficult because putting 40 an additional 40 000 asics under the secondary market like that's going to further suppress it um so those are all things that you have to consider and it's like it's very nuanced and there's not really any like one size fits all for minors and so really it's just dependent on like the overall view of each individual miner which is why it's tough for that product to be you know one where you can do it in a week it takes probably like six

weeks and then by that time sometimes mining conditions have changed and you have to go back to the drawing board so let's fast forward the timeline we're telling the story of all of this unfolding right let's let's maybe fast forward a year into the cycle so now it's maybe march of 2021. bitcoin has ripped higher it's gone up 20 x we hit that first top remember we had two tops up at 60k we hit the first top of 60k around if i remember correctly as like march of 2021 uh miners are i'm sure at this point absolutely scrambling to just get more supply they want more asics they want more mining sites they're racing they're taking out as much debt as possible they're loading up the balance sheet loading up the truck um are they also

selling bitcoin when they get bitcoin or is this when the psychology of just being a bitcoin hodler kind of comes into play and you're like all right well like i know my treasury management solution i know i should technically be selling here i know that's probably the wise thing but like i'm also a bitcoiner i also like to huddle bitcoin so it's really tough for me to sell here because super cycle bitcoin going to the moon we're going to rip past 100k like what i'm not sure who to throw this question too yeah exactly he's talk to flow model plan plan b is posting on twitter that this thing's gonna go to a million dollars you you'd have to be an idiot to sell your bitcoin here so cassie what were

what like all right so in march of 2021 what are what are the miners doing with their bitcoin and maybe the second question there is like what should they have been doing with their bitcoin yeah um well i think you know a lot of the the public press releases and statements that have been made today really give us a pretty pretty good view into like what they were doing a couple years ago or last year rather than the height of the the cycle um you know it's very clear that they were hauling their stack um and you know i think that the reason for this is that they're bitcoiners through and through so like this becomes an emotional journey for them and when you invest and you're emotional about your investments like you just don't tend to make very good rational decisions um

you know and the ramifications can be can be really really important especially when you're taking on leverage so um kevin i'd be curious to hear your thoughts there too i agree with everything you said the one piece that i added to that was also different about this cycle was uh the public markets were much more welcoming to the bitcoin miners too and i also think there was a lot of uh inefficiency and ignorance from the retail investor when it came to bitcoin miners right so um a lot of bitcoin miners and these companies these firms not only do they get greedy thinking and emotional thinking we need to hold bitcoin on our balance sheet um they were really swayed by the kind of sailor approach right where not only are we mining bitcoin at cheaper costs um or now have to hold it on our balance sheet and they were

rewarded for in the short term right a lot of these valuations for mining companies if you compare with how much hash rate they had online and what their actual cash flow was against their actual market cap was was ludicrous right um these were insane multiples uh but they weren't punished for at the time so to raise more capital and kind of really pump their valuation to public markets they were incentivized to kind of hold more bitcoin on their balance sheet um so that was something that was very unique uh during this cycle uh what percentage of bitcoin what what percent what percentage of the bitcoin inflow into a company were they selling and what percentage of a bitcoin inflow into a miner should they have been selling does that question make sense yeah um so

what the benefit of hindsight right one of the easiest strategies to kind of bitcoin mine is look at it as a cash flow business don't get attached to the fact that you're mining bitcoin and you got to be a hobbler and you're you're going to be a mini micro strategy right um it's it's actually pretty responsible to kind of sell bitcoin as your money now you can take some short term kind of uh derivatives and strategies like covered calls they're gonna be selling anyways may as well sell at a small premium like you can you can get fancier uh with some structured products there but for the most part this business is so cash flow intensive you gotta make sure that you have enough to cover your ongoing costs as well as your future costs right because it's it's very volatile and it can be very fickle as we've seen kind of

more recent ones um but at the time what happened was when people were holding on on their balance sheets they were only just selling enough to make their opex which is their electrical costs and their and there's tiny overhead right um they were huddling most of their coins and they were bragging about it publicly because once again they were rewarded for it price is at 60k uh it's march of 2021. let's let's continue fast forwarding this timeline we start getting into uh so where where we're sitting at is people are loading up the dump truck with debt right uh they're buying asics like crazy they're trying to expand their mining sites and they're getting all this bitcoin but instead of selling the bitcoin to maybe predict out cash flows in the future and predict out expenses they're kind of just selling the minimum amount of bitcoin necessary

take me forward to maybe the start of the bear market cassie uh this market peaked out in november of 2021 december happens january happens uh market starts to turn a little bit in inflation is coming we start to see that interest rates are going to start rising what what do these miners start doing do they correct course or is what we're seeing today the result of these miners not correcting course quickly enough um you know i think it's really difficult because like if you were to look back in 2020 and you were to think about like what's the logical thing to happen in this market given the amount of like money protein going on you would have thought rampant inflation right and there was like a bit of a lag there

right and so that with the delay people probably kept thinking the same thing like oh inflation isn't coming at the same rate like we're going to continue to delay like rates are going to continue to be as low as they are but then rates started going up and inflation starts to kick in um and the economy starts to turn around like a major war breaks out um and so there are all these different factors that are like macro backlash that are like affecting the you know traditional and and bitcoin and crypto markets um that like start to play out that really people just didn't think were going to happen um reasonably so because it had been several years and they hadn't started happening yet um and so you have that happen and you know you have the this spike like right before the etf announcement right um in october and so

people think that that's like a short-term high but that we're still on the up and up like stock to flow is still going to happen and so they're still thinking that prices are going up and like no one is really realizing that we're in a bear market until probably like the last 60 days or so has it really started to sink in for everyone like oh it's actually here um like i have to start preparing for winter and by that time if you wait until you're in the bear markets prepare for most people it's too late unless you like have a massive treasury um or you or you've left some cash on your balance sheet um so now this is kind of the luck that you're stuck with stuck with trying to figure out like how do you make it work in this market all right folks this episode is brought

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so i think the one big thing we kind of glossed over too quickly was um during april and may of 2021 this is when uh the china bands were coming around right and at the time there was there was a lot of confusion skepticism over will they actually go through it right like is it this time is different or is it just it's another threat and they're not going to actually ban it out etc um but i think when the bands actually came through at the end of june 2021 this is when money economics and the mining ecosystem really decoupled and became very inefficient compared to the rest of the crypto markets right um in the sense that

even though bitcoin i think during that summer had dropped from the highs of 60k down to like 30 or so you had over 50 of the network turn off overnight so from your uh money economic standpoint you're actually making just as much uh bitcoin usd value and cash flow as you were back when bitcoin was at 60k back in april and what that did was that gave i think a certain kevin fifth grade question coming here again yeah explain explain that right so we covered the cost inputs of what miners are looking at with kind of the capex and electrical rates the inputs for their revenue are one btc price and then what is the global

hash rate or difficulty so difficulty is set roughly every two weeks 2016 blocks based off of how fast or how slow blocks are solved um so when we say global hashrate difficulty we're kind of talking about the same thing um so the more difficult it is to solve a block the more hash rates on the network well once 50 to 60 of the network was based in china and the bands came through and they were enforced very strictly you had essentially 50 or more of the network or competition fall off so the people that remained on namely in north america and other countries outside china we got to make 50 more revenue and actually that went directly to our bottom line because our costs didn't change either so for a

layman like me everyone unplugged that a lot of the folks in china unplug the hash rate tanks it becomes easier to mine bitcoin or less expensive to mine bitcoin takes less energy to mine bitcoin so my output um actually no your your costs are the same but your revenue gets essentially doubled it becomes 50 less difficult to mine so statistically yes you're finding more frequently okay carry on you were i interrupted the story before no so um what happened was miners are giving this much bigger cushion that never existed before right um it never existed before in the sense that 50 of the competition and china the reason why mining gravitated towards

china and this is going back to this time is different right and this goes back to the original china bands that happened back in 2012 and 2013. when they mentioned that they were gonna ban bitcoin bam bitcoin mining then they didn't really follow through with it right and what happened was the reason why western manufacturers failed in 2013 2014 was no one could be as cost competitive at producing asics and miners as china namely shenzhen right it was just a massive electronics manufacturing hub for the world so from that 2014 era china has dominated bitcoin and bitcoin mining economics or the industry and ecosystem because of they're so efficient and they're the lowest cost competitor

and when this ban actually came through all their advantages were kind of plucked away right and not only do you have sites coming online now slower in china you can build a mining facility in two to three months in the us it takes two to three months just to get your permitting in order before you even start construction which takes another six months or so so you actually have hash rate not only does it drop 50 the growth of hash rate becomes really stagnant so once again the competition's dropped tremendously and miners are then given this extended lifeline where their economics are much more competitive the rest of the crypto markets and i think that's why the reality hasn't really set into minors until more recent months

when oh actually we are to the point where we're actually starting to capitulate whereas the rest of the markets were kind of hit towards um maybe spring and earlier three four months ago that's a really good point and to some extent i still think that a lot of people are kind of waiting for hashtag to fall offline so that they can be you know that much more profitable and i've been personally very surprised by the lack of hash rate falling off and i thought that we would see a lot more coming offline than we have already but it seems that the people are really holding on so the house so the hash rate um okay so trying to ban what this was maybe mid-may of 2021 this was june 1st 2021 okay hash rate tanks miners are like holy this is amazing we're uh we're gonna make more

money um but you don't you expect in your models if you're a miner that the hash rate eventually recovers because it's an open market and like the miners didn't think that the hash rate was just going to stay low forever and if i remember correctly the hash rate did recover it just took about maybe six or seven months yeah um here's the really fascinating part that i think isn't shared enough uh about hash rate and kind of uh what's happened since the band actually i think was actually at the end of june 2021 so when that ban took place 50 of the network came offline which can also say 50 of miners came offline um bitmain micro bt the manufacturers didn't stop producing units and the units only got more efficient so what that's led to is for the market to recover to where it was all the units

that were unplugged eventually were plugged in as well as new miners coming in today we still have 30 to 40 percent of total manufactured hash rate unplugged sitting on the floor so hash rate could be significantly higher if only there was less bottlenecking when it comes to the infrastructure and the hosting capacity available for these miners now i could also argue less hatchery online because the economics aren't there but once again it was the fact that miners were given this kind of very soft cushion and landing uh because so much of the competition had fallen off um the bottleneck switched from it was no longer procuring asics right the the fire sales of asics actually took place

last summer when china banned money a lot of miners gave up capitulated and they needed cash or they wanted to cash out um and they sold their miners for the cheap this time around the constraints are now on hosting capacity because not only was so much of a shutdown in china everywhere else in the world is slower to build um so that took a very long time you mentioned it was like six to seven months yeah it was about that long perhaps just to return to the previous highs a year ago and now we have so many miners offline both newer generation units coming in as well as miners that never got plugged back in since i still talk to people like you know every week maybe every couple of weeks that have like a significant amount of miners offline from china that like are

planning to place them in the states um and that was you know over a year ago at this point so what are they doing with the mind why why why what what are they doing with that so the the thing that you have to think about is like the logistical there's a logistical nightmare first of all of like transporting the machines um and if you do so and you don't yet have a place to put them then it's kind of just like an additional cost that you're incurring for like no real reason right and so if you think about like fuel prices skyrocketing and the cost to transport machines it's like if you're like you're gonna assume some losses of machines as well so you may lose like 10 of your hardware in the move over there only to find another storage menu um you

know where you can place them until you then find hosting so then you have to ship them again and so people are just holding off like waiting until they find rack space that's affordable for them somewhere based on like the efficiency of the machine that they have let me just repeat it back to you to make sure i understand it so basically for the first year of the bull market the a6 there's a shortage of a6 and like getting asics might have been the the constraint on the market china shuts down mining all these asics flood into the market it becomes uh much easier to acquire asics now the constraint in the market becomes finding a place to actually plug those asics into is that exactly okay that's absolutely yep the real constraint that people are pushing up on right now goes back to the inputs that

are important and that's the cost of power so finding a site where you can lock down cheap power um and it makes sense for you and you can do so over a long period of time versus just having it fluctuate with the market where you know like oh i'm gonna be profitable for x number of years um that's very tough to do right now yeah so so every site's got its nuances it's got its own specific timeline it works off of but if we're going from a very high level or generalizing in the us it does take anywhere from nine to 12 months to get a site off the ground from nothing to a fully functioning bitcoin line um and i think one of the fascinating components of what happened when china the china bans took place was obviously miners had to look for other previously de-prioritized regions

or other regions that have the attributes of a competitive bitcoin mining environment namely cheap power right and the availability to scale and geopolitical uh friendliness i guess um but some miners took the risk in the um the quote easy way out of going to kazakhstan right kazakhstan during that summer was very welcoming of miners they loved seeing this burgeoning uh new industry uh lifting up kind of the economics and kind of giving them that injection of economic growth um and the reason why a lot of chinese minors went over to kazakhstan versus north america is because in kazakhstan it's very similar to china where they can build a site also in two to three months and that a lot of it comes to

lack of permitting lack of uh process where things don't have to be ul listed or ce certified they can use cheaper aluminum instead of copper for a lot of electrical equipment so they were able to build up very quickly overnight the issue was kazakhstan's infrastructure couldn't take that scale so the entire country was very imbalanced on power where so much of the mining was happening in the southern part of kazakhstan it was unbalancing their total national grid so you have kazakhstan in the matter of like seven to eight months from welcoming miners with open arms with tax incentives to then uh shutting down miners um and then charging them additional tax taxation for being a bitcoin mine that didn't properly register or is consuming

too much power without going to the right permitting processes so a lot of the casa style mines were then kicked out and now everyone's gravitated mainly to north america got it if i'm kind of summarizing what you guys have told me miners just had massive expansion you had facility expansion you had like you had asic expansion you had honestly company expansion you had access to capital expansion like these companies were going public right there is new access to debt um and so just expansion across the board now uh who was it uh amanda uh cassie on your team at galaxy was speaking at consensus she said out of a sample size of 18 public miners there are now 1.9 billion in po liabilities outstanding uh there was a

bloomberg report that there are four billion dollars in bitcoin minor loans coming under stress right now what is the maybe walk us through now it's july june july what is the state of bitcoin mining today because it feels like all of that capital expansion human capital expansion facility expansion is now coming due at a time when prices are down 70 so cassie what is like what is the state of bitcoin mining today yeah um you know you could probably price adjust that 1.9 billion number based on some of the manufacturer download price adjustments for the purchase orders down to like 1.55 or 1.53 billion um that's still a massive number though for people to have to come up with in this market

um you know i think for a lot of people the unfortunate reality is that you know some a lot of financing was used for purchase orders obviously and so what will happen if you know essentially is that if they're unable to pay the remainder on the purchase order they either have to try really hard to sell the purchase order to someone um and try to break even um which is they're just not going to break even on the purchase order um or they are going to just lose the purchase order because they're going to go down holding their bag um and then they're going to lose their deposit to the manufacturer and then they will also burn their relationship with the manufacturer and that will probably be the reality for a lot of people um i thought that i would see you know we obviously see a lot of

distressed stat deals come across our desk um can't speak to any of them in particular but i did think i would see a lot more than i've seen which kind of tells me that like people are still holding on um to some of those those po's that are out there yeah so i think this is another symptom of the china band and miners having a little bit more margin and cushioning than the rest of the larger not just crypto but macro economics right um the capitulation is only just now like the tip of the iceberg um but so this time around what was different was not only was it the leverage and the debt it was access to capital markets so everyone their mom was spacking right um and they raised all this money but this is completely dried up now so

the capital markets have all the liquidity is gone and now they've got all this leverage on their books they need to unwind and that does take a little bit of time and i think in the next month or so i think people are still hoping that holding on to hope that bitcoin bounces and recovers if bitcoin doesn't bounce um there will be massive capitulations um all across the board for different types of miners big and small tell me more about that kevin so we saw i know you guys can't comment on specific companies but i i'm i'm allowed to comment on specific companies so we saw a core scientific uh sold like i think it was 75 percent of their bitcoin uh bitfor farms sold about 3 000 bitcoin i think that was about 50 of their stake you you're saying this is just the tip

of the iceberg kevin how bad does i'm not talking about those two specific companies but like as an industry and across the board how bad does minor capitulation get over these next couple of months if bitcoin prices remain depressed at around 20k right so if they remain depressed uh and hash rate doesn't readjust i don't think it will because it's kind of holding steady words at uh the only reason hash rate difficulty isn't growing this next cycle is because so much of it's shutting off in texas for curtailment um so what real pain looks like and uh is not only is it right now bitcoin minor especially a lot of the public lists of my miners they still had bitcoin on their balance sheet that they could sell they're not going to have that lifeline a month or two from now they're not going to have bitcoin to

sell for the cash flow needs um and what you're going to have is you're going to have to look at a competitive competitive cost stack for what their operating costs or what their electrical rates are so anyone that's running at seven cents six cents these are gonna be the people that capitulate first they're gonna be the ones that are unplugging their miners and this is why it's so important when you're going in to build a bitcoin mining project you have to have a site uh where it's got access to cheap electricity uh because you're not gonna be rolling in profit but you're gonna be the one of the groups the last man standing right so you're gonna look at the groups that don't have the most competitive power rates they're gonna be the ones capitulating first because they just can't generate the cash flow to stay in business i i still

give hash rate like another couple of months um i think that like you know based on kind of the the terms that people might be paying their their power agreements on they could be on like net 30 terms and so maybe they're holding out like 30 days and like they don't have to pay for their electricity until the end of the month and so they're like waiting to see if number goes up and then they can mine some coins or sell on their treasury then rather than having to shut off if it doesn't make sense but we're very close this is the part where it's really tricky right because um historically the bitcoin mining network or the price really doesn't care what your hosting rates are right um if we go back to the like the bare bottom of the last cycle so this is november and

december of 2018. uh money economics at the time were generating about 55 or even 50 dollars a megawatt hour so if you had a miner plugged in you're only making five cents per kilowatt hour there are a lot of facilities a lot of players out there that have costs are above that threshold right they're operating at five or six cents or fifty or sixty maybe uh sixty dollars maybe one hour it's really strange too because uh what's different from the last cycles you do have a lot of inflation you have this massive macro economic change on the kind of the new baseline of power costs so we really don't know where the new bottom is um but once again it's i think one thing we can agree on is the people that are less competitive that

have higher electrical rates they're going to be the first ones capitulated and unplugged what you'll start seeing here in the next few months or at least in the next half year is the people that are unplugging um i don't even know someone's going to come in and bail them out but there will be some very aggressive hostile takeovers acquisitions etc i think that's going to be really exciting are there any bitcoin miners right now who are running profitably so let's say let's take a sample size of 10 bitcoin miners eight of them are profitable half of them are profitable maybe one or two out of the ten are profitable what is what are the numbers look like right now i think it there's it really depends on first how you define profitability um and like are you looking at it just as margin are you looking at like also depreciation

are you also including like sg a expenses so there's a lot of different ways that you could kind of look at like defining profitability so it's not really like that straightforward and then you know you really have to look at each individual operation because every minor is built so differently like depending on what their model is do they own infrastructure do they have you know outstanding uh liabilities on that infrastructure or like how much debt do they have what are their monthly operational expenses like how big is 13 etc so there's just a lot of inputs i would say i would rather look at it like on a cost basis and i think kevin i you would probably have a little bit more insight into this as well but like 22 5 is like the price that we've modeled is where the majority of miners

are feeling a lot of pain and or having to look at shutting down operations but then again like you know the data set that we're working with is definitely not perfect um so there's there's definitely a long way to go towards transparency and costs and you know the data set that we're being that we've received is also like you know people maybe are looking at margins some people are including depreciation so um it's definitely not perfect yeah it's really tough to give like a kind of a high-level haircut of what the how many miners are cash flow positive but i would say maybe it's like eight out of eight or nine out of the minors and the nuance is going to be how how over levered are they what is their debt obligations eight or nine are losing money or eight

or nine are still profitable still profitable okay but they're barely hanging on they're just not they're not they're not making fistful money they're certainly not adding bitcoin into their balance sheet to hold long term um where it gets trickier than is okay these miners uh they're dependent on the price state at where they are and a lot of them actually have a very mixed fleet so the the profile miners are are not only those that have um cheaper electricity they're those that actually have the newer generation machines right so you have miners out there that haven't either haven't refreshed their fleet um or they're just running older generation equipment right so those will start capitulating quicker than some of the newer gen equipment as well and then the other last piece is how much debt they

have on the books so in addition to just having to pay the electrical bills how much do they have to pay for their liabilities i would not want to be running i would not want to run a bitcoin miner this sounds very it sounds very tricky to forecast all this stuff out um and let's play this out a little uh further so i have a couple maybe like second-order implication questions that come out of this the first is if you're basically defaulting on a lot of your purchase orders to the manufacturers does that mean the the manufacturers like maybe a micro bt or a bit main becoming trump in trouble or or they're so well capitalized and have so much money that they'll be completely fine their margins are so wide that i have absolutely no fear at all like different component parts in

different manufacturers like you know they're using resistors from a few different places and maybe like one resistor is more expensive than the other or whatever um but like overall if you look at the levels that they've sold machines at like they used to sell them at a thousand dollars a machine less than a thousand dollars machine and if you look at where they're selling them like i feel very confident that they're doing fine um and they're gonna like most people like when you order machines you have to put a deposit down my bet is that they've already covered their margin with the deposit um if i have to guess yeah so i love that you brought this up because i think one of the true signs of like actual capitulation across the market is when the manufacturers are feeling the pain and right now they certainly

aren't great they're still selling at very frothy margins didn't they didn't wasn't bitmain feeling the pain back in like 2019 oh maybe that wasn't actually financial pain i think that was more like they had human in-house yeah in the in-house in spain yeah got it um what about the price of bitcoin what are the second order implications if all these miners okay so you've got all these purchase orders that you have to pay for you've got uh billions of dollars worth of debt you say holy let's start selling more bitcoin uh more and more bitcoin starts getting sold off into the market uh the the twitter narrative is that okay this really hurts the price of bitcoin what is the maybe actual impact on the price of bitcoin here i also really like this question too because i think the irony is the

impact of bitcoin miners selling is very tiny like big so the new amount of bitcoins issued to the miners every day is about 900 bitcoins a day and that number is only dropping every halving right so the amount of cell pressure from miners is very tiny but what happens is when you have these narratives it's a sentiment and the narratives that kind of really drive the price action it's like oh the miners are selling then we should be selling too and i think that is actually what cost causes the real cell pressure and kind of the market sentiment i was trying to do some some mental math on right on like what small percentage of the market and the volume that actually is but i wasn't able to do the mental math in time yeah it's 144 blocks a day and you only get 6.25 bitcoins a block so

you get 900 bitcoins a day that's what miners make so they're selling 100 of what they're making that's that's a very small volume yeah is this the end of um do you think this is largely the end of like asic backed loans right asics have such a high beta to a highly volatile asset and i'm assuming you guys are both shaking your head but i'm gonna finish the question which is is it the end of investor greediness of course no i'm just no i i guess i'm just like like what is the process the liquidation process for an asic look like like if i if i capitalize alone maybe i don't fully understand how this works actually but like if i capitalize alone and my uh my collateral is like a bunch of asics and then i like can't pay

that back and then cassie's like all right well give me your a6 it like i imagine it's actually a total pain in the ass to go collect a bunch of asics and go like find a site so like what just seems like a tricky process um it's definitely a tricky process which is why you try not to write underwrite loans that you think might default so that you don't have to go and repo the machine so it's like really the first step what a concept what a concept yeah although i will say that there are a number of folks in the states who um you know offer my asic-backed loans that like they actually structure it as like a bankruptcy deal from the get-go so like not like i mean it is they do hope that the person defaults right um and that's definitely something that we'll pick up i imagine

um kind of like as we get into this the capitulation and we start to see the iceberg tip but um yeah at a high level i i don't think that this is the end of asic back loans i think that this is the first step of many um in in the learning curve and like this was a huge huge lesson in terms of like how to analyze risk and how quickly things can change and how volatile the space still is um and like to throw your models out the window and prepare for a doomsday event um and then underwrite your loan as if you are prepared for that doomsday event and your loan will be fine and said doomsday then um that's really the only way for for this product to work and it's going to take iterations i think like for foundry and for galaxy

like it has been a bit easier for us than some of the other players in the industry because we mine and have a very good understanding of like the economics ourselves um and have seen and been around the block a time or two so we've seen how quickly things have changed um but you know not everyone had that experience and and there's definitely some some learning there learning but learning by doing is what i would say yeah yeah i think experience is a key word i don't think ac back loans are gonna disappear uh i think it's gonna be the underwritings will be very different and to cassie's point i think we had the benefit of experience on our side where um at least i can speak from my uh our group where we stop financing last november like we we saw the warning signs it doesn't mean we came out

completely unscathed there are some pains right uh across our loan book but it's it's much lighter than some of the other groups out there and we had the benefit of minor financing has been around a long time actually it's just been around in china right so this is the first time babel finally really pushed it right right like they're infamous for doing this right so um having made these mistakes in the past we've kind of learned from them and it's part of being a writer let's talk about m a um ooh where to take this well i'm thinking of my of of the question i'll i'll toss the easy question at you cassie does sam bakeman freed and ftx acquire more or less than two two minors

you know um i like the question i wonder if he'll he'll break into the space um i'm actually pretty bearish on m a to be honest um i think that like most of the miners worth like acquiring and buying outright are actually doing quite fine um the miners that you want to be acquiring um that you want to like you know merge with are the ones that have a low-cost power contract in place over a long term they have nugen machines like they they don't have tons of liabilities um and or they have a strong and healthy balance sheet and if they have those things and they're probably going to come out of this okay um in terms of like acquisitions people will acquire what you know is essentially liquidated but i don't think companies themselves will be

like bought out there may be like i'm sure that there's so you'll you'll have a fire sale on like on asics or something like that but you're not just gonna have like got it got it i guess like yeah when you when you put it like that i think that makes a lot of sense it's like why consolidate maybe and it's like the only reason to consolidate is maybe if you have a super valuable mining site or you have a really really really nice long-term 10-year contract on electricity i don't really know how electricity contracts work but like if if you have those in place but aside from that like you don't really right there's not yeah hmm okay kevin would you agree with that yeah i think my prediction beats zero so i think sam's already made his bet i think this is public

uh he's already invested in mining groups and i think they're gonna be the ones that kind of he's made his bets in mining already and he's taking the frantic text from kevin being like edit that out good day i'm kidding names though you know um but yeah um i i uh ftx has dabbled with money in the past or alameda has just it wasn't fun for them they were part of the kind of band casualties so yeah let me let me ask just the bigger question kevin do you think there's going to be would you agree with cassie that there probably actually won't be that much consolidation in m a or you think they're you're maybe more pro m a pro consolidation i think a lot of it depends on the market right so if if money economics improve and then the capital markets uh

once again are very frothy and healthy again uh people are rewarded sometimes uh not in a healthy manner to acquire as much as possible to boost their hash rate figures and their bitcoin production numbers so to speak um so there may be some deals there in that scenario but i think the more likely one is like certain distressed assets so not necessarily buying the facility and operations outright because you don't want to inherit all the issues that of a site that just failed like cassie was saying but the miners right they still work at any other site assuming they're in good condition uh transformers and a lot of electrical equipment that can be repurposed and reused at other sites so i think the equipment is actually the really interesting aspect to it um thinking through something in real time here so this might be a bad question but

could you guys ever see all right so if could you guys ever see an opec for bitcoin right like the goal of opec is to kind of coordinate and unify the the the price of of of of petroleum and basically ensure the stabilization of oil markets to secure this like efficient economic system of of petroleum right could you ever see something like that in in bitcoin mining i i would go the opposite end i would say bitcoin mining has failed if it's gone that direction because it's it's supposed to be ultra competitive decentralized network where if you aren't cost competitive or you aren't running efficiently or competitively you are supposed to get wiped out so the protocol and the this is what's what i love about the space the protocol is

actually working exactly as intended right like we actually experience multiple doomsday type scenarios right one thing i think isn't addressed enough was bitcoin and especially the mining network survived the nation-state attack china banned over fifty percent it was actually like sixty percent of the network and the difficulty adjustment took that in stride and after two adjustments were situational normal again right so um i think when i hear opec and when i hear like if there's gonna be something like time for bitcoin that just sounds to me like collusion it sounds to me like you're you're you're removing a lot of the natural market incentives that make bitcoin so competitive so i hope it doesn't go into that direction i also would add in like that you know the people who are around and like know

that they're going to be have been around for a while know they're going to continue to be around the ones who like to build their operations in the way that's like very sustainable they are like very pro this cleansing um they're excited for like some of the froth to get wiped out and for the people who came in and we're a little bit over in over their skis to get wiped out um because like that makes it that much more competitive for them so for like a larger governing body to come in and like try to shake things up you know you'd have the majority of bitcoin miners like the majority of the hash rate that would be against that um because it's ultimately like net bad for them yeah um kevin i was smiling as you were just saying that because when you came i think we had dinner in

september of 2021 and you were like you expressed the same thing you're like yeah i was like china like what do you think you're like the system is working it is working like china shut down bitcoin and it is actually and it's all going as it should the protocol is working so i'm glad that a year later you still feel the same way um bitcoin takes no prisoners takes no prisoners that is true let's uh let's start to wrap it up with just maybe a couple um final outcomes and like changing industry thoughts and i'd just be curious to get all of your takes on this actually i have a couple just like hot topic issues that i want to hear your guys's response to one is um cassie if i could throw this to like renewable bitcoin mining um i feel like the the

narrative around uh bitcoin is bad for the environment was maybe a 2021 thing that caught a lot of the kind of normie mainstream media uh attention and now it's kind of died down but like renewable bitcoin minor interest yeah and expansion is that growing it's funny how you mentioned that like the cycle of the news cycle that was essentially the same cycle of like the capital markets right like that was that was a narrative that was really strong when the capital markets were really strong and now that they've dried up that narrative has kind of died um and they're occasionally it still gets picked up but like you know by and large it's just very uneducated opinions um that don't really understand how energy at large works or how the grid works um

and so that's just a frustrating piece of that whole narrative um but you know that narrative will come back um you know we have groups that are focused on preparing for that but um i expect that that will come back full swing when the the capital markets open back up yeah i think uh i'm i yeah i'm hopeful that maybe um one thing that happens from i don't know if i actually want to go down this rabbit hole like i was going to talk about dutch farmers and ammonia and nitrogen oxide and people but it comes down to what people value and people realizing that like there are some but uh maybe we don't go down reality is like renewable generation is that they're just not enough renewables for everyone to be using renewable

energy and that is something that a lot of people fail to realize and so you're then offsetting with wrecks or carbon credits and to me that's just fake like you know whatever like you want to play the optics game for capital markets for your investors that's fine um i get it i understand that but at the end of the day like you're not really solving the problem um and so to me like it's just like frustrating that it gets shoved down our throat and most of the people shoving that narrative down our throats are the ones that don't actually understand what racks or carbon credits are and like what generation you know mix actually looks like yeah uh it's funny i don't see much news around how like germany moving back into uh opting out opting for coal over

nuclear is uh so bad for the environment right i don't see uh i don't see any of that going on right now um let's move past before i get into too much trouble from things that i say here uh russia electricity energy like how does what's going on in russia and like rising energy costs how does that impact um how how bitcoin miners basically plan for their business and the contracts they that they do how do you guys think about just rising energy costs in general so i think the big change this time around is um i love when miners give us their pitch decks or talk about their projects and they're like oh historically energy rates have always been at this level it's never gone this high and any time someone says that it's like they've automatically jinxed it that's we're

gonna set a new high for electrical rates um but the but the main takeaway from like this new and it could be a new paradigm shift for like energy rates are high for the next two years is people are starting to hedge um hedgehog all their power and i think bitcoin miners are also getting more sophisticated with how they can approach their ppas or power purchase agreements right so they're not just buying off a grid open day spot market right next day spot market for power rates they're looking to lock in their power rates even if they have to pay a little bit of a premium that removes that kind of upside risk um the other rabbit hole that we can kind of briefly touch on would not go down is uh this is where it's really fascinating where a lot of more of the

original kind of crypto anarchist uh og bitcoiners they'll say no we have to control our own power we have to go behind the meter right we're not going to take whatever the grid offers that's going to generate our own power and maybe that that is going to have a lot of value down the road maybe not this cycle but the next or the following one where it's going to be the energy producers that are the most competitive bitcoin miners because they control their own costs does that um maybe i should ask this in the m a part but i'll ask it here which is do you guys see that um do you guys see the traditional like oil and gas players and like energy folks getting into getting into bitcoin mining and maybe making some either through acquisitions or just just their own

strategy i think we've already seen a lot of like traditional energy players who have like left that industry and come in and join this one um you know we've started to see that i definitely think that energy players will be a part of this next wave um and that's something that they're starting to explore and i also think that like rising power costs are going to be kind of like an ex expediter for that right like they're also feeling pain um so they're looking for additional ways to generate revenue um additional clients as well so i was very fortunate to uh have worked on the greenwich project um for me i got to kind of live it firsthand see it firsthand just all the incredible synergies are naturally there for an energy producer that's behind the meter to be bitcoin mining so when it sucks to

be selling power you want to be bitcoin mining and vice versa when power is great you're incentivized shut down your miners um so i think it's a very natural progression the industry is headed that way just very quietly you've seen some headlines and some pr slip out here and there with like conoco phillips with their kind of pilot programs and etc um i i i'm sure more of the big names are going to kind of come out publicly in the coming uh years and cycles that they themselves are going to be looking to do bitcoin mining will this be like small things like they've got like gas flaring and they put some of that excess energy into mining or like do you think big mining initiatives i think i think bigger money really i think people will be take small steps first i think the

news where the articles will probably be like you know they've already been mining and they feel like they haven't figured out enough to like have a large operation and that's what they're announcing publicly but i think they'll take small steps before they take big ones yeah and i think bigger is where we're headed and i guess another key thing we can kind of very quickly point out is um it's it's the gigawatt projects that always kind of scare me off like um it's actually funny there are sizes and projects are too big for bitcoin mining initially right we talked about how expensive the capex was uh the capex is very expensive on the infrastructure side but it's that much more expensive for the asics so if you're telling me that you have a half gigawatt project or a gigawatt project you want to bring online right away and you need a6 to

fill all that i'm like this is nonsense so um a lot of like the the large nuclear projects people talk about this massive gigawatt multi gigawatt nuclear site they should be doing bitcoin mining it's actually too big for bitcoin at least for for now um i think it's smaller scale projects the pilot projects and the medium-sized peaker plants like a greenwich uh like 100 200 megawatts those are the ones i think you should keep an eye on um i think maybe last question second the last question here is just um like pool distribution i want to get your guys take on kevin do you i think foundry i know much more maybe about what's going on with like lido and eth staking actually right now not as much about bitcoin mining um what so this honestly might be another

fifth grade level question coming at you but i think my understanding of like the pool distributions like foundry has like 20 amp pool has like 15 percent uh f2 as like 15 percent finance has like 10 or 15 is that uh consolidating to so like maybe what's what's the state of like pool distribution in let's say three to five years from now a couple big players more distribution what does that look like all right so the first thing is the pool business sucks so there's like little to no money to be made in the pool business so i don't see that many new players coming in what what is the pool business sorry this this might be a whole nother topic for another episode but like what is the pool business in a paragraph the pool business is every day praying

that our pool has good luck that we mine enough bitcoins to pay our customers um otherwise we're paying out of our own balance sheet but but joseph's side like we treated it as an ecosystem plan and essentially it's our donation to the space right we we knew that it was really important for to address the narrative that china controlled mining we didn't think china was going to ban mining right so we set out to build a pool two years ago because ninety percent of the global hash rate was concentrated in china uh and you did see that china tried shutting down these pools and for a while miners couldn't connect to the front end of these pools and some of these pools did go down right there was a centralization risk there now bitcoin did work itself around that but part of that also was our pool coming online and

having a reputable pool where people can trust that their payouts are what they expect and it's reliable um i do think there may be a couple more western players that pop up over time um but i don't think there's going to be too many players i think there may be some more consolidation here and there it's just a really really tough business it's a relationship business so you have to have money to get that started um and then you know maintain the relationships but it's been a really good relationship business for all the pools who've been around and are doing it um they've been able to like expand and have tons of business science boundaries a great example of that um they're doing tons of things in the space right now which is really cool to see um kevin i actually had a question for you kind of on online

cash rate as you started to see some kind of come offline um in looking at like some of the smaller pools have you had customers who are at smaller pools that are now coming to you saying like you know it was just getting a little bit riskier for us at the size of the pool and like they're redirecting their hashrate towards you guys or you know have you guys seen cuss like have you had customers come to you um that new customers in the last couple months yeah that's that's actually a really fascinating question and i think yes we have seen that um i think they're they're there's a very wide range of bitcoin miners uh there are some that love going towards smaller pools because they are rooting for more distribution at the pool level um and once again this is all optics right in

the past bit main has had over 50 of the global hash rate from a pool standpoint they just had it in two different tool pool brands they had ample bbc.com right no one really cared uh and we don't actually own the hash rate if we're ever up to anything nefarious people can just move their hash rate off instantly right so with that kind of disclaimer there um we've noticed that some miners out there and this is actually very common with chinese buyers they couldn't care less about centralization i mean given that muslim from ccp and whatnot right they actually prefer whoever's the top pool because they view it as oh they're at least going to be solvent to make me sure i can have my payouts the next day um but what we have seen changes because

so much hash rate's gravitated to north america it's less so about who's the biggest size is who's the most reliable who's the most professional as far as we have our sock audits right we also have a reputable brand and being a dcg subsidiary uh and um i like to go to different parties and go eat free food along with you right so um i think it is relationship business and kind of the the perks of knowing who you're working with and having someone you can trust that's the first thing people will look at and i don't think the miners really care so much about this pool is x size or x percentage of the network i'm gonna cassie great question there um last question for both of you is uh what what is what are the signs that you're looking for kevin you said we're

at the tip of the iceberg in terms of capitulation uh cassie i'd throw this question to you first like what are the signs of max capitulation in your mind in the bitcoin mining space like when will you know that we've hit rock bottom yeah um it's hard to say hey like how you define rock bottom um but like basically cassie try to time tell me when the market is going to bother yeah tell me when the bottle is coming unfortunately i'm huddling all the way up and down with all the other miners so um feeling the pain too but um you know i would say like i you know the the more people that are coming to us like desperately asking for money like hey can you get on a call in

the next hour and talk to me about you know lending against like x y and z hey like can you underwrite my whole site um i think like that is going to be very very telling for us um i would say like the more distressed deals that we see that are coming across that our desks um the more liquidation i think really like when the purchasers start hitting like the luxors and the the procurement providers of the world um in north america specifically uh will be a very very telling sign yeah i think um it's it's impossible to know when uh if if we will hit the bottom but the bottoms historically have looked like uh hash rate difficulty dropping in a serious manner right uh in this was november and december of 2018 there were

like five to ten percent difficulty drops back then when prices got too low and miners had to shut off um and the next key point we touched on earlier was um if the manufacturers start capitulating or if they start feeling the pain i don't think they're going to capitulate but if they start having to fire sail their miners at severe discounts and right now we're nowhere close to that awesome cassie kevin any last thoughts did we wrap this up um no last thoughts for me uh you know i think i guess one last thought um you know some of this was pretty bearish i think that i'd just like to reiterate that long term i'm i'm very bullish uh and like bitcoin's going nowhere mining's not going anywhere either um so we have a bright future ahead just a couple of roadblocks in the way

the protocol is working as intended i love it that's a great way to end guys this was uh cassie kevin we will put uh links to both your twitters in the show notes and some other resources this has been an awesome conversation and uh thank you for helping us uh us fifth graders understand what is going on in the bitcoin market so yeah thanks so much for having us thanks guys [Music] you