Speaker 1: This is Bloomberg Crypto, a daily Bloomberg I Heard podcast,
Speaker 1: and I'm Stacy Marie Ishmael, Managing editor of Crypto for
Speaker 1: Bloomberg News. It's Thursday, January twelve. It's been a tough
Speaker 1: winter for bitcoin miners, as prices of the largest token
Speaker 1: have fallen from their record highs. They have been bankruptcies
Speaker 1: and warnings of potential bankruptcy, billions of dollars and losses,
Speaker 1: forced sales of equipment, Regulatory uncertainty in states like New York,
Speaker 1: increased criticism of the energy consumption associated with the sector.
Speaker 1: The list goes on. One minor even tried to change
Speaker 1: its name to minimize its association with the sector. Counterintuitive,
Speaker 1: you bet. The company formerly known as Riot Blockchain changed
Speaker 1: its name to Riot Platform off to seeing its share
Speaker 1: price full around eighty five in twenty two. So what
Speaker 1: hope is there for bitcoin miners? In three to break
Speaker 1: down the latest, I'm joined by Bloomberg report to David
Speaker 1: Pan it will be less likely for somebody who haven't
Speaker 1: been involved in bitcoin mining come to a foreign country
Speaker 1: and to a mind bitcoin and by Mason Jappa. If
Speaker 1: your state or your country pushes out a moratorium or
Speaker 1: bands mining as we've seen happen, not just in China,
Speaker 1: tapped in Sweden and Norway. It puts you out of
Speaker 1: business right. Mason is the CEO and founder of Blockwear Solutions,
Speaker 1: a company that specializes in mining services. David, Welcome back
Speaker 1: to the podcast. Mason, Welcome to the podcast. Why don't
Speaker 1: you introduce yourself to our listeners. No, thanks for having
Speaker 1: me on today. Excited to talk called things bitcoin, mining,
Speaker 1: energy markets. It's a really interesting time and that's taking place.
Speaker 1: So I'm missed In Jappa, the CEO and founder of
Speaker 1: Blockwear Solutions. I started Blockwear Solutions in twenty seventeen. Prior
Speaker 1: to that, I got into bitcoin in and began mining
Speaker 1: um at a small industrial scale. In part of the
Speaker 1: thesis of why I founded blockwere was I wanted to
Speaker 1: bring bitcoin and bitcoin mining to North America at the
Speaker 1: time of twenty seventeen, and you saw upwards of seventy
Speaker 1: even greater than eight percent of mining centralized in China.
Speaker 1: So we saw the need of decentralizing hash right, decentralizing
Speaker 1: bitcoin and bringing that to other areas of the world,
Speaker 1: and that was a goal of mine um when I
Speaker 1: founded the company. So this being a podcast about crypto,
Speaker 1: I think we're at the point in the cycle where
Speaker 1: most of our listeners do know what bitcoin is, but
Speaker 1: I'm still not sure that most people understand what bitcoin
Speaker 1: mining is. What is your kind of really short explan
Speaker 1: asia and of exactly what it is the bitcoin miners do.
Speaker 1: So think of mining as the backbone of the network,
Speaker 1: where the infrastructure we're monetizing energy using servers and systems,
Speaker 1: and and think about it just like the back end
Speaker 1: of artificial intelligence or the back end of your your phone.
Speaker 1: It requires data. So miners are minting the new currency
Speaker 1: through a block subsidy, and that's simply you know, every
Speaker 1: ten minutes the new block is released, miners are minting
Speaker 1: the new subsidy. And as well, we're processing the transactions.
Speaker 1: And so when Mason sends one bitcoin to David, someone
Speaker 1: has to say, yes, this bitcoin existed here and transfer
Speaker 1: and mint the transaction on the blockchain. So the miners
Speaker 1: are the one that are minting the new transactions on
Speaker 1: the ledger and minting the new currency. Now what's interesting
Speaker 1: and perhaps challenging for the market about that is, as
Speaker 1: Mason has described it, bitcoin transactions could not exist if
Speaker 1: miners don't exist. And yet, David, so much of your
Speaker 1: reporting who has been about the existential crisis facing bitcoin miners,
Speaker 1: at least from a financial perspective. Right now, what's been
Speaker 1: happening in the market. So the bitcoin miners they realized
Speaker 1: they overleveraged throughout the whole two They borrowed billions of
Speaker 1: dollars from debt financing equity sales, and now they realized
Speaker 1: that they can't fulfill the debt obligations to pay the
Speaker 1: interest payments every month. We've seen some mining companies filing
Speaker 1: for bankruptcy. As some of these other mining companies they
Speaker 1: are renegotiating their long terms with the lenders and selling
Speaker 1: new shares. So they're coping with the situation. They're trying
Speaker 1: to survive. IF two it was like the golden year
Speaker 1: for early it was a golden year of bitcoin mining.
Speaker 1: But now I think they're in the survival mode A
Speaker 1: Maason functionally speaking, like, what does survival mode really mean?
Speaker 1: Building off David's point, I think we, you know, it's
Speaker 1: important to look an event in in June. That's when
Speaker 1: we saw the Chinese, you know, officially banned mining, So
Speaker 1: you saw an opportunity and in an arbitrage for many
Speaker 1: people to reap high bitcoin rewards. So the players that
Speaker 1: we're remining, then we're seeing revenues of increases of a hundred,
Speaker 1: two hundred and fifty percent, so that there was a
Speaker 1: golden age from June until I'd say, like early you know,
Speaker 1: like a golden wind, Yeah, exactly. Um, but beyond that,
Speaker 1: what we're seeing now is an opportunity for for players
Speaker 1: to have another chance of re entrance. Right you're seeing
Speaker 1: distress assets hit the marketplace. So right now, um, a
Speaker 1: lot of these people that over leveraged, and that being
Speaker 1: some of the largest miners, some small miners, some medium
Speaker 1: sized miners, they're unable to pay their interest. There was
Speaker 1: two problems with the over leverage. The first problem is
Speaker 1: a lot of these miners collateralized the underlying asset, which
Speaker 1: was the mining rig itself, at points when the the
Speaker 1: rig itself was trading at ten times the amount that
Speaker 1: is value that is worth. Now, so you said something
Speaker 1: that that's really important, which is like the mining rig
Speaker 1: which is basically a fancy computer. Correct, Okay, we call
Speaker 1: them a six, So just think of a six as
Speaker 1: you know, purpose built and designed servers high compute servers
Speaker 1: that are purpose built to mind bitcoin, they cannot be repurposed.
Speaker 1: There's other type of miners that mine all coins that
Speaker 1: can be repurposed, and those could be used for AI
Speaker 1: intelligence other things. So no repurposing. And what happened was
Speaker 1: they locked in their interest loans or their or their
Speaker 1: loans or clatter wized loans at a time when the
Speaker 1: rigs were worth a lot of money and our industry
Speaker 1: was naturally also viewed as risky. So some of the
Speaker 1: interest rates percentages that they locked in could range anywhere
Speaker 1: from fifteen to So if you locked in a high
Speaker 1: strike point of ten times the value of of its worth.
Speaker 1: Now with a high interest rate, you would need bitcoin
Speaker 1: to be a hundred thousand dollars for you to be profitable,
Speaker 1: and bitcoin right now is dollars. Yeah, yes, correct, So
Speaker 1: a lot of those players are trying to unwine. What
Speaker 1: we're seeing is interesting. Um there there's bid sales, there's creditors,
Speaker 1: they're taking repossession of their miners and renegotiating loans. There's bankruptcies.
Speaker 1: But with that, you're seeing a lot of distress assets available.
Speaker 1: So not only the mining rings, but these are power
Speaker 1: purchase agreements and energy contracts. These are buildings, these are
Speaker 1: transformers and switch gears. This is high powered electrical infrastructure
Speaker 1: that is used to power America. So you're seeing the
Speaker 1: opportunity to buy these assets at pennies on the dollar. Now, David,
Speaker 1: my question for you is who's out there to buy
Speaker 1: any of this? That's actually a million dollar question for
Speaker 1: all the sellers because there aren't many buyers out there
Speaker 1: right now. If you look at the mining racks market,
Speaker 1: it's a glut of like it's flawded the market last year.
Speaker 1: There are just so many used the machines that and
Speaker 1: at the same time, the manufacturer a bit man, they
Speaker 1: keep producing new machines as well. So like this like
Speaker 1: a massive demand that cannot be you know, digested by
Speaker 1: all of these Is anything good happening in this industry? Yes?
Speaker 1: So hash rates, so looking at the reverse hash rate
Speaker 1: is at an all time high rate. So um that
Speaker 1: is the total network compute. So that's a summary of
Speaker 1: every single Bitcoin server in existence, and in fact it's
Speaker 1: near all time high. We're expected to go up another
Speaker 1: ten percent, so that means that the network is more
Speaker 1: secure than ever. And if you can trace where the
Speaker 1: hash rate is coming from our computational power. It's all
Speaker 1: over the world, So we actually succeeded into centralization. We
Speaker 1: succeeded in hash rate growing to a level where the
Speaker 1: network is more secure than ever and and less vulnerable
Speaker 1: against attacks. It would literally take you two to three
Speaker 1: years to accumulate the on a hash rate. You need
Speaker 1: to attack Bitcoin, which requires a fifty one percent control
Speaker 1: of computational power. So it's one particular kind of attack
Speaker 1: on one and you're not You can't rewrite bitcoin. And
Speaker 1: that's what I love about it. It's monetary policies dictated
Speaker 1: by code and no one can change that code, and
Speaker 1: and the transactions are permanently minted on the Ledger. So
Speaker 1: something that David was asked, you know the million dollar answer.
Speaker 1: You know who's buying these assets? Well, actually, I've been
Speaker 1: seeing a re emergence of Chinese um a lot of them.
Speaker 1: You know, we're forced out and left the markets and
Speaker 1: sold all their machines. But a lot of the people
Speaker 1: I've been transacting with on both sides are the Chinese.
Speaker 1: So they took their exit. They actually sold you know,
Speaker 1: not at the worst time compared today's market, So they
Speaker 1: have money and they're buying these assets and building in
Speaker 1: the in the United States or in Canada or where
Speaker 1: these distressed assets are. So that's actually who I'm seeing
Speaker 1: on the buy side. The cell side is all these
Speaker 1: large over leveraged players. Up next, more from Mason, Joppa
Speaker 1: and d good Pan on what the new year could
Speaker 1: mean for crypto mining will be right back. And David,
Speaker 1: you've reported a lot on you know, Chinese companies or
Speaker 1: folks who were formally at companies in China setting up
Speaker 1: shop in places like Texas. What are some of the other,
Speaker 1: if any hubs that are emerging in the United States.
Speaker 1: Definitely UM, Oklahoma and Georgia in all these southern states
Speaker 1: that have similar you know characteristics as Texas in terms
Speaker 1: of regulations and energy sources, which is to say, a
Speaker 1: relatively lenient regulatory structure and relatively inexpensive energy, relatively cheaper energy,
Speaker 1: you know, UM because their neighboring states, and and they's
Speaker 1: also easier for the miners to travel across and to
Speaker 1: see the sides and to build out infrastructure. So what
Speaker 1: Mason just said is in terms of who is buying
Speaker 1: right now, is he's seeing interest from you know, Chinese
Speaker 1: companies or folks who are affiliated with Chinese companies. Are
Speaker 1: these the same people who had fled China after the
Speaker 1: first crackdown in or is this kind of another generation.
Speaker 1: I would say the majority of them used to be
Speaker 1: minors in China, and then I think it will be
Speaker 1: less likely for somebody who haven't been involved in bitcoin
Speaker 1: mining come to a foreign country and to a mind bitcoin.
Speaker 1: So a lot of the Chinese miners that they really
Speaker 1: do not want to abandon all of their like the
Speaker 1: expertise they they've accumulated over the years when they were
Speaker 1: mining bitcoin in China. The majority of them used to
Speaker 1: be minors in China as well. In contrast to what
Speaker 1: we were seeing in some of the states that you mentioned,
Speaker 1: we have places like New York right which has now
Speaker 1: said that at least for the next couple of years
Speaker 1: that any miners that rely on fossil fuels to power
Speaker 1: their operations aren't going to be welcomed with open arms
Speaker 1: or at all in the state. There are a couple
Speaker 1: of tensions that we're seeing here, which is one, is
Speaker 1: it actually possible for a bitcoin miner to be environmentally
Speaker 1: friendly and to our folks eventually going to run out
Speaker 1: of states to kind of go to. So Mason, I'd
Speaker 1: like you to tackle the state's question, which is outside
Speaker 1: of the Texas is the Kentucky's, the Oklahoma is like
Speaker 1: who else might emerge as a hub for bitcoin miners.
Speaker 1: It's a great question. And Kentucky is actually the only
Speaker 1: state in the United States that has a House and
Speaker 1: Senate built passed to incentivized miners to mine there. My
Speaker 1: company is working close with West Virginia UM and they're
Speaker 1: looking to push policy and incentives to lure miners there.
Speaker 1: And so you see, if there's a lot of states
Speaker 1: that have you know, there were coal states that they
Speaker 1: had large manufacturing plants, like West Virginia, that have all
Speaker 1: these unused infrastructure assets that can be repurposed for miners.
Speaker 1: I think we'll see states push back the New York
Speaker 1: there's some counties in the state of Washington that are
Speaker 1: putting moratoriums against you know, certain counties to push out miners.
Speaker 1: A lot of miners are flocking to the cheapest center
Speaker 1: g right. So when you have really strong grids and
Speaker 1: you have the ability to produce energy, whether it's a
Speaker 1: nuclear plan or in Texas, a lot of it's you know,
Speaker 1: natural gas and wind or solar um. If that's present,
Speaker 1: then you're gonna have cheaper energy. Of cost associated with
Speaker 1: mining is energy. So California is just out of the
Speaker 1: question because it's so expensive and the largest nuclear plan
Speaker 1: almost just went under there. You know, I can't imagine
Speaker 1: the repercussions if that took place. So I'd say that,
Speaker 1: you know, the Midwest seems to be a good place
Speaker 1: to be and they're they're looking to attract and including Texas. UM.
Speaker 1: Other than that, you know, it's it's you know, wherever
Speaker 1: you can find the cheaper't energy. Oh one thing I
Speaker 1: missed two is Pennsylvania. There's a lot of miners that
Speaker 1: are setting up shop in Pennsylvania. Pennsylvania was really heavily
Speaker 1: reliant on natural gas, and we saw the spikes from
Speaker 1: the trade wars between China of natural gas price. So
Speaker 1: it's that finally started taper down. So if that goes
Speaker 1: down a little bit, I think that that will be
Speaker 1: another really Emergencetate and David, are there other types of
Speaker 1: initiatives that might help address some of the criticisms that
Speaker 1: you hear from folks like the ones in New York.
Speaker 1: I think one of the possible solutions will be trying
Speaker 1: to find more renewable energy sources like hydro power. Back
Speaker 1: in the days when China was still allowing bitcoin mining,
Speaker 1: actually especially in the rainy season in the summer, like
Speaker 1: the majority of the energy sources for bitcoin mining it
Speaker 1: was hydro like, you know, like a small bitcoin mining
Speaker 1: size built along the river bank of you know, in
Speaker 1: South China. And then I think one of the transverse
Speaker 1: thing is like there's early rich hydro power in South
Speaker 1: America right now, in Paraguay and even in Argentina and
Speaker 1: in Brazil they are massive, massive dams that generate a
Speaker 1: lot of electricity. Some of these bitcoin mining farms they
Speaker 1: are located close to the dams and similar model to
Speaker 1: what the Chinese miners had been doing back in the days. Mason,
Speaker 1: if someone were listening to this podcast on the off chains,
Speaker 1: I'm thinking, oh, maybe I should get into bitcoin mining.
Speaker 1: What what's your number one piece of advice for them?
Speaker 1: Number one piece of advice right now, I would first off,
Speaker 1: go to a location that has low cost energy um
Speaker 1: and tied directly to number one is political risk. You
Speaker 1: know that existential risk that if your state or your
Speaker 1: country pushes out a moratorium or bands mining as we've
Speaker 1: seen happen not just in China, It's happened in Sweden
Speaker 1: and Norway in different counties. It puts you out of business, right,
Speaker 1: so you need to focus on cheap energy tied with
Speaker 1: good politics. And as long as you have that, you know,
Speaker 1: the rest is prevalence. You can find your miners, you
Speaker 1: can find the infrastructure you need at you know, pays
Speaker 1: on the dollar. And David, just as a closing note,
Speaker 1: what are some of the trends you expect to be reporting. One,
Speaker 1: I don't want to tap off my competitors, uh, but
Speaker 1: we will continue to will continue to monitor all the
Speaker 1: dead that the miners have. And also you know, as
Speaker 1: we get close to the halving, like we really need
Speaker 1: to re exam the implications of that event because that
Speaker 1: will cut minor revenue for miners in half, you know,
Speaker 1: very short period of time. So like we need to
Speaker 1: re exam the implications of data as well. Right, thank
Speaker 1: you both for coming on the show. Thanks a lot.
Speaker 1: Thank you. That was mess and Joppa, CEO and founder
Speaker 1: of Blockwear Solutions, and Bloomberg reporter David Patton. You can
Speaker 1: find more of David's reporting on the Bloomberg Terminal and
Speaker 1: on Bloomberg dot com. And for more, be sure to
Speaker 1: check out our twice weekly newsletter, which is also called
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Speaker 1: The supervising producer of Bloomberg Crypto is Vicky Vergelina. Our
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Speaker 1: Moses on Them. Desta wonder At is our engineer. Original
Speaker 1: music by Leo Sidron. I'm Stacy Marie Schmal. We'll be
Speaker 1: back tomorrow