1 00:00:02,920 --> 00:00:06,120 Speaker 1: This is Bloomberg Crypto and daily Bloomberg Ihad Podcast, and 2 00:00:06,160 --> 00:00:09,680 Speaker 1: I'm Stacy Marie Ishmael, Managing editor of Crypto for Bloomberg News. 3 00:00:10,200 --> 00:00:30,760 Speaker 1: It's Wednesday, February eighth. Crypto markets and bitcoin especially have 4 00:00:30,880 --> 00:00:33,839 Speaker 1: had a strong start to the year so far. That's 5 00:00:33,840 --> 00:00:36,120 Speaker 1: had a couple of interesting consequences for some of the 6 00:00:36,320 --> 00:00:40,000 Speaker 1: more important players in the market. The bitcoin miners themselves 7 00:00:41,440 --> 00:00:44,240 Speaker 1: has also seen a lot of pretty significant weather events 8 00:00:44,240 --> 00:00:47,680 Speaker 1: that have affected the United States, including recent ice storms 9 00:00:47,680 --> 00:00:51,800 Speaker 1: in Texas that left hundreds of thousands of people without power. Again, 10 00:00:52,720 --> 00:00:55,240 Speaker 1: energy is one of the most important costs that bitcoin 11 00:00:55,320 --> 00:00:58,080 Speaker 1: miners must absorb, and of course they can't run all 12 00:00:58,120 --> 00:01:01,640 Speaker 1: those machines in their data centers if there's electricity. Now, 13 00:01:01,920 --> 00:01:04,520 Speaker 1: we've talked on this show a few times about the 14 00:01:04,600 --> 00:01:08,240 Speaker 1: challenging conditions that bitcoin miners in the US and around 15 00:01:08,240 --> 00:01:10,680 Speaker 1: the world have been facing in recent months and years. 16 00:01:11,560 --> 00:01:13,160 Speaker 1: Today we're going to discuss how some of them have 17 00:01:13,280 --> 00:01:15,800 Speaker 1: been able to adapt, or at least try to take 18 00:01:15,840 --> 00:01:19,080 Speaker 1: advantage of current market conditions to put themselves on slightly 19 00:01:19,120 --> 00:01:22,560 Speaker 1: more stable financial footing. Joining me today is David Pan, 20 00:01:22,760 --> 00:01:35,800 Speaker 1: a Bloomberg Reports who follows bitcoin mining very closely. David, 21 00:01:35,920 --> 00:01:37,959 Speaker 1: welcome back to the show. Thank you, thank you for 22 00:01:38,000 --> 00:01:40,840 Speaker 1: having me back. I have to admit that every time 23 00:01:41,000 --> 00:01:44,320 Speaker 1: I read one of your stories, and then I read 24 00:01:44,400 --> 00:01:46,320 Speaker 1: another one of your stories, and then like a fourth 25 00:01:46,440 --> 00:01:49,280 Speaker 1: or fifth one, I'm like, wow, bitcoin mining seems like 26 00:01:49,320 --> 00:01:53,760 Speaker 1: a complicated industry. So what we're gonna do today is 27 00:01:53,840 --> 00:01:56,680 Speaker 1: break down a little bit what we mean when we 28 00:01:56,680 --> 00:02:00,040 Speaker 1: say bitcoin miners, who some of these players are, and 29 00:02:00,080 --> 00:02:02,559 Speaker 1: what's been happening to them over the past several months 30 00:02:02,560 --> 00:02:07,600 Speaker 1: and especially coming into the beginning of So just to 31 00:02:07,640 --> 00:02:13,000 Speaker 1: get started, can you remind our listeners what exactly it 32 00:02:13,200 --> 00:02:16,240 Speaker 1: is the bitcoin miners do and why these companies are 33 00:02:16,240 --> 00:02:20,360 Speaker 1: an important part of the ecosystem. Yeah. Sure, the bitcoin 34 00:02:20,400 --> 00:02:26,480 Speaker 1: mining companies they buy very expensive specialized computers produced by 35 00:02:26,520 --> 00:02:31,880 Speaker 1: manufacturers like Main or Canaan. So they buy these computers 36 00:02:31,919 --> 00:02:36,399 Speaker 1: to solve mathematical problems on the blockchain, to actually validate 37 00:02:36,440 --> 00:02:40,720 Speaker 1: the transaction data for people who are doing transactions on 38 00:02:40,800 --> 00:02:45,440 Speaker 1: the blockchain. In return, they will get block rewards from 39 00:02:45,480 --> 00:02:49,480 Speaker 1: the network currently it is about six and have bitcoin 40 00:02:49,880 --> 00:02:53,520 Speaker 1: as a reward to the miners. They are important because 41 00:02:53,720 --> 00:02:58,840 Speaker 1: they are securing the network Essentially because bitcoin network is permissionist, 42 00:02:58,960 --> 00:03:02,639 Speaker 1: is decentralized, that there's no middleman to guarantee that the 43 00:03:02,720 --> 00:03:08,280 Speaker 1: transaction is valid between two parties. But miners can do that. 44 00:03:08,280 --> 00:03:11,840 Speaker 1: That's where they step in. So it sounds to me, 45 00:03:12,400 --> 00:03:18,360 Speaker 1: based on what you're saying, the bitcoin blockchain wouldn't work effectively, safely, 46 00:03:18,680 --> 00:03:23,720 Speaker 1: scalably without the participation of these bitcoin miners exactly. So 47 00:03:23,760 --> 00:03:27,440 Speaker 1: that's actually the very first point of bitcoin mining, you know, 48 00:03:27,480 --> 00:03:30,320 Speaker 1: which is to secure the network, to validate the data 49 00:03:30,360 --> 00:03:33,679 Speaker 1: on the network so that this can be a very 50 00:03:33,760 --> 00:03:36,800 Speaker 1: trustworthy peer to peer payment network. But later, you know, 51 00:03:36,920 --> 00:03:40,720 Speaker 1: it has another meaning, which is their financial abilities. For example, 52 00:03:40,920 --> 00:03:44,559 Speaker 1: you know, at the very beginning of the bitcoin blockchain, 53 00:03:44,760 --> 00:03:48,160 Speaker 1: you can just use a personal computers to mind bitcoin. 54 00:03:48,520 --> 00:03:51,920 Speaker 1: But later as more and more people get into this 55 00:03:52,120 --> 00:03:55,800 Speaker 1: process with you know, bitcoin rising, so it becomes a 56 00:03:55,880 --> 00:03:59,520 Speaker 1: very industrialized sector. You know a lot of companies they're 57 00:03:59,560 --> 00:04:03,960 Speaker 1: investing millions of dollars to actually design a specialized computer 58 00:04:04,120 --> 00:04:08,600 Speaker 1: to compute the problems m bitcoin network. That actually leads 59 00:04:08,640 --> 00:04:12,840 Speaker 1: to increasing competition on the network to compete for a 60 00:04:12,960 --> 00:04:17,920 Speaker 1: limited supply of block rewords in bitcoin. And so it 61 00:04:17,960 --> 00:04:23,200 Speaker 1: has grown from personal computers to warehouses of specialized the 62 00:04:23,240 --> 00:04:26,120 Speaker 1: computer stacking on top of each other in the middle 63 00:04:26,120 --> 00:04:29,560 Speaker 1: of nowhere, probably close to a power grid. So that's 64 00:04:29,560 --> 00:04:33,320 Speaker 1: basically the evolution of bitcoin mining industry. And there are 65 00:04:33,520 --> 00:04:36,400 Speaker 1: it sounds like two important consequences of that evolution that 66 00:04:36,440 --> 00:04:40,400 Speaker 1: you've identified right. One is that it's very capital intensive. 67 00:04:40,440 --> 00:04:45,960 Speaker 1: It's expensive to run these big data centers. It's expensive 68 00:04:46,000 --> 00:04:48,680 Speaker 1: to buy these machines, to maintain these machines, to pay 69 00:04:48,680 --> 00:04:52,880 Speaker 1: for the electricity that these machines may need. And it 70 00:04:52,920 --> 00:04:54,919 Speaker 1: looks like, you know, based on your reporting over the 71 00:04:54,920 --> 00:04:58,360 Speaker 1: past twelve months, that various of the companies in the space, 72 00:04:58,440 --> 00:05:01,920 Speaker 1: even the biggest ones, running too a lot of financial difficulty. 73 00:05:02,080 --> 00:05:06,320 Speaker 1: In two call Scientific, one of the biggest publicly traded 74 00:05:06,360 --> 00:05:10,280 Speaker 1: companies creating or mining cryptoccurrences in the US filed from 75 00:05:10,320 --> 00:05:14,400 Speaker 1: bankruptcy protection blamed slumping bitcoin prices. But some of them 76 00:05:14,440 --> 00:05:17,640 Speaker 1: seem to have started three in a much better situation 77 00:05:17,920 --> 00:05:20,600 Speaker 1: than just a few months ago. So what's going on there? 78 00:05:21,279 --> 00:05:24,279 Speaker 1: They're actually a variety of reasons why, you know, we're 79 00:05:24,360 --> 00:05:28,760 Speaker 1: seeing a mixed performance from like different miners. But stepping 80 00:05:28,800 --> 00:05:30,640 Speaker 1: back a little bit, we have to talk about the 81 00:05:30,680 --> 00:05:33,719 Speaker 1: size of the loans the mining companies are taking. I 82 00:05:33,720 --> 00:05:38,279 Speaker 1: mean just looking at the public filings and also talking 83 00:05:38,320 --> 00:05:41,560 Speaker 1: to private mining companies, we have as much as four 84 00:05:41,600 --> 00:05:45,520 Speaker 1: billion dollars, just like in bitcoin mining machine backed loans. 85 00:05:45,560 --> 00:05:48,400 Speaker 1: And then you have bigcoin backed loans, which is actually 86 00:05:48,400 --> 00:05:52,320 Speaker 1: a more common and popular financial tool for bitcoin miners 87 00:05:52,360 --> 00:05:56,800 Speaker 1: to raise money. And then you also have family office 88 00:05:56,839 --> 00:06:00,200 Speaker 1: and and the people from the RAT five sector are 89 00:06:00,279 --> 00:06:04,599 Speaker 1: funneling money into the sector by traditional financial channels. The 90 00:06:04,640 --> 00:06:07,880 Speaker 1: miners have a variety of ways to raise money. And 91 00:06:07,920 --> 00:06:10,040 Speaker 1: then we can talk about why some of them are 92 00:06:10,080 --> 00:06:14,040 Speaker 1: doing better than others. It is because the leverage leverage 93 00:06:14,120 --> 00:06:17,440 Speaker 1: is in the debt that they're exactly looking at the 94 00:06:17,480 --> 00:06:20,400 Speaker 1: balance sheet of the miners and you can actually see 95 00:06:20,520 --> 00:06:22,680 Speaker 1: they actually have a lot of debt. Their debt to 96 00:06:22,800 --> 00:06:26,600 Speaker 1: equity ratio is very high. And then you have some 97 00:06:26,680 --> 00:06:31,520 Speaker 1: other relatively healthy miners, for example Hoidad, and they keep 98 00:06:31,600 --> 00:06:35,839 Speaker 1: their operations in general very lean, so like they don't 99 00:06:35,880 --> 00:06:40,760 Speaker 1: actually want to expand very large projects. They don't want 100 00:06:40,800 --> 00:06:43,159 Speaker 1: to have like one giggle, what mining side in the 101 00:06:43,200 --> 00:06:45,159 Speaker 1: next few years and then one giggle, what is that 102 00:06:45,279 --> 00:06:48,720 Speaker 1: very big? That is very very big? And another reason 103 00:06:49,120 --> 00:06:52,120 Speaker 1: is that the timing of the debt. You know, for example, 104 00:06:52,720 --> 00:06:55,760 Speaker 1: one of the best examples will be Marathon Digital Holdings. 105 00:06:56,120 --> 00:06:59,640 Speaker 1: They actually borrowed money at a very low rate from 106 00:06:59,680 --> 00:07:03,960 Speaker 1: civil date through a feel of credit facilities, so they're 107 00:07:04,040 --> 00:07:07,680 Speaker 1: definitely less burdened with interest the payments over time just 108 00:07:07,720 --> 00:07:10,760 Speaker 1: because the timing when they took out the debt, the 109 00:07:10,840 --> 00:07:14,000 Speaker 1: rate was really really low. So that's another reason why 110 00:07:14,120 --> 00:07:17,440 Speaker 1: you know, some miners are doing better than others. Up next, 111 00:07:17,600 --> 00:07:20,480 Speaker 1: you'll hear more from Bloomberg reposted David pan on what 112 00:07:20,560 --> 00:07:24,440 Speaker 1: will likely affect the prospects for bitcoin miners in three 113 00:07:34,280 --> 00:07:37,040 Speaker 1: So one question that I have for you is why 114 00:07:37,240 --> 00:07:43,120 Speaker 1: would very very traditional, as we say trad fi entities 115 00:07:43,760 --> 00:07:48,200 Speaker 1: like an Apollo or a black Rock find themselves lending 116 00:07:48,240 --> 00:07:53,360 Speaker 1: money to extremely non traditional companies like bitcoin miners. Yeah, 117 00:07:53,520 --> 00:07:56,720 Speaker 1: I think crypto money is kind of like was regarded 118 00:07:56,840 --> 00:07:59,360 Speaker 1: as as a way for people to get exposure to 119 00:08:00,000 --> 00:08:05,200 Speaker 1: cryptole and especially for these traditional financial services companies, it's 120 00:08:05,480 --> 00:08:09,680 Speaker 1: harder for them to directly hold crypto assets just because 121 00:08:09,720 --> 00:08:13,440 Speaker 1: of the compliance and regulatory raisins. But getting into crypto 122 00:08:13,480 --> 00:08:18,280 Speaker 1: mining companies who are publicly traded, that is much easier, 123 00:08:18,280 --> 00:08:22,520 Speaker 1: for example, to convertible bond is a very conventional financial 124 00:08:22,600 --> 00:08:27,440 Speaker 1: channel for for big companies to tracify companies to get 125 00:08:27,480 --> 00:08:31,640 Speaker 1: involved in cryptole and kind of looking forward, one of 126 00:08:31,680 --> 00:08:34,400 Speaker 1: the things that has been true of January going into 127 00:08:34,440 --> 00:08:40,760 Speaker 1: February is that crypto related stocks, whether it is banks, 128 00:08:40,960 --> 00:08:44,520 Speaker 1: whether it is the exchanges, and to some extent the 129 00:08:44,559 --> 00:08:48,640 Speaker 1: miners that really got i'll use the scientific term hammered 130 00:08:49,240 --> 00:08:52,320 Speaker 1: in two have you know, kind of started the year 131 00:08:52,440 --> 00:08:56,600 Speaker 1: with a rally, and various folks, analysts, investors are kind 132 00:08:56,640 --> 00:08:59,160 Speaker 1: of asking like, is this sustainable? Right? Is there something 133 00:08:59,200 --> 00:09:02,319 Speaker 1: fundamental that shifted about the market, or it's just people 134 00:09:02,360 --> 00:09:05,320 Speaker 1: just being like, who finally is not the worst news 135 00:09:05,320 --> 00:09:07,720 Speaker 1: in the world. What are what are you hearing on 136 00:09:08,000 --> 00:09:13,400 Speaker 1: the mining side of this conversation? Yeah, so the miners um. 137 00:09:13,679 --> 00:09:17,120 Speaker 1: So there's a term called a miner's competulation when the 138 00:09:17,160 --> 00:09:19,760 Speaker 1: bigcoin price is going down at the same time the 139 00:09:19,880 --> 00:09:22,480 Speaker 1: hash rate is going down and along with a few 140 00:09:22,480 --> 00:09:26,000 Speaker 1: other conditions. When it hits those conditions, there will be 141 00:09:26,240 --> 00:09:29,560 Speaker 1: a situation called a minor competulation, which means the market 142 00:09:29,559 --> 00:09:32,400 Speaker 1: has hit the bottom. So, and to be clear, that's 143 00:09:32,440 --> 00:09:35,079 Speaker 1: not minor capitulation like M I, N O are small. 144 00:09:35,160 --> 00:09:39,520 Speaker 1: It's like minor compitulation, Like the miners themselves are are 145 00:09:39,600 --> 00:09:43,560 Speaker 1: flying a white flag of defeat. Yeah, the sector's compitulation. Yeah. 146 00:09:43,720 --> 00:09:46,480 Speaker 1: So basically what it means, like, you know, the low 147 00:09:46,559 --> 00:09:49,720 Speaker 1: price have been going on for so long, it has 148 00:09:49,800 --> 00:09:53,440 Speaker 1: driven out some of the miners. So historically it was 149 00:09:53,679 --> 00:09:58,080 Speaker 1: a pretty good indicator that shows the market is hitting 150 00:09:58,280 --> 00:10:01,440 Speaker 1: the bottom. But like, not so sure this in this 151 00:10:01,640 --> 00:10:05,680 Speaker 1: cycle because in the last cycles, miners were actually more 152 00:10:05,760 --> 00:10:10,040 Speaker 1: powerful with larger bitcoin holdings because when they were facing 153 00:10:10,080 --> 00:10:14,600 Speaker 1: financial pressure, they needed to sell their coin reserves, so 154 00:10:14,679 --> 00:10:17,400 Speaker 1: that would create and they were selling in a down market, right, 155 00:10:17,880 --> 00:10:20,040 Speaker 1: like actually getting a lot of money from them, got it. Yeah, 156 00:10:20,120 --> 00:10:23,680 Speaker 1: And then like they were imposing more selling pressure into 157 00:10:23,720 --> 00:10:27,160 Speaker 1: the market just because their coin holdings were still large 158 00:10:27,480 --> 00:10:30,360 Speaker 1: in the previous cycles. But in this cycle, a lot 159 00:10:30,400 --> 00:10:33,880 Speaker 1: of the miners already emptied their bitcoin on the balance sheet, 160 00:10:34,200 --> 00:10:38,719 Speaker 1: so they actually don't have a lot of power or 161 00:10:38,880 --> 00:10:42,840 Speaker 1: like influence over the market because they don't have as 162 00:10:42,920 --> 00:10:45,640 Speaker 1: many coins as before. And I think you had just 163 00:10:45,679 --> 00:10:48,520 Speaker 1: reported that one miner sold tokens for the very first 164 00:10:48,520 --> 00:10:52,120 Speaker 1: time this year. Marathon Firstly, I think, like the company 165 00:10:52,400 --> 00:10:56,840 Speaker 1: do need to capture the higher prices because I think 166 00:10:56,840 --> 00:10:59,680 Speaker 1: they've learned the lesson along with so many other miners 167 00:10:59,679 --> 00:11:03,760 Speaker 1: that maybe, like, you need to sell some of these coins. 168 00:11:04,000 --> 00:11:06,280 Speaker 1: I mean, you can be a hoddler, you know, you 169 00:11:06,720 --> 00:11:10,320 Speaker 1: can't hold hold on, hold on forever, like hold on 170 00:11:10,480 --> 00:11:13,200 Speaker 1: dear life. But at the same time, I mean, is 171 00:11:13,240 --> 00:11:17,880 Speaker 1: that a rational like decision for for a bitcoin minor. 172 00:11:18,320 --> 00:11:20,600 Speaker 1: I mean, it has turned a lot of the miners 173 00:11:20,800 --> 00:11:24,120 Speaker 1: have realized that that wasn't the best interest, you know, 174 00:11:24,160 --> 00:11:26,760 Speaker 1: to just keep all the coins, so like they decided 175 00:11:26,840 --> 00:11:29,800 Speaker 1: to sell some of the coins rather than selling them 176 00:11:29,960 --> 00:11:33,000 Speaker 1: in a bear market. And if they can sell them 177 00:11:33,080 --> 00:11:35,679 Speaker 1: in a in a rally like this, you know, like uh, 178 00:11:36,160 --> 00:11:39,679 Speaker 1: relatively longer rally in the crypto market, if they can 179 00:11:39,720 --> 00:11:42,960 Speaker 1: capture some of the prices, they'll be good, you know, 180 00:11:43,000 --> 00:11:45,679 Speaker 1: for their for their balance sheet, especially now they are 181 00:11:45,760 --> 00:11:48,240 Speaker 1: burning cash. So I think that's that's one of the 182 00:11:48,280 --> 00:11:51,840 Speaker 1: reasons why Marathon was doing that in January. And then 183 00:11:51,880 --> 00:11:55,800 Speaker 1: another reason might be they are increasing their production. They 184 00:11:55,800 --> 00:12:00,679 Speaker 1: are producing more bitcoins just because you know, they're operations 185 00:12:00,720 --> 00:12:05,040 Speaker 1: have been growing over the last year, so they figured 186 00:12:05,040 --> 00:12:07,520 Speaker 1: that you know, like by selling some of those coins, 187 00:12:07,679 --> 00:12:10,560 Speaker 1: I wouldn't affect their holdings that much because they're like 188 00:12:10,679 --> 00:12:13,120 Speaker 1: adding to their holdings at a faster rate than they're 189 00:12:13,120 --> 00:12:15,480 Speaker 1: selling them. All. Yeah. Well, I'm going to end with 190 00:12:15,520 --> 00:12:17,760 Speaker 1: one of the things that we say on the team 191 00:12:17,800 --> 00:12:19,720 Speaker 1: all the time, which is like never a dull moment. 192 00:12:20,440 --> 00:12:22,800 Speaker 1: So thank you as always for coming on the show. 193 00:12:23,200 --> 00:12:27,600 Speaker 1: Thank you. That was Bloomberg, reported David Panton. You can 194 00:12:27,600 --> 00:12:29,760 Speaker 1: find more of his reporting on the Bloomberg Terminal and 195 00:12:29,800 --> 00:12:32,319 Speaker 1: on Bloomberg dot com, and be sure to check out 196 00:12:32,320 --> 00:12:40,120 Speaker 1: our twice weekly news less of Bloomberg Crypto. This is 197 00:12:40,160 --> 00:12:43,800 Speaker 1: Bloomberg Crypto, a daily podcast from Bloomberg and I Heart Radio. 198 00:12:44,520 --> 00:12:46,640 Speaker 1: For more shows from I Heart Radio, visit the I 199 00:12:46,720 --> 00:12:50,679 Speaker 1: Heart Radio app, Apple Podcasts, or wherever you get your podcasts. 200 00:12:51,480 --> 00:12:54,040 Speaker 1: Send us your comments, questions, or suggestions for the show 201 00:12:54,200 --> 00:13:00,840 Speaker 1: to Crypto at Bloomberg dot net. The supervisingducer of Bloomberg 202 00:13:00,880 --> 00:13:04,600 Speaker 1: Crypto is Vicky Vergolina. Our senior producer is Janet Babin. 203 00:13:05,200 --> 00:13:08,840 Speaker 1: Our producers are Mohammed Farouk and Sharon Barriro. Our associate 204 00:13:08,840 --> 00:13:12,640 Speaker 1: producers are Ty Butler and Moses on Them Desta wonder 205 00:13:12,679 --> 00:13:17,840 Speaker 1: at is our engineer. Original music by Leo Sidron. I'm 206 00:13:17,840 --> 00:13:20,079 Speaker 1: Stacy Marie schmal We'll be back tomorrow.