I hosted a conference on bitcoin mining yesterday. Speakers included CEOs and leaders of the most successful mining companies in the industry. (view recording here)
The conversations were packed with insights and I learned a lot. Below you will find my notes on each conversation, along with takeaways on bitcoin mining, regulation, power grids, hash rate, and where the industry is going over the coming 2-3 years.
Bitcoin mining is a core component of the bitcoin industry — I hope this event and these notes are helpful as you learn more about the infrastructure behind the digital currency.
Speaker #1 - Daniel Roberts, Co-Founder & Co-CEO of Iris Energy (website)
Iris Energy has used 100% renewable energy to mine bitcoin since day one, and they’ve only entered markets where the introduction of their load solves energy market problems.
The Fourth Industrial Revolution, which we’re already in, creates an exponential demand for energy-intensive computing power. The largest chokepoint is building enough infrastructure in a socially-acceptable manner to deliver services into the digital and exponential world that has begun to take off.
When I asked Daniel to explain how much they consider regulation as part of their site selection process, Daniel responded with their philosophy, “We just try to step back, and eventually, the truth wins. If you fundamentally are delivering good services, you're rehiring workers in local communities, and you're genuinely delivering benefits into an energy market, then just deal with the noise, block it out, address the fundamentals, educate people, and do the right thing.”
Speaker #2 - Jaime Leverton, CEO of Hut8 (website)
Hut8 follows a more diversified strategy than many of the bitcoin miners that only focus on mining bitcoin. Why? Hut8 was one of the first bitcoin miners to go public in 2018, and they had a very difficult time during that bear market. When they brought Jaime in as CEO in 2020, they did so because they wanted someone with a background in traditional compute that could diversify the business in order to be better positioned for a bear market. They did this by purchasing a high-performance computing business and building out fiat-based revenue streams aimed at dampening the bitcoin mining-related volatility outside of the company’s control.
There are massive differences in the approach required for a bitcoin mining operation and a traditional data center. Traditional data centers require a stable base load running 24/7 with things like dual power feeds, high security, and multiple generators to ensure no downtime. Bitcoin mines, on the other hand, have a flexible workload with no customer data being protected, so they are much more straightforward. A traditional bitcoin mine costs $300,000 to $800,000 per megawatt, while a traditional data center could be anywhere between $8 million and $13 million per megawatt.
This most recent bear market has been particularly challenging for bitcoin miners. The energy crisis, combined with a low bitcoin price, and a constantly rising global hash rate created a sort of perfect storm for bitcoin miners. Because Hut8 shored up its balance sheet during the bull market, they’ve been able to take advantage of good opportunities during the bear market.
Jaime thinks that as an industry one of the areas that needs the most focus is education and breaking down a lot of the misunderstanding that surrounds bitcoin mining. This will drive more conversations that lead to thoughtful regulation and allow bitcoin miners to partner with grids and communities in a way that benefits all parties.
After spending 20+ years in the traditional technology world, Jaime has been most surprised by how supportive and collaborative the entire community is. Unlike many of the large public companies she previously worked at, she feels that all of the companies in the bitcoin mining space know each other and are broadly trying to do what’s in the best interest of the industry.
Speaker #3 - Harry Sudock, Chief Strategy Officer of GRIID (website)
The GRIID team believes that money and energy are foundational infrastructure layers to a functioning society and a functioning economy, which is why they decide to focus their company on “infrastructure” rather than only “bitcoin.”
Bitcoin mining is still not very big in the context of our current power systems. A bitcoin mining operation will consume somewhere between 25 to 500 megawatts, while the large-scale providers of electricity in the US are generating in the 30,000 to 50,000-megawatt range. Harry currently sees bitcoin revenue streams as being a linchpin that may allow a project to get greenlit, but he thinks we’re still quite a ways out from bitcoin having a large influence on how major grids are structured.
Harry believes that bitcoin miner revenue today is a small fraction of what it’ll eventually become in the future. Why? Because he thinks people don’t have a clear appreciation yet for how quickly the compounding clock starts on the high-value, low-cost, high-flexibility electricity contracts we see in the bitcoin mining industry and the transformative role these types of business models can play in larger systems.
A power plant combined with a bitcoin mine creates abundance across three vectors:
1) Utilization goes way up - The monetized hours goes above 97%
2) The cost to operate goes significantly down - The unit economics of each megawatt hour improves drastically because you’re able to run the plant much cleaner since there is no longer a need for maintenance and spinning up and down based on demand.
3) Terminal value increases - Every additional useful life year you tack on to the back end of an asset's useful life has free cash flow associated with it and a multiple that gets applied to it.
Speaker #4 - Jason Les, CEO of RIOT (website)
Jason believes hash rate will only continue to grow over the coming years. Hash rate from China has come back online or been relocated. He does not believe China has zero hash rate today. The economic incentive is too strong.
Public miners have access to US capital markets which has been a large driver in the increase in hash rate. There are investment bankers who cater specifically to bitcoin miners and RIOT has found it easy to get equity capital since they have a highly liquid stock.
The general growth of bitcoin has driven more awareness, which leads to entrepreneurs around the world looking for cheap energy to convert into bitcoin.
The United States could capture more than 50% of hash rate in the future. Jason does not believe this would be a problem because if the US ever became hostile, similar to what China did, the hash rate would pick up and move elsewhere.
RIOT’s main goal is to mine as much bitcoin as possible, at the lowest cost possible. They believe it is essential to have efficient machines and low cost power to successfully achieve this goal. They are not focused on any other high performance computational tasks. Bitcoin only. They have approximately 3-4% of global hash rate and are likely the largest miner in the world.
RIOT has pursued a vertically integrated strategy – they want to own as much of their supply chain as possible, including an electrical manufacturing company.
RIOT believes consuming power is not a bad thing. They see more energy consumption as a clear signal of human flourishing. A lot of energy is wasted throughout the world and bitcoin mining, which helps to stabilize electricity grids, is a net positive. You can think of bitcoin mining as an energy battery — it consumes power when there is surplus and delivers power back to the grid when there is an energy deficit.
Recent regulatory situation does not directly affect the RIOT business, but indirectly it has made bank relationships tougher. There are also negative impacts on the public policy front due to the recent regulatory crackdown.
Speaker #5 - Matt Lohstroh, co-founder of Giga Energy (website)
Giga monetizes wasted energy in the oil field by capturing stranded gas to power energy-intensive computing. Giga also sells high-quality bitcoin mining infrastructure such as containers, generators, ASICs, and electrical equipment.
Bitcoin miners who build on-grid have a long lead time and big capital expense. Giga tries to shorten the time frame and reduce the capital required by building within 50 feet of the oil well, using smaller infrastructure, and being off-grid.
Capturing gas flare is reducing CO2 emissions. It is incredibly bad for humans to live next to these gas flares, so Giga is improving the lives of these individuals and creating a better environment through their work.
Most power producers that Giga works with try to hold the bitcoin after it has been mined, but the economics of mining force them to sell when price is drawing down.
Matt believes most people miss how important the economics of equipment can be in mining. He says that you make your money “on the buy.” It is essential to be disciplined when deciding when to allocate capital to this hardware. Giga works hard to “future-proof” their hardware as much as possible, but this is a moving target.
Giga sells their hardware and mining equipment to everyone from one-off buyers to large public companies. The diversity of customers speaks to the various applications for bitcoin mining and the various economic benefits that can be delivered to power producers.
Matt predicts there will be a lot of consolidation in the bitcoin mining space over the coming years. The economics of the industry, combined with the macro environment, lends itself to efficiency and executives understand they could be stronger together. He does not see the cyclical nature of bitcoin mining changing any time soon.
Speaker #6 - Fred Thiel, CEO of Marathon Digital Holdings (website)
Marathon Digital Holdings is one of the largest, most energy efficient, and most technologically advanced Bitcoin mining companies, as well as one of the largest holders of Bitcoin among publicly traded companies in North America.
Marathon believes strongly in a vertically integrated technology stack. Just as Apple owns everything from the silicon in their iPhone to the distribution channels, Marathon owns everything from their mining pool to their custom firmware and operating system.
Fred believes it is essential that US manufacturers exist for bitcoin mining hardware. Bitmain makes great products, but they have nearly 70% market share. Marathon is actively trying to help the industry diversify on the manufacturing front.
Marathon is actively looking for geographic diversification. They have large sites in Texas, just as many others do, but the company also has sites in North Dakota and the UAE. The UAE site was built via a partnership with a sovereign wealth fund that helps them ensure stability in infrastructure, power prices, and other inputs. After the UAE site, Marathon is now receiving inbound interest from other Middle Eastern countries.
Fred sees nuclear power as a viable option for power generation on bitcoin mining sites. It is hard to see this happening in North America due to the public narrative and regulation, but using small nuclear reactors are a great option elsewhere. These small nuclear reactors solve a key problem in energy infrastructure — we lack good coverage of transmission lines.
Marathon is looking at landfill sites where they can take methane gas waste and turn it into bitcoin. This is similar to Giga’s approach to gas flare capture, but it comes from a different source in the landfill site.
There are projects being built from scratch specific to bitcoin mining. This type of “behind-the-meter” approach allows for customization that increases efficiency and low cost production of bitcoin. Think of a renewable site that is built from the ground-up specific for bitcoin mining.
One of Marathon’s big advantages is they have been investing in automation technology so they can reduce the number of humans that need to be on-site. The less people on site, the lower the cost of producing bitcoin. Marathon is one of the largest bitcoin miners in the world but they have less than 50 employees at the business. Reducing SG&A is a key component of their strategy.
As I mentioned at the start of this letter, I learned so much about bitcoin mining yesterday. The speakers did a fantastic job describing their businesses, their differentiated approaches, and their outlooks on the industry for the coming years.
Bitcoin mining will continue to become a bigger topic in public market investing, along with a continued essential part of bitcoin’s rise to global adoption. The digital currency is built on the strongest computer network in the world and miners are a key piece of that.
I want to thank the sponsors of the conference — Marathon Digital Holdings and Iris Energy. You can read more about each of them below. Hopefully you found today’s notes helpful. I will talk to everyone tomorrow.
Thank you to our sponsors for the bitcoin mining conference…
🚨 Iris Energy 🚨
Iris Energy is the largest Nasdaq-listed Bitcoin miner who has used 100% renewable energy since inception. Iris Energy targets markets with low-cost, excess renewable energy, builds and operates its own proprietary data centers, and is led by a seasoned management team with a track record of success across infrastructure, renewables, and digital assets. If you want to learn more, click here.
🚨 Marathon Digital Holdings 🚨
Marathon Digital Holdings is one of the largest, most energy-efficient, and most technologically advanced Bitcoin mining companies. Marathon is also one of the largest holders of Bitcoin among publicly traded companies in North America. They differentiate by investing in the most advanced technologies and leveraging innovative technologies to convert energy into economic value while helping keep Bitcoin’s ledger up to date and secure, one block at a time. If you’re interested in collaborating, funding, mentorship, or strategic partnerships, click here to contact the Marathon team.
Watch the full recording of the bitcoin mining conference
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