WEBVTT - Bitcoin Miners Are Stressed Out

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<v Speaker 1>This is Bloomberg Crypto, a daily Bloomberg I Heard podcast,

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<v Speaker 1>and I'm Stacy Marie Ishmael, Managing editor of Crypto for

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<v Speaker 1>Bloomberg News. It's Thursday, January twelve. It's been a tough

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<v Speaker 1>winter for bitcoin miners, as prices of the largest token

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<v Speaker 1>have fallen from their record highs. They have been bankruptcies

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<v Speaker 1>and warnings of potential bankruptcy, billions of dollars and losses,

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<v Speaker 1>forced sales of equipment, Regulatory uncertainty in states like New York,

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<v Speaker 1>increased criticism of the energy consumption associated with the sector.

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<v Speaker 1>The list goes on. One minor even tried to change

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<v Speaker 1>its name to minimize its association with the sector. Counterintuitive,

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<v Speaker 1>you bet. The company formerly known as Riot Blockchain changed

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<v Speaker 1>its name to Riot Platform off to seeing its share

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<v Speaker 1>price full around eighty five in twenty two. So what

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<v Speaker 1>hope is there for bitcoin miners? In three to break

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<v Speaker 1>down the latest, I'm joined by Bloomberg report to David

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<v Speaker 1>Pan it will be less likely for somebody who haven't

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<v Speaker 1>been involved in bitcoin mining come to a foreign country

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<v Speaker 1>and to a mind bitcoin and by Mason Jappa. If

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<v Speaker 1>your state or your country pushes out a moratorium or

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<v Speaker 1>bands mining as we've seen happen, not just in China,

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<v Speaker 1>tapped in Sweden and Norway. It puts you out of

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<v Speaker 1>business right. Mason is the CEO and founder of Blockwear Solutions,

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<v Speaker 1>a company that specializes in mining services. David, Welcome back

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<v Speaker 1>to the podcast. Mason, Welcome to the podcast. Why don't

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<v Speaker 1>you introduce yourself to our listeners. No, thanks for having

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<v Speaker 1>me on today. Excited to talk called things bitcoin, mining,

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<v Speaker 1>energy markets. It's a really interesting time and that's taking place.

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<v Speaker 1>So I'm missed In Jappa, the CEO and founder of

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<v Speaker 1>Blockwear Solutions. I started Blockwear Solutions in twenty seventeen. Prior

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<v Speaker 1>to that, I got into bitcoin in and began mining

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<v Speaker 1>um at a small industrial scale. In part of the

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<v Speaker 1>thesis of why I founded blockwere was I wanted to

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<v Speaker 1>bring bitcoin and bitcoin mining to North America at the

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<v Speaker 1>time of twenty seventeen, and you saw upwards of seventy

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<v Speaker 1>even greater than eight percent of mining centralized in China.

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<v Speaker 1>So we saw the need of decentralizing hash right, decentralizing

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<v Speaker 1>bitcoin and bringing that to other areas of the world,

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<v Speaker 1>and that was a goal of mine um when I

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<v Speaker 1>founded the company. So this being a podcast about crypto,

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<v Speaker 1>I think we're at the point in the cycle where

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<v Speaker 1>most of our listeners do know what bitcoin is, but

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<v Speaker 1>I'm still not sure that most people understand what bitcoin

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<v Speaker 1>mining is. What is your kind of really short explan

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<v Speaker 1>asia and of exactly what it is the bitcoin miners do.

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<v Speaker 1>So think of mining as the backbone of the network,

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<v Speaker 1>where the infrastructure we're monetizing energy using servers and systems,

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<v Speaker 1>and and think about it just like the back end

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<v Speaker 1>of artificial intelligence or the back end of your your phone.

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<v Speaker 1>It requires data. So miners are minting the new currency

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<v Speaker 1>through a block subsidy, and that's simply you know, every

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<v Speaker 1>ten minutes the new block is released, miners are minting

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<v Speaker 1>the new subsidy. And as well, we're processing the transactions.

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<v Speaker 1>And so when Mason sends one bitcoin to David, someone

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<v Speaker 1>has to say, yes, this bitcoin existed here and transfer

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<v Speaker 1>and mint the transaction on the blockchain. So the miners

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<v Speaker 1>are the one that are minting the new transactions on

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<v Speaker 1>the ledger and minting the new currency. Now what's interesting

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<v Speaker 1>and perhaps challenging for the market about that is, as

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<v Speaker 1>Mason has described it, bitcoin transactions could not exist if

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<v Speaker 1>miners don't exist. And yet, David, so much of your

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<v Speaker 1>reporting who has been about the existential crisis facing bitcoin miners,

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<v Speaker 1>at least from a financial perspective. Right now, what's been

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<v Speaker 1>happening in the market. So the bitcoin miners they realized

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<v Speaker 1>they overleveraged throughout the whole two They borrowed billions of

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<v Speaker 1>dollars from debt financing equity sales, and now they realized

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<v Speaker 1>that they can't fulfill the debt obligations to pay the

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<v Speaker 1>interest payments every month. We've seen some mining companies filing

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<v Speaker 1>for bankruptcy. As some of these other mining companies they

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<v Speaker 1>are renegotiating their long terms with the lenders and selling

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<v Speaker 1>new shares. So they're coping with the situation. They're trying

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<v Speaker 1>to survive. IF two it was like the golden year

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<v Speaker 1>for early it was a golden year of bitcoin mining.

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<v Speaker 1>But now I think they're in the survival mode A

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<v Speaker 1>Maason functionally speaking, like, what does survival mode really mean?

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<v Speaker 1>Building off David's point, I think we, you know, it's

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<v Speaker 1>important to look an event in in June. That's when

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<v Speaker 1>we saw the Chinese, you know, officially banned mining, So

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<v Speaker 1>you saw an opportunity and in an arbitrage for many

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<v Speaker 1>people to reap high bitcoin rewards. So the players that

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<v Speaker 1>we're remining, then we're seeing revenues of increases of a hundred,

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<v Speaker 1>two hundred and fifty percent, so that there was a

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<v Speaker 1>golden age from June until I'd say, like early you know,

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<v Speaker 1>like a golden wind, Yeah, exactly. Um, but beyond that,

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<v Speaker 1>what we're seeing now is an opportunity for for players

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<v Speaker 1>to have another chance of re entrance. Right you're seeing

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<v Speaker 1>distress assets hit the marketplace. So right now, um, a

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<v Speaker 1>lot of these people that over leveraged, and that being

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<v Speaker 1>some of the largest miners, some small miners, some medium

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<v Speaker 1>sized miners, they're unable to pay their interest. There was

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<v Speaker 1>two problems with the over leverage. The first problem is

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<v Speaker 1>a lot of these miners collateralized the underlying asset, which

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<v Speaker 1>was the mining rig itself, at points when the the

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<v Speaker 1>rig itself was trading at ten times the amount that

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<v Speaker 1>is value that is worth. Now, so you said something

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<v Speaker 1>that that's really important, which is like the mining rig

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<v Speaker 1>which is basically a fancy computer. Correct, Okay, we call

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<v Speaker 1>them a six, So just think of a six as

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<v Speaker 1>you know, purpose built and designed servers high compute servers

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<v Speaker 1>that are purpose built to mind bitcoin, they cannot be repurposed.

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<v Speaker 1>There's other type of miners that mine all coins that

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<v Speaker 1>can be repurposed, and those could be used for AI

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<v Speaker 1>intelligence other things. So no repurposing. And what happened was

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<v Speaker 1>they locked in their interest loans or their or their

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<v Speaker 1>loans or clatter wized loans at a time when the

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<v Speaker 1>rigs were worth a lot of money and our industry

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<v Speaker 1>was naturally also viewed as risky. So some of the

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<v Speaker 1>interest rates percentages that they locked in could range anywhere

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<v Speaker 1>from fifteen to So if you locked in a high

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<v Speaker 1>strike point of ten times the value of of its worth.

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<v Speaker 1>Now with a high interest rate, you would need bitcoin

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<v Speaker 1>to be a hundred thousand dollars for you to be profitable,

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<v Speaker 1>and bitcoin right now is dollars. Yeah, yes, correct, So

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<v Speaker 1>a lot of those players are trying to unwine. What

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<v Speaker 1>we're seeing is interesting. Um there there's bid sales, there's creditors,

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<v Speaker 1>they're taking repossession of their miners and renegotiating loans. There's bankruptcies.

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<v Speaker 1>But with that, you're seeing a lot of distress assets available.

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<v Speaker 1>So not only the mining rings, but these are power

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<v Speaker 1>purchase agreements and energy contracts. These are buildings, these are

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<v Speaker 1>transformers and switch gears. This is high powered electrical infrastructure

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<v Speaker 1>that is used to power America. So you're seeing the

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<v Speaker 1>opportunity to buy these assets at pennies on the dollar. Now, David,

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<v Speaker 1>my question for you is who's out there to buy

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<v Speaker 1>any of this? That's actually a million dollar question for

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<v Speaker 1>all the sellers because there aren't many buyers out there

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<v Speaker 1>right now. If you look at the mining racks market,

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<v Speaker 1>it's a glut of like it's flawded the market last year.

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<v Speaker 1>There are just so many used the machines that and

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<v Speaker 1>at the same time, the manufacturer a bit man, they

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<v Speaker 1>keep producing new machines as well. So like this like

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<v Speaker 1>a massive demand that cannot be you know, digested by

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<v Speaker 1>all of these Is anything good happening in this industry? Yes?

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<v Speaker 1>So hash rates, so looking at the reverse hash rate

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<v Speaker 1>is at an all time high rate. So um that

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<v Speaker 1>is the total network compute. So that's a summary of

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<v Speaker 1>every single Bitcoin server in existence, and in fact it's

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<v Speaker 1>near all time high. We're expected to go up another

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<v Speaker 1>ten percent, so that means that the network is more

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<v Speaker 1>secure than ever. And if you can trace where the

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<v Speaker 1>hash rate is coming from our computational power. It's all

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<v Speaker 1>over the world, So we actually succeeded into centralization. We

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<v Speaker 1>succeeded in hash rate growing to a level where the

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<v Speaker 1>network is more secure than ever and and less vulnerable

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<v Speaker 1>against attacks. It would literally take you two to three

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<v Speaker 1>years to accumulate the on a hash rate. You need

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<v Speaker 1>to attack Bitcoin, which requires a fifty one percent control

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<v Speaker 1>of computational power. So it's one particular kind of attack

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<v Speaker 1>on one and you're not You can't rewrite bitcoin. And

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<v Speaker 1>that's what I love about it. It's monetary policies dictated

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<v Speaker 1>by code and no one can change that code, and

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<v Speaker 1>and the transactions are permanently minted on the Ledger. So

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<v Speaker 1>something that David was asked, you know the million dollar answer.

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<v Speaker 1>You know who's buying these assets? Well, actually, I've been

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<v Speaker 1>seeing a re emergence of Chinese um a lot of them.

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<v Speaker 1>You know, we're forced out and left the markets and

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<v Speaker 1>sold all their machines. But a lot of the people

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<v Speaker 1>I've been transacting with on both sides are the Chinese.

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<v Speaker 1>So they took their exit. They actually sold you know,

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<v Speaker 1>not at the worst time compared today's market, So they

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<v Speaker 1>have money and they're buying these assets and building in

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<v Speaker 1>the in the United States or in Canada or where

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<v Speaker 1>these distressed assets are. So that's actually who I'm seeing

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<v Speaker 1>on the buy side. The cell side is all these

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<v Speaker 1>large over leveraged players. Up next, more from Mason, Joppa

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<v Speaker 1>and d good Pan on what the new year could

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<v Speaker 1>mean for crypto mining will be right back. And David,

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<v Speaker 1>you've reported a lot on you know, Chinese companies or

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<v Speaker 1>folks who were formally at companies in China setting up

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<v Speaker 1>shop in places like Texas. What are some of the other,

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<v Speaker 1>if any hubs that are emerging in the United States.

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<v Speaker 1>Definitely UM, Oklahoma and Georgia in all these southern states

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<v Speaker 1>that have similar you know characteristics as Texas in terms

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<v Speaker 1>of regulations and energy sources, which is to say, a

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<v Speaker 1>relatively lenient regulatory structure and relatively inexpensive energy, relatively cheaper energy,

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<v Speaker 1>you know, UM because their neighboring states, and and they's

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<v Speaker 1>also easier for the miners to travel across and to

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<v Speaker 1>see the sides and to build out infrastructure. So what

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<v Speaker 1>Mason just said is in terms of who is buying

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<v Speaker 1>right now, is he's seeing interest from you know, Chinese

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<v Speaker 1>companies or folks who are affiliated with Chinese companies. Are

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<v Speaker 1>these the same people who had fled China after the

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<v Speaker 1>first crackdown in or is this kind of another generation.

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<v Speaker 1>I would say the majority of them used to be

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<v Speaker 1>minors in China, and then I think it will be

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<v Speaker 1>less likely for somebody who haven't been involved in bitcoin

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<v Speaker 1>mining come to a foreign country and to a mind bitcoin.

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<v Speaker 1>So a lot of the Chinese miners that they really

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<v Speaker 1>do not want to abandon all of their like the

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<v Speaker 1>expertise they they've accumulated over the years when they were

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<v Speaker 1>mining bitcoin in China. The majority of them used to

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<v Speaker 1>be minors in China as well. In contrast to what

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<v Speaker 1>we were seeing in some of the states that you mentioned,

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<v Speaker 1>we have places like New York right which has now

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<v Speaker 1>said that at least for the next couple of years

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<v Speaker 1>that any miners that rely on fossil fuels to power

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<v Speaker 1>their operations aren't going to be welcomed with open arms

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<v Speaker 1>or at all in the state. There are a couple

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<v Speaker 1>of tensions that we're seeing here, which is one, is

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<v Speaker 1>it actually possible for a bitcoin miner to be environmentally

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<v Speaker 1>friendly and to our folks eventually going to run out

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<v Speaker 1>of states to kind of go to. So Mason, I'd

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<v Speaker 1>like you to tackle the state's question, which is outside

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<v Speaker 1>of the Texas is the Kentucky's, the Oklahoma is like

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<v Speaker 1>who else might emerge as a hub for bitcoin miners.

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<v Speaker 1>It's a great question. And Kentucky is actually the only

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<v Speaker 1>state in the United States that has a House and

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<v Speaker 1>Senate built passed to incentivized miners to mine there. My

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<v Speaker 1>company is working close with West Virginia UM and they're

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<v Speaker 1>looking to push policy and incentives to lure miners there.

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<v Speaker 1>And so you see, if there's a lot of states

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<v Speaker 1>that have you know, there were coal states that they

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<v Speaker 1>had large manufacturing plants, like West Virginia, that have all

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<v Speaker 1>these unused infrastructure assets that can be repurposed for miners.

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<v Speaker 1>I think we'll see states push back the New York

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<v Speaker 1>there's some counties in the state of Washington that are

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<v Speaker 1>putting moratoriums against you know, certain counties to push out miners.

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<v Speaker 1>A lot of miners are flocking to the cheapest center

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<v Speaker 1>g right. So when you have really strong grids and

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<v Speaker 1>you have the ability to produce energy, whether it's a

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<v Speaker 1>nuclear plan or in Texas, a lot of it's you know,

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<v Speaker 1>natural gas and wind or solar um. If that's present,

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<v Speaker 1>then you're gonna have cheaper energy. Of cost associated with

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<v Speaker 1>mining is energy. So California is just out of the

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<v Speaker 1>question because it's so expensive and the largest nuclear plan

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<v Speaker 1>almost just went under there. You know, I can't imagine

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<v Speaker 1>the repercussions if that took place. So I'd say that,

0:13:30.320 --> 0:13:32.880
<v Speaker 1>you know, the Midwest seems to be a good place

0:13:32.920 --> 0:13:36.360
<v Speaker 1>to be and they're they're looking to attract and including Texas. UM.

0:13:36.360 --> 0:13:38.760
<v Speaker 1>Other than that, you know, it's it's you know, wherever

0:13:38.760 --> 0:13:40.400
<v Speaker 1>you can find the cheaper't energy. Oh one thing I

0:13:40.440 --> 0:13:43.480
<v Speaker 1>missed two is Pennsylvania. There's a lot of miners that

0:13:43.520 --> 0:13:47.520
<v Speaker 1>are setting up shop in Pennsylvania. Pennsylvania was really heavily

0:13:47.559 --> 0:13:50.160
<v Speaker 1>reliant on natural gas, and we saw the spikes from

0:13:50.240 --> 0:13:52.880
<v Speaker 1>the trade wars between China of natural gas price. So

0:13:52.920 --> 0:13:55.559
<v Speaker 1>it's that finally started taper down. So if that goes

0:13:55.600 --> 0:13:57.199
<v Speaker 1>down a little bit, I think that that will be

0:13:57.240 --> 0:14:03.720
<v Speaker 1>another really Emergencetate and David, are there other types of

0:14:03.720 --> 0:14:06.680
<v Speaker 1>initiatives that might help address some of the criticisms that

0:14:06.720 --> 0:14:08.720
<v Speaker 1>you hear from folks like the ones in New York.

0:14:09.840 --> 0:14:13.280
<v Speaker 1>I think one of the possible solutions will be trying

0:14:13.280 --> 0:14:17.800
<v Speaker 1>to find more renewable energy sources like hydro power. Back

0:14:17.840 --> 0:14:20.880
<v Speaker 1>in the days when China was still allowing bitcoin mining,

0:14:21.320 --> 0:14:24.640
<v Speaker 1>actually especially in the rainy season in the summer, like

0:14:24.720 --> 0:14:28.240
<v Speaker 1>the majority of the energy sources for bitcoin mining it

0:14:28.360 --> 0:14:31.640
<v Speaker 1>was hydro like, you know, like a small bitcoin mining

0:14:31.680 --> 0:14:35.120
<v Speaker 1>size built along the river bank of you know, in

0:14:35.240 --> 0:14:38.000
<v Speaker 1>South China. And then I think one of the transverse

0:14:38.080 --> 0:14:41.040
<v Speaker 1>thing is like there's early rich hydro power in South

0:14:41.080 --> 0:14:45.480
<v Speaker 1>America right now, in Paraguay and even in Argentina and

0:14:45.520 --> 0:14:49.920
<v Speaker 1>in Brazil they are massive, massive dams that generate a

0:14:49.960 --> 0:14:53.320
<v Speaker 1>lot of electricity. Some of these bitcoin mining farms they

0:14:53.320 --> 0:14:57.160
<v Speaker 1>are located close to the dams and similar model to

0:14:57.640 --> 0:15:01.880
<v Speaker 1>what the Chinese miners had been doing back in the days. Mason,

0:15:02.360 --> 0:15:05.960
<v Speaker 1>if someone were listening to this podcast on the off chains,

0:15:06.040 --> 0:15:08.560
<v Speaker 1>I'm thinking, oh, maybe I should get into bitcoin mining.

0:15:08.600 --> 0:15:11.480
<v Speaker 1>What what's your number one piece of advice for them?

0:15:11.760 --> 0:15:15.280
<v Speaker 1>Number one piece of advice right now, I would first off,

0:15:15.320 --> 0:15:19.360
<v Speaker 1>go to a location that has low cost energy um

0:15:19.440 --> 0:15:23.480
<v Speaker 1>and tied directly to number one is political risk. You

0:15:23.520 --> 0:15:26.840
<v Speaker 1>know that existential risk that if your state or your

0:15:26.880 --> 0:15:30.840
<v Speaker 1>country pushes out a moratorium or bands mining as we've

0:15:30.840 --> 0:15:33.600
<v Speaker 1>seen happen not just in China, It's happened in Sweden

0:15:33.640 --> 0:15:37.320
<v Speaker 1>and Norway in different counties. It puts you out of business, right,

0:15:37.520 --> 0:15:39.720
<v Speaker 1>so you need to focus on cheap energy tied with

0:15:39.840 --> 0:15:42.320
<v Speaker 1>good politics. And as long as you have that, you know,

0:15:42.400 --> 0:15:45.240
<v Speaker 1>the rest is prevalence. You can find your miners, you

0:15:45.240 --> 0:15:47.320
<v Speaker 1>can find the infrastructure you need at you know, pays

0:15:47.400 --> 0:15:50.320
<v Speaker 1>on the dollar. And David, just as a closing note,

0:15:50.360 --> 0:15:53.200
<v Speaker 1>what are some of the trends you expect to be reporting. One,

0:15:53.480 --> 0:15:57.960
<v Speaker 1>I don't want to tap off my competitors, uh, but

0:15:58.120 --> 0:16:03.000
<v Speaker 1>we will continue to will continue to monitor all the

0:16:03.120 --> 0:16:06.280
<v Speaker 1>dead that the miners have. And also you know, as

0:16:06.320 --> 0:16:08.640
<v Speaker 1>we get close to the halving, like we really need

0:16:08.680 --> 0:16:12.560
<v Speaker 1>to re exam the implications of that event because that

0:16:12.680 --> 0:16:15.760
<v Speaker 1>will cut minor revenue for miners in half, you know,

0:16:15.880 --> 0:16:18.000
<v Speaker 1>very short period of time. So like we need to

0:16:18.000 --> 0:16:22.360
<v Speaker 1>re exam the implications of data as well. Right, thank

0:16:22.400 --> 0:16:24.280
<v Speaker 1>you both for coming on the show. Thanks a lot.

0:16:24.320 --> 0:16:28.240
<v Speaker 1>Thank you. That was mess and Joppa, CEO and founder

0:16:28.240 --> 0:16:32.360
<v Speaker 1>of Blockwear Solutions, and Bloomberg reporter David Patton. You can

0:16:32.400 --> 0:16:34.520
<v Speaker 1>find more of David's reporting on the Bloomberg Terminal and

0:16:34.600 --> 0:16:36.960
<v Speaker 1>on Bloomberg dot com. And for more, be sure to

0:16:37.040 --> 0:16:39.480
<v Speaker 1>check out our twice weekly newsletter, which is also called

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0:16:59.320 --> 0:17:02.400
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