Speaker 1: This is Bloomberg Crypto, a dearly Bloomberg I heard podcast,
Speaker 1: and I'm Stacy Marie Ishmael, Managing editor of Crypto for
Speaker 1: Bloomberg News. It's Friday, September nine. As crypto prices hover
Speaker 1: well below their all time highs, the companies that mind
Speaker 1: bitcoin are starting to show signs of financial strain. Second
Speaker 1: quarter earnings reports show that some of the largest US
Speaker 1: publicly traded bitcoin mining companies have had over a billion
Speaker 1: dollars and losses. These are companies like Core Scientific and
Speaker 1: Marathon Digital Holdings, which each reported net losses of more
Speaker 1: than a hundred million dollars. To discuss what's driving this distress,
Speaker 1: I'm joined by Bloomberg Reports of David pan they basically
Speaker 1: tribute coin as a commodity, and by Amanda Fabiano. The
Speaker 1: energy narrative around bitcoin has always been a thorn in
Speaker 1: our side. Amanda is the head of mining a Galaxy. Welcome. So, Amanda,
Speaker 1: I'd love to start with you. You know, tell us
Speaker 1: a little bit about your role at Galaxy. What does
Speaker 1: a head of mining do at a company like Galaxy? Yeah,
Speaker 1: you know, one day is not the same as the last.
Speaker 1: I can say that mining is a really interesting space
Speaker 1: to operate in every single day. UM, and I definitely
Speaker 1: am not bored at any point. Our mining business has
Speaker 1: two main focuses. We mind bitcoin, and then we also
Speaker 1: create financial services for miners. So we leverage, you know,
Speaker 1: all of galaxy to connect bitcoin miners to different products
Speaker 1: that could help them grow and scale their business because
Speaker 1: it's a capital intensive business, right, and miners consistently need
Speaker 1: ways to think about treasury management and additional capital and
Speaker 1: leveraging what they have right to get more capital. So
Speaker 1: you know, we're really committed to providing bitcoin miners with
Speaker 1: a comprehensive suite of financial services that really fit their needs.
Speaker 1: When you talk about the capital intensive nature of mining,
Speaker 1: can you say a little bit more about that? So
Speaker 1: somebody who has perhaps only encountered in theory how bitcoin
Speaker 1: mining works, what are the specifics of what you're described? Sure? So, UM,
Speaker 1: mining requires a location. The location requires construction build out right,
Speaker 1: finding a location that has low source of power. You're
Speaker 1: building out either you know, energy infrastructure, a substation, renting
Speaker 1: energy infrastructure. All that costs a lot of money. And
Speaker 1: then on top of it, you're adding these specialized computers
Speaker 1: to mind bitcoin and the way that you purchase them
Speaker 1: is really on like a forward basis, right, So you
Speaker 1: put down a deposit, you're to put down another deposit,
Speaker 1: and you're paid for the machine before it even arrives,
Speaker 1: So you're not getting any revenue before you have to
Speaker 1: pay for for that asset. So you know, it does
Speaker 1: require a lot of upfront capital and so mine is
Speaker 1: constantly looking at how can they leverage what they have
Speaker 1: um to continue to get capital to build in scale.
Speaker 1: And when you say leverage what they have, you know,
Speaker 1: one of the biggest assets is of course or potentially
Speaker 1: like the bitcoin itself that they are mining. Yep. It's
Speaker 1: interesting when you think about what they have. They have
Speaker 1: physical assets, right, like they have a land, right, they
Speaker 1: have electricity infrastructure, they have these machines, and then they
Speaker 1: have bitcoin that they produce. You know, hedging has not
Speaker 1: been something that miners have been focusing on, but miners
Speaker 1: can hedge so much. They can hedge that bitcoin, they
Speaker 1: can hedge their energy, and they can also hedge the
Speaker 1: hash rate that they're producing as part of their overall
Speaker 1: plan um. So you know, there's lots of ways that
Speaker 1: are not being drawn on yet that miners could potentially
Speaker 1: work with to make the most of the situation that
Speaker 1: they're in, especially as capital markets have really started to
Speaker 1: wind down to this specific space now, things like electricity hedging,
Speaker 1: you know, power market hedging generally, many companies for many
Speaker 1: years have been become extremely sophisticated at this. But you know, David,
Speaker 1: I remember a conversation that we had that and you know,
Speaker 1: to the point that demand is making this is like
Speaker 1: a relatively new skill for bitcoin miners, and in some
Speaker 1: cases they've been surprised by just how extreme the temperatures
Speaker 1: have been in some of the places that they're operating,
Speaker 1: like Texas or like the spikes in electricity. So what
Speaker 1: are you observing here in terms of how they're developing.
Speaker 1: You know, that hedging capability that Amanda has described, I
Speaker 1: think for bitcoin miners it is still a frontier for them,
Speaker 1: Like it's kind of like a process into making right now. Still,
Speaker 1: as Amanda said, a lot of the bitcoin miners they
Speaker 1: were not hedging. So that's why we're seeing a very
Speaker 1: terrible earning season in general for all of these crypto
Speaker 1: mining companies in the second quarter this year. Um But
Speaker 1: one of the ways they're looking into is to hatch
Speaker 1: the power they're going to use for for the mining operations.
Speaker 1: As we have discussed before, right blockchain. Um, you know
Speaker 1: they have. They have made some like millions of dollars
Speaker 1: from the power grid in Texas and earning in power credits. UM.
Speaker 1: I guess like one of the ways is just like
Speaker 1: to negotiated a really good deal with a power broker
Speaker 1: where like with the supplier from the grid and to
Speaker 1: kind of like hatch against the fluctuations in energy prices. Imanna,
Speaker 1: I want to go back, go ahead amount it. Sorry,
Speaker 1: I was just gonna say, David, I totally agree. I
Speaker 1: think what Riot has done has been a really unique
Speaker 1: way to think about power markets, and it feeds into
Speaker 1: the narrative that we've been saying for so long a
Speaker 1: bitcoin mining right. Miners are good for the grid. They
Speaker 1: provide you know, an optionality to stay on in mind
Speaker 1: bitcoin when it works for them, and they also can
Speaker 1: turn off quickly and provide energy back to the grid
Speaker 1: when the grid needs it most. And they are making
Speaker 1: money either way, right, so it's economical for them to
Speaker 1: sell power back to the grid, They're going to do that, right,
Speaker 1: And if it's economical for them to mind bitcoin, they're
Speaker 1: going to do that. So I feel like, you know,
Speaker 1: the energy narrative around bitcoin has always been a thorn
Speaker 1: in our side and riots um, what Right has done
Speaker 1: has provided a real use case for how it could
Speaker 1: really work well with the grid, like miners in general
Speaker 1: can really work well with the grid. I want to
Speaker 1: also ask a question about the counterintuitive nature of miners
Speaker 1: started to sell bitcoin when bitcoin prices went down. So
Speaker 1: it's like you would have expected some sales at sixty
Speaker 1: five K, fifty five K, forty five k, instead we
Speaker 1: hit twenty five and everybody's like, now seems like a
Speaker 1: good time to sell. And you've had a similar issue
Speaker 1: where as the crisis of riggs declines, they're also selling
Speaker 1: those in an attempt to you know, generate additional cash
Speaker 1: flu That does not seem sustainable to me as a
Speaker 1: as a strategy. Yeah, it's unfortunate for sure. I think
Speaker 1: that there's kind of like the perfect combination of all
Speaker 1: bad things happening for miners right now. Right so, you know,
Speaker 1: there's not a ton of options available for minors. So
Speaker 1: they got to a place, it seems like where it's
Speaker 1: like we have to sell our treasury in order to survive.
Speaker 1: I think it also boils down to the fundamental strategies
Speaker 1: for between different mining companies. Some of the companies they
Speaker 1: do sell like you know, over the course of you know,
Speaker 1: from starting their business in as early as nineteen, so
Speaker 1: they basically tribute coin as a commodity like a gold
Speaker 1: mining company, you know, like when they when they mind
Speaker 1: certain amount of bitcoin, they will sell a portion of
Speaker 1: that to replenish their cash flow on also just to
Speaker 1: capture some of the high prices along the way. Yeah,
Speaker 1: I think that, you know, it's funny when it's a
Speaker 1: bear market, the people that sell bitcoin look like geniuses,
Speaker 1: and when it's a bull market, the people that hoold
Speaker 1: look like genius. It's right, and I think there needs
Speaker 1: to be a strategy for both of that. Also, David,
Speaker 1: to your point, like I think, you know, Core is
Speaker 1: a great example of that. They also have additional revenue streams, right,
Speaker 1: They're a large posting provider, so they are consistently getting
Speaker 1: cash on the door beyond just bitcoin, whereas you know,
Speaker 1: some of the pure Plaine miners only have you know,
Speaker 1: the bitcoin coming in as revenue. I would say, you know,
Speaker 1: the Hoddle strategy. My perception of it is the ones
Speaker 1: who did that over the last bull bear market were
Speaker 1: the ones that really were able to survive. And I
Speaker 1: think that kind of stuck with some of the miners,
Speaker 1: right like they were like, okay, let's look at for example,
Speaker 1: how to eight Right they did they were able to
Speaker 1: survive the last bull bear market, and they have the
Speaker 1: largest Hoddle strategy that exists. And so I think that others,
Speaker 1: you know, newer miners that came up over the last market,
Speaker 1: it looked to who existed over the last year and
Speaker 1: what was their strategy. I think what I'd love to
Speaker 1: see is that shift so that each miner has their
Speaker 1: own individual treasury management strategy that is extremely comprehensive that
Speaker 1: might reduce their margins, but also like might make them consistent.
Speaker 1: And that's I think what we need in order for
Speaker 1: this market to mature. Right now, all miners trend with
Speaker 1: the price of bitcoin up. Next. More from David Pan
Speaker 1: and Amanda Fabiano on how bitcoin miners are navigating falling
Speaker 1: crypto prices and rising energy costs. Manda, David, this is
Speaker 1: a question for both of you, because I'm interested in
Speaker 1: how you're each going to calm at it. So one
Speaker 1: of the bigger stories in you know, crypto more broadly
Speaker 1: is of course the Ethereum merge, which is expected yet
Speaker 1: again but for sure this time um to be happening
Speaker 1: in you know, just not too long from now, and
Speaker 1: that's had some interesting effects on bitcoin miners. It has
Speaker 1: made their rigs cheaper because you know, folks are starting
Speaker 1: to switch away from needing proof of work machines into
Speaker 1: you know, the different strategies for the merger for Ether
Speaker 1: and Ethereum in the future. But it's also complexified the
Speaker 1: environmental considerations here where you know, we've talked on this
Speaker 1: podcast about certain types of investors who really need that
Speaker 1: like e s G. Stamp of approval, may be interested
Speaker 1: in switching away some of their investments from bitcoin miners
Speaker 1: into other parts of the market. So, Amanda, I'd love
Speaker 1: to just get your perspective on how, if at all,
Speaker 1: you are kind of talking through or you know, what
Speaker 1: kinds of conversations you're having about this as it relates
Speaker 1: to your projections for six, twelve and eighteen months. Yeah. Look,
Speaker 1: I think that there's a world that exists where proof
Speaker 1: of stake and exists, right, and and that's totally fine.
Speaker 1: It's fundamentally different than proof of work, right, so where
Speaker 1: I think comparing them apples to apples is just not realistic.
Speaker 1: What bitcoin did was create this incredible consensus mechanism that
Speaker 1: doesn't have a point of failure. Right. It is completely distributed.
Speaker 1: It's a distributed network. Like you opt in, it's proof
Speaker 1: of work. You have to do the work right in
Speaker 1: order to get you know, the reward. Um. I think
Speaker 1: when we think about belittling Bitcoin down to its energy usage,
Speaker 1: I question, you know, what is the motives behind that?
Speaker 1: And why is that a massive a massive question? Right?
Speaker 1: Like do we do that with other industries? Do we
Speaker 1: wonder like how much you know, energy is spent on
Speaker 1: you know, washer and dryers? Right? Do we think about
Speaker 1: how much energy is spent on maintaining the current financial
Speaker 1: system that is not as inclusive as bitcoin is. If
Speaker 1: we pale back like bitcoin miners, what they're looking for
Speaker 1: is cheap energy in order to you know, beyond the
Speaker 1: low end of the cost curve, and that eventually will
Speaker 1: shift to you know, clean forms of renew of energy. Um,
Speaker 1: maybe nuclear right? Um? So I think that you know,
Speaker 1: mining is an E S G investment, It just is, right,
Speaker 1: I think that Howard. Part is this people don't want
Speaker 1: to do the homework to understand why. Well, I think
Speaker 1: to your point about do we do that for washer dryers.
Speaker 1: I mean, one of the big developments over the past
Speaker 1: couple of decades was this idea of like energy Star
Speaker 1: compliance and you know, like how efficient is your fridge
Speaker 1: or you know, to your point about our folks asking
Speaker 1: these questions about financial services, I mean, if you look
Speaker 1: at some of the the activist investors in the positions
Speaker 1: that they're taking about wanting folks to divest from certain
Speaker 1: kinds of things, I mean, this is certainly a conversation
Speaker 1: that is happening across anything that you could analyze with tickers.
Speaker 1: Somebody out there has a position that like X y
Speaker 1: z is insufficiently green in a context of climate change.
Speaker 1: It does seem like bitcoin gets a lot of this
Speaker 1: attention because it is one I would say new were
Speaker 1: as it relates to all of those other things. People
Speaker 1: are used to having washing machines, they're a little bit
Speaker 1: less used to having bitcoin miners in existence in Texas, uh,
Speaker 1: and to it's a very visible industry as it relates
Speaker 1: to financial services, right, like crypto had a lot more
Speaker 1: literal advertising than your sort of your average money market
Speaker 1: fund UM over the past couple of years, which brings
Speaker 1: me to you, David. One of the you know, the
Speaker 1: opportunities for bitcoin miners is absolutely what Amanda mentioned in
Speaker 1: terms of diversifying away from relying on like fossil fuels
Speaker 1: or you know, in kind of a semi diversified way,
Speaker 1: like they're using like waste energy in the way that
Speaker 1: they are in Texas with flares that would otherwise just
Speaker 1: have you know, gas flaring. What are the real prospects
Speaker 1: from your seeing from what you're reporting in people's ability
Speaker 1: to start making that switch to say wind power for instance.
Speaker 1: I think there are a couple of things that we
Speaker 1: have to consider. Firstly, I think, um it is like
Speaker 1: a relatively hard to find renewable energy sources UM, not
Speaker 1: only for bitcoin miners but also for any energy intensive
Speaker 1: businesses UM, just because natural gas is very readily available
Speaker 1: across the US, and UM it's easier to control, you know,
Speaker 1: can you can throttle up and throw or throtle down
Speaker 1: the harder to control the wind, Yeah, harder to control
Speaker 1: wind and solar. But I would say like a one
Speaker 1: incentive from the energy side is that a lot of
Speaker 1: the renewable energy companies, UM, they have a tough financial situation.
Speaker 1: Based on some of the conversations that I had with
Speaker 1: the bitcoin miners, they say, like some renewable energy companies
Speaker 1: would reach out because like Talent is one of the examples,
Speaker 1: Like it went bankrupt and then it had a really
Speaker 1: heavy focused on renewable energy. They had a partnership with
Speaker 1: with bitcoin mining companies. UM. I mean generally, I think
Speaker 1: like some of these renewable energy focused companies, they are
Speaker 1: incentivized to find more diversified a new revenue streams. One
Speaker 1: of them will be a bitcoin mining businesses. Amount of
Speaker 1: just a closing question for you. You know, you've talked
Speaker 1: about the importance of folks who are interested in this
Speaker 1: sector to do a little bit more homework, so like
Speaker 1: to really understand that the fundamentals given the people don't
Speaker 1: always do the entire assignments. If you could tell them
Speaker 1: one thing that they should be doing, what that What
Speaker 1: would that one thing be? Oh, man, I think I
Speaker 1: might be too demanding to name one. I have like
Speaker 1: a list of dirty in my head, Like I think
Speaker 1: that I would say, like meet with people in the space,
Speaker 1: understand their intentions and like that miners are great businesses
Speaker 1: to invest in, especially right now in a bear market. Um,
Speaker 1: and you know, there is no bitcoin without bitcoin miners,
Speaker 1: so it's like it's a great part of the industry
Speaker 1: to get to know and learn about. And David, I
Speaker 1: think if you're bitcoin mining stock investor, you should just
Speaker 1: really look into what exactly the companies are doing, rather
Speaker 1: than regard the whole like every single mining stock as
Speaker 1: like a monolistic asset, Like you should just look into
Speaker 1: the fundamentals of these companies because like each bitcoin mining
Speaker 1: company has like a vastly different strategy, even for right
Speaker 1: on the marathon, they have very very different strategies in
Speaker 1: terms of how to develop their mining operations and earning bitcoin.
Speaker 1: So my one piece of advice is just do some
Speaker 1: research on the stock that you're investing in, and do
Speaker 1: not think bitcoin mining stocks as one chunk of monolitht Yeah,
Speaker 1: on that we all agree. Um well, thank you both
Speaker 1: so much, David, A pleasure to have you as always, Amanda,
Speaker 1: thank you so much for joining us. You can find
Speaker 1: more of David's reporting on the Bloomberg Terminal on Bloomberg
Speaker 1: dot com or follow him on Twitter. He's at David
Speaker 1: Pan underscore one on the next episode of Bloomberg Crypto.
Speaker 1: If you ask crypto enthusiasts why they believe in the
Speaker 1: asset class, there's at least one response that you're going
Speaker 1: to hear, and it's about privacy and resistance to government censorship.
Speaker 1: But what's happening to Tornado Cash, which is an application
Speaker 1: designed to offer both privacy and resistance to government censorship,
Speaker 1: is proving to be a real stress test for the ecosystem.
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Speaker 1: Leo Sidran. I'm Stacy, Marie Ishmael. Have a great weekend.