Fred Thiel Interview - Sovereign Wealth Funds Investing in Bitcoin & Bitcoin Mining

Fred Thiel is the CEO of Marathon Digital Holdings, a publicly traded Bitcoin mining company. In this interview we discuss:

• What’s new with Marathon’s Bitcoin mining operations
• Expanding mining to Abu Dhabi
• Working with a Sovereign Wealth Fund
• Institutional investors such as BlackRock, Fidelity, Franklin Templeton filing for Bitcoin Spot ETF
• When we may see a Bitcoin Spot ETF Approval
• The upcoming Bitcoin Halving in 2024

Transcript:

• Welcome back to the Thinking Crypto podcast, your home for cryptocurrency news and interviews. With me today is Fred Thiel, who is the CEO of Marathon Digital Holdings. Fred, it’s great to have you back on the show.
• Great to be here.
• Fred we last spoke about two years ago. I’m excited to hear the latest updates around Marathon Digital. I’m excited about the boom in Bitcoin mining in the United States, and Marathon is certainly one of the leading miners. Tell us what’s new with Marathon?
• Well, you know, compared to two years ago, we’ve grown a lot. We’re now with, you know, over 23x a hash of installed capacity, about 19x a hash operating, just waiting to turn on our Garden City site, which should be any day here. And you know, we’ve also expanded internationally, so we now have 250 megawatt installation in Abu Dhabi, 50 megawatts of which is up and operational. That’s all immersion. It’s the first site that we’ve designed, spec built, and, you know, operate ourselves fully. So that’s, you know, very unique conditions. It’s, you know, middle of the desert and next to the Arabian Gulf, so it’s, or the Persian Gulf. So it’s very hot, very humid conditions. But you know, we do this, we have this great relationship with the local grid operators that allows them to balance the grid using our Bitcoin mining, which they love at the moment, which is great. And that site should be fully operational by the end of this year. And then we’ve recently announced some additional machine orders, so we’ll be growing our capacity to around 30x a hash in the near to mid future. So we’re very happy with that. Another thing we announced a week ago that we were going to essentially redeem about $417 million worth of our debt for equity, which will put our balance sheet in a really strong place. We’ll end up with a little over $300 million of debt with over 400 million dollars of liquidity between cash and Bitcoin. And coming into the halving, we think it’s really important to have a, you know, strong balance sheet with no short-term debt and position to take advantage of whatever opportunities arise.
• Yeah, that’s exciting. And I’m curious about the Abu Dhabi location. Was it more of a, let’s say, friendliness to Bitcoin mining in addition to, let’s say low energy costs, but also it seems in the Middle East there’s more opening up to crypto in general. What was kind of the strategy behind, you know, positioning yourselves there?
• So, you know, the core desire was a couple of things. One, balance the grid, because in the summertime they use four gigawatts of power in the winter, it’s only one gigawatt. So it’s a huge asymmetry in the power need. And they had just put online new five gigawatt nuclear power plant. And so they have this excess power. So what do you do when you have excess power? Well, you find a customer for it. And Bitcoin mining, obviously being an easy customer to use because we have the ability to be an interruptible load, which for their needs is perfect because in the summer, they don’t need four gigawatts all day long. They only need it in certain times of the afternoon and evening. And so where initially they were gonna consider longer curtailment periods, they’re actually doing it in very short increments now. It’s working so well that they’re looking to automate that whole process, which will be great because you know, when, you know we’re ready for that automation. And it was super exciting for us. It was the opportunity to work with a sovereign, obviously. Our core partner there is the sovereign wealth fund and you know, they invested a lot of their own capital into this project, which is core sign of faith and confidence in what we were doing. And it’s worked out really well. It’s been a great relationship. We only signed the agreement in February and we were up and operational with the first 50 megawatts already by the end of July. So just goes to show how, you know, effective a good partnership can be when it works well.
• Absolutely. Now you mentioned the partner there is this sovereign wealth fund. Now there’s been a lot of talks about sovereign wealth funds, you know, investing in Bitcoin and other aspects of the crypto market. I’m curious, are they, as much as you can tell us, are they also holding Bitcoin physically? I know some folks are waiting for an ETF, but in addition to investing in like Bitcoin mining, like with your company, are they also holding Bitcoin?
• Well, yeah, I don’t know how they’re managing their treasury. I know we divide the Bitcoin based on ownership and then what they do with it is kind of their own business. But you know, if you think generally speaking sovereigns, especially ones who are commodity producers, you know, they have historically put their faith in US dollar based reserves, right? Whether that’s treasury bills, bonds, et cetera. And more recently because of the weaponization of the dollar and this whole kind of petrodollar issue that sort of really started being a problem after the 2014 Crimea crisis. And now more broadly with the Russia crisis, a lot of these commodity producers are afraid that their reserves are somehow gonna be blocked by the US Government and its allies in the event of some global conflict or trade conflict, whatever it might be. And you know, just looking at what the US has done to Russia, countries like China, you know, UAE, Saudi Arabia, et cetera, the BRICS, Brazil as well, obviously India, you know, are concerned about holding reserves in US dollar denominated assets because that’s potentially risky. So what have they been doing the central banks of these countries have been buying a lot of gold. They’re some of the biggest gold buyers in the world today, and they’re looking at Bitcoin. But the interesting thing is when they do look at Bitcoin and they do decide to invest in Bitcoin is, you know, if you are holding Bitcoin, but the only way you can trade it is by selling it on exchanges, which could potentially be boycotted by the government of the US and its allies, they then think, okay, well if I’m mining my own Bitcoin, not only am I producing Bitcoin, but more importantly I know that my transactions could get processed. But they also need to have their own pool to guarantee that. And so, you know, as you may have read recently, Marathon has, you know, developed its own technology stack. We now have everything from the pool through firmware down to, you know, immersion tanks and obviously the ASICs themselves through our investment in ORDI. And so this became very interesting for them because they could now mine Bitcoin, they could operate their own pool and they could be really self-sovereign over their own assets. So I think we’re gonna see a lot of other sovereigns looking to do the same thing, which is mine their own Bitcoin, operate their own pool, and essentially, you know, control their own, you know, keys so to say. We’re super excited about the opportunities to partner with other sovereigns, not just in the region, but outside of the region who have similar desires.
• That is fascinating. I did not realize that was something that was going on. Wow and it made me think about, you know, as you mentioned, the global macro factors and some folks moving away from using the dollar as a reserve currency and settlement of certain assets and commodities. And this seems like a trend, like you were saying, that could continue Bitcoin being that asset that no one controls and they can mine their own Bitcoin and have their own pool. That is very fascinating. And do you see potentially other countries and maybe central banks starting to do things like that?
• Yeah, I don’t know about central banks quite yet. I think over time, definitely, you know, any asset allocator is gonna look at Bitcoin as one of those things where when you look on a risk adjusted basis, whether it’s 10 years, nine years, eight years, seven years, et cetera, Bitcoin outperforms a lot of other alternatives. So if you want to have a portfolio model with diversification, an allocation of one or 2% to Bitcoin makes sense. I mean, what is the allocation most central banks have to gold, for example. And think about gold isn’t transportable, it isn’t fungible, doesn’t have any of the benefits that a digital currency like Bitcoin does. Plus the fact that Bitcoin is fully decentralized. No government controls it, you don’t have to worry about issues. For these BRICS countries who are trying to get off of the dollars or reserve currency in a trade currency, you know, the problem is does India wanna hold Chinese Yuan or Renminbi? I don’t know. Does the UAE wanna hold Indian rupees? I don’t know and same thing with Russian Rubles. So you know, Bitcoin provides kind of this neutral territory. It’s just that because there is a very limited supply, meaning it’s capped at 21 million, Bitcoin and there’s little liquidity available in the marketplace, the scale of the assets that sovereigns control kind of way overshadows Bitcoin. At $500-$600 billion of total market cap for Bitcoin, if you include all the Bitcoin that have been produced to date, you know, a sovereign who wants to go park $50 billion because they happen to have a $5 trillion, you know, set of assets in their overall portfolio, you know, that would have huge impact on the price of Bitcoin. And so I think, you know, what you’re seeing today is institutional investors, you know, whether it’s Fidelity, whether it’s BlackRock or you know, Franklin Templeton today just announced that they were gonna file for an ETF for Bitcoin, when these traditional institutional investors decide that they need to be able to provide their investors with exposure to Bitcoin through ETFs and realize that, you know, if you’re buying an ETF or you’re buying spot Bitcoin, there’s no difference to your exposure to Bitcoin. It’s spot bitcoin at the end of day. The difference though is that when you buy an ETF, you’re not worrying about custody. You’re not worrying about, you know, what the security is, et cetera. There is a unique little difference though, when you buy spot Bitcoin, you decide the price at which you’re buying. When you buy an ETF, it’s the price that that Bitcoin closed that day, which as Bitcoin trades 24/7, you know, each ETF is gonna have their kind of notional, what’s the price of Bitcoin at this time on this exchange somewhere? That’ll be their kind of model. But you may not get the benefit of any intraday volatility, right? So if you’re, you know, think about it this way, if you’re a retail investor and you wanna put a hundred dollars a month into Bitcoin, it doesn’t really matter. But if you’re gonna buy a million dollars worth of Bitcoin, yeah, Bitcoin can move 3-4% in a day. So if you can buy on a dip, and I mean timing is obviously impossible to be perfect at, but sophisticated traders could potentially, you know, set price targets. And so yeah, I think what the ETFs do is they broaden the market appetite for Bitcoin, they open it up to more people. You can now put Bitcoin into your 401 , your IRA. So retirement accounts are open to it. There are trillions of dollars in retirement accounts today. A 1% allocation to Bitcoin from retirement accounts would’ve a huge impact. So, you know, obviously optimistic about the impact of ETFs. I think the impact of the FASB accounting change, which is something most retail investors have no concept for, has a much bigger impact because this affects institutional investors and corporations. FASB is essentially the body that controls how accountants account for things They set the rules or the standards and they have now just approved unanimously that Bitcoin will no longer be treated as an intangible asset. Meaning you can only impair it, but it will be market to market just like equities or gold. So the advantage is, as an institutional investor and as a fund, you can now hold Bitcoin and its transparent what its value is. So every quarter when you report your numbers, you’ll either adjust the dollar value of your holdings to whatever the price of Bitcoin is at the time as opposed to an impairment. And for corporations, this is huge because if you think about Marathon, you know, we had to do a huge impairment over the course of 2022 as the price of Bitcoin kept dropping, right? And we can never mark that up. But now with these new rule changes, when they take effect, which I believe will be for next year, though there may be some early adopters that get a chance to do it before then, we’ll essentially every time we report our financial statements, we’ll either mark up our Bitcoin or mark it down in fiat dollar terms, depending on wherever it happens to be at the end of the period we’re reporting. So I think that is gonna open up the floodgates to corporations and institutions buying spot Bitcoin, which I think is gonna be great.
• Yeah, for sure. I know you mentioned BlackRock and you know, last year was tough for the market. You had our bear market cycle macroeconomic, obviously one could argue you’re in a recession and things are not great right now, but all of a sudden BlackRock said, we’re gonna file for a Bitcoin spot ETF, and then that line grew day after day and week after week. Do you believe we’ve hit a tipping point of institutional adoption of Bitcoin where, you know, in the past it was taboo in the past they were saying negative things about it. I mean, even Larry Fink himself back in 2017 and now they’re all trying to grab this asset in different ways and creating different products. What are your thoughts on that and do you see that trend continuing?
• So it’s a little bit like the first horse out of the gate is going to get the biggest benefit. Obviously if an unknown manager were to launch an ETF before BlackRock, I don’t think they would necessarily beat BlackRock. But you know, between BlackRock, Fidelity, Franklin Templeton and Van Eck, or all of these guys all very well-known, you’re gonna see billions of dollars go into these funds overnight. Because you know, you may very well see people sell spot Bitcoin that they hold and instead invest in these ETFs ’cause it’s just easier, you can do it in your brokerage account now, right? You don’t have to have a separate Coinbase account. I think the biggest impact is going to be to people like Coinbase and Gemini, the retail traders. You know, if you think about the number of people who hold less than one Bitcoin in their wallets and on exchanges, those are people who will likely prefer an ETF because the cost to trade is tiny. It’s, you know, something like 20 basis points, right? Whereas, you know, trading on an exchange, you know you’re gonna pay fees going in and coming out. So I think that’ll have an implication for the retail side of those funds, those companies. And that’s why I think you’re seeing Coinbase now come up with new businesses and do new and exciting things, but go back two years and you know, towards the middle end of ’21, we were all super optimistic about institutional adoption, then ’22 hit. So I’m cautiously optimistic. I think that between the decisions that the judicial branch has kind of handed down recently, clearly the overbearing, you know, overreaching regulatory regimes that have been kind of impacting the space are being checked. And I think that’s an improvement. But you know, you mentioned it, the macroeconomic environment is, I think what drives Bitcoin price. And this is something, I spoke on a panel yesterday at the HC Wainwright Conference and I was the sole contrarian in the room. You know, a lot of people say, “No, Bitcoin is gonna follow the same historical pattern it has in every cycle.” And you know, that’s true. But it’s not a cycle that necessarily correlates to or has causation in the halving. If you look at global liquidity, global liquidity cycles have followed Bitcoin’s trajectory very closely. And I think it’s going to happen again the same way, but global liquidity, right now, we’re entering a global liquidity crisis, right? And two money supply is declining and the Fed is tightening, they’re doing QT, they’re sucking money out of the system. High interest rates are sucking money away from things like Bitcoin. So until that changes and you know, will that be next year? Who knows? Hopefully, let’s see. But until that changes, I think Bitcoin is not gonna have this major bull run that everybody thinks is timed to the halving. So I just think it’s important for people to really understand that, you know, Bitcoin is the causation of Bitcoin’s price movements are supply and demand, and with the halving, there’ll be less supply. But at the end of the day, 900 Bitcoin a day or 450 bitcoin a day, is that really changing the demand dynamics now? So I don’t think the halving has a supply impact so much, but I do think global liquidity does. I do think that, you know, until the US dollar starts dropping, until interest rates start dropping in this country and until the Fed stops QT, you know, assets such as Bitcoin are going to have a few people chasing them. And so at the end of the day, you can have all the ETFs in the world, but if people don’t wanna put money into them to buy Bitcoin because they want Bitcoin, you won’t see a big price rise. So long-winded answer, but you know, I think it’s important for people to understand that.
• Yeah, absolutely appreciate that context and the details too. To your point, if someone is worried about inflation and paying their bills and so forth, they’re not gonna be thinking about investing, “Well I’m gonna put some money into a Bitcoin ETF,” you know, when they have this fear, right? And that the Fed is gonna keep raising rates and the price of bread or energy or gas, whatever is going up, it’s the last thing they’re thinking of. But maybe like you said, hopefully early 2024 or so, the Fed pauses. At some point they’re gonna start QE again. And like you said, the liquidity is gonna come back.
• Absolutely.
• Yeah so we’ll be back in that bull cycle if you want to call it that.
• It’ll be, it’s, you know, risk on, risk off. It’s kind of, you know, how you have to look at it. And to your point, you know, regional banks, commercial real estate, you know, there’s a liquidity crisis getting ready to happen there. The FDIC and the bank regulators are gonna have to do something there. Likely they’ll have to stop QT because they’ve been sucking all of the money through the repo market into the bond market. And so they’re gonna have to shut that down. So that will cause liquidity to come back in. So, you know, fingers crossed, you know, we see some positive momentum next year.
• For sure. Now with the halving coming up and with the context of these Bitcoin spot ETF applications in play, obviously BlackRock being the biggest, some are anticipating a potential approval in Q4, obviously we don’t know if that’s gonna happen, but how are you as a miner, preparing for these catalysts, right? And with the ETF approvals, because I’m assuming that you’re gonna see increased demands. Are you, is this a twofold question? How are you planning for that and are you, you know, getting calls for possibly buying Bitcoin that you guys are selling from some of these big players?
• So I’m not gonna comment on whether we’re getting calls or not because you know, we get calls all the time, but I’m not gonna comment on any change in that. You know, we don’t sell direct to customers. We sell typically via OTC desks. So we’re not necessarily aware of who our counterparties are when we do sell Bitcoin. At the end of the day, these large buyers typically are trying to buy at a discount, actually, not at a premium.
• [Tony] Right.
• So if they can find coins, other places they will. I don’t think any of these ETFs, for example, have any SG requirement that the coins are fully OFAC compliant or other things like that. Those are things that I think we may still see the SEC plug in as requirements, and that will change the nature of how they have to source coins most probably. But we’ll have to see that. So, you know, I think there’s a lot undecided yet. I think the nearest deadline is about 45 days or so out. I think it’s an ARC application that they need to respond to. But I think generally the consensus amongst most people I speak to say that if the SEC is going to approve, they’re gonna approve a number of them all at the same time. You know, they have to, you know, if they’re gonna approve any, they have to approve the Grayscale conversion. Now what they may say is, you know, they may do another round of questions and comments and cycle through this. I think the kind of end point of all this is sometime at the end of Q1 next year, most probably. I don’t think we’re gonna see something this year necessarily. I think Congress for one thing is going to be very busy with budget and the stalemate around that and the spending. And then you’ve got a bunch of other hoopla going on in Congress right now that’s, you know, we’re going into an election, we’re in a presidential election cycle. So there’s a lot of stuff like that going on. So I don’t think we’re gonna see any real progress on crypto legislation until next year possibly. If then, but you know, we’ll see, you know, McHenry is up for reelection, is rather termed out as chair of his committee. And so I know he wants to get his legislation kind of through Congress before he turns out on that. So I think we’ll have to see, but, and you know, we’ll have to see what happens on the Coinbase lawsuit. That’s got huge implications because if the SEC decides that, you know, “Hey let’s get a win here. We’ll approve some ETFs and we’ll settle with Coinbase,” no harm, no foul, slap on the wrist, you know, you don’t admit you did anything wrong and you know, we all move merrily on and maybe you removed some tokens that you know have been listed.” Then I think at that point, you know, Chair Gensler can say, you know, put his hand on his chest and say, “Well, you know, see, look at all the good stuff I did.”
• [Tony] Yeah.
• And maybe walk away with a win. Otherwise, if he refuses these ETFs, he almost, you know, there’s a high degree of certainty he’s gonna have to roll back the spot rather the future ETFs, which would be a huge black mark. So listen, all of these people are political animals. I have a feeling he has aspirations for higher office and he needs some wins in the column because right now the judiciary certainly hasn’t been giving him the wins he wants.
• Oh yeah, absolutely. Now tell us about Marathon’s mining that is taking place this year. Maybe how many Bitcoin you’ve mined and also there was reports of, you know, with the Texas heat wave of ramping down a bit there. Are you ramping back up now in September? If you can give us some insight on that.
• Sure I mean, yeah, you can look at our production numbers. They kind of speak for themselves. You know, we were down 9% in August over July, which is not a whole lot considering the fact that, you know, there was a lot of curtailment that happened. So what you’ll see is kind of, so you know, August and July you had over a thousand Bitcoin each month. We did about 2300 Bitcoin in Q2. So you should be able to infer that we’ll likely do something close to 3000 Bitcoin or more if Garden City turns on here in Q3, which will be a nice uptick. And you know, if you think about it, over the past 12 months, through the end of Q2 year-over-year, we increased our hash rate from 0.8x a hash ’cause July of last year we were almost mining nothing if you think about it to, having over 19x a hash operationally. So a significant uptick in the amount of hash rate. You know, our percentage of the global hash rate, you know, went from 0.8% to somewhere around 3.2%, and it’ll continue to grow this quarter, which is in light of kind of a doubling of the difficulty rate, you know, an eightfold increase in our market share, which is great. So, you know, quadrupling of our market share, but you know, with a double difficulty added to it. So, you know, we’re very happy with the progress we’ve made. It took longer than we wanted to obviously, but you know, ourselves and the market can be impatient at times. But we have now a prudent kind of tempo, if you would, of how we look at what we’re doing. We’re primarily focused on owned and operated sites now moving away from kind of the asset light model. We’re looking for balance in our portfolio. So we wanna have a balance of third party hosted and the balance of owned and operated. We think that over time you’ll see us favor owned and operated and you know, as I’ve said on a number of calls more recently, you know, you’ll see us go about 50% of our capacity domestic, 50% internationally. We’re looking in Latin America, we’re looking in Africa, we’re looking in Asia, looking in Europe, and continuing to look in the Middle East. And we’ll expand in all those regions, you know, as appropriate to get good diversity. There’s some great energy prices that we can get out there. And then at the same time, we’re also doing a lot of really interesting stuff around leveraging the heat that we generate, especially in our immersion systems for things like experimenting with greenhouses and experimenting with shrimp farming, which will generate profitable streams to the business. So the goal here, kind of longer term if you would, is to really look at, you know, how can we make the cost of energy disappear? Because if it doesn’t cost you anything to mine, then you’re gonna be the last miner standing no matter what the global hash rate is and no matter what the price of Bitcoin is.
• Sure, yeah can you tell us more about the shrimp farming? So would it be like integrating these additional business operations into the existing mining setup or moving the mining setup?
• Think of it as partnering with these types of operations and then having revenue shares in their product. We don’t wanna operate shrimp farms. That’s not our core competency and I don’t wanna our shareholders thinking we’re gonna invest CapEx in those things, but we can sell our heat to them essentially right? It is just like with our technology stack, our vertical technology stack, you know, we are out there talking to third party miners about them using our firmware on their Bitmap machines. We’re out there talking to sovereigns about them using our pool for them to operate their own pools. We’re out there talking to people across the computing industry about using some of our immersion technology. And you know, that creates diversification. And if you think about Marathon’s objectives, more recently, it’s been about energizing capacity. It’s been about optimizing the capacity we do have, make it more productive, lower our cost of mining. And then now we’re also looking at things like diversification, where we can leverage what we do in mining to make money in other ways.
• Yeah, that absolutely makes sense. So I’m curious, you know, with the halving coming up, is there a race to get as many Bitcoin as possible in a profitable way of course, ahead of the rewards being cut. Is that a strategy or a plan that you guys have that you, you know, as it gets maybe in January, 2024, let’s ramp up our mining?
• Yeah, so it’s, you know, the goal is always put online as much capacity as you can before anybody else ’cause we operate in a zero sum game, right? It’s 900 Bitcoin a day until April of next year, and then it’s 450 bitcoin a day. So you’re always focused on optimizing and maximizing your production capacity. You know, I think for people who are now spending a lot of money on Bitcoin miners, that they’ll plug in in Q1 of next year. If the price of Bitcoin isn’t where it’s profitable for them to mine post halving, I think they’re gonna be in a lot of trouble. And I think if you look across the fleet of miners out there globally, the average energy efficiency is somewhere around 33 joules of terahash based on the Nonce analysis that has been recently done. You know, our fleet operates at an average efficiency of about 25 joules a terahash. So we’re way down there, meaning we’re much more efficient. There is risk at the halving if the price of Bitcoin doesn’t appreciate significantly that anybody who is operating anything above 30 joules a terahash, will have to stop mining. And so if you start looking, you know, what machines does that mean, it’ll mean it’s anything but S19 JPros was probably, anything older than that you won’t be able to mine with unless you have free energy or very, very low cost energy. So I think it’s, you know, you’re gonna see at the halving, again, depending on where the price of Bitcoin is caveat, what most analysts out there are predicting is assuming a 25-30% decrease in global hash rate. So that means people shutting off machines, not turning on machines.
• So that’s certainly an opportunity, right, for those who can still continue mining and-
• Absolutely.
• I mean, I know it gets more difficult each halving, so I’m curious what’s Marathon’s long-term strategy? And you mentioned, you know, branching out into other business layers, not deviating too much on Bitcoin mining, but like you said, utilizing as much of the process to monetize it and recoup, you know, costs and things like that. What’s your long-term strategy for the next halving and so forth?
• So again, we kind of look at ourselves a little bit the way oil companies look at themselves, right? You’re pumping oil out of the ground, so you have to constantly be exploring new places to find oil. So exploring new places to host miners. We’re constantly exploring new technologies to make our mining more efficient, lower our costs to mine, increase our energy efficiency. We’re constantly looking at ways to reduce our energy costs. And then like oil companies, you can either sell oil or you can refine it into products like plastic pellets and fertilizer and things like that. So we’re looking at kind of the downstream opportunities to earn margin on the exhaust of our business, if you would. No pun intended, because the heat is kind of an exhaust, but also Bitcoin and building things at layer two and layer three. So we think that it’s very important that we continue as an industry to remove the friction of using Bitcoin and the Bitcoin blockchain. Two different topics here as much as possible because if we can make it easy for people to hold Bitcoin, the currency, meaning the store of value and use it for whether it’s transacting settlement or just holding value, the more friction we can reduce, and ETFs does a, goes a long way to reducing that friction, is great. And then what can we do to reduce the friction so people can build applications on top of the Bitcoin blockchain? Because at the end of the day, we need adoption to happen. Because when adoption happens, transactions happen. When transactions happen, transaction fees will go up. We’ve already seen this with Ordinals, what happened there? And when transaction fees goes up, the security budget for Bitcoin is insured. And the security budget is essentially how Bitcoin miners are paid. And while this halving, you know, which is near upon us, doesn’t pose huge issues for that, you know, two halvings from now, so not 2028, but go down, you know, one further. You know, 2032 and if you look at the price that Bitcoin has to be at in 2032 for the subsidy to keep miners operating, if there isn’t a substantial increase in the transaction fees or if miners can’t generate revenues via other means, then I think you’re gonna see a considerable restructuring of the mining industry and you know, it will get consolidated and it will likely become very closely tied to the energy industry. And you mentioned scalability and improving real world use and adoption, what do you think about the Bitcoin Lightning network and are you doing anything on that front?
• So I think the Lightning Network is a great initial foray in a way of being able to create a transaction layer that settles on the Bitcoin layer, on the L1. I think there’s still way too much friction to using Lightning. And I think there is a huge amount of innovation that’s going on, but even more that should be going on to reduce that friction to zero. It really should be as easy as, you know, I’ve got my phone here, I have Fiat in my bank account, I have Bitcoin in my bank account, and I go and I tap to pay and I choose, am I gonna pay using Bitcoin or am I gonna pay using, you know, Fiat currency or am I gonna pay using some stable coin and then I can manage my assets on my app, shifting Bitcoin to Stablecoin or Bitcoin to Fiat. And then when I pay that transaction layer, I really don’t care how it operates. It just has to be frictionless. It’s kind of, you know, think about it, the user today thinks the Visa MasterCard network is frictionless. If you talk to the merchants, you know it’s not frictionless, which is why Visa and MasterCard are looking at things like Solana now and other technologies to settle because, you know, merchants pay high fees to get, and they get their money three to four days later. So, you know, they looked at the alternatives if they were to adopt Lightning, and again, you could make the Fiat to Fiat payment go over Lightning and make it totally frictionless, but you know, people have to get money transmitter licenses. There’s a whole lot of regulatory rigmarole you have to go through to get that done. But technologically you could make it magic. And, you know, Steve Jobs was famous for saying that, you know, the closer technology is to magic, the more easily it’ll be adopted. And I’m paraphrasing, so yeah, I know I’ll get a bunch of people on Twitter or X that’ll hammer me for that now.
• Final question here for you, you know, what are you most excited for in this upcoming next bull market, I should say, you know, with Bitcoin? Lemme rephrase that, with the macro being in a better position, you know, crypto market and Bitcoin following that liquidity cycle. You know, what are you most excited about?
• So I’m super excited about the innovation that’s gonna happen. You know, I lived through the Internet 1.0 2.0 and you know, now we’ll see about Web 3.0 though I think it’s not about virtual reality and games, it’s about a much bigger thing than that. It’s about people owning their data, monetizing their data and you know, having data at the edge and not siloed in centralized application. But, you know, I remember the days of, you know, I took the first company I was CEO of public, the first public company I did an IPO on was in 2000 and, you know, it was in the middle of the Internet 1.0 wave. And people were building the equivalent of the delivery services and grocery shopping and pets stuff. And it all crashed because it was too early. There wasn’t consumer adoption. Then came 2.0 and there was consumer adoption, right? And we had built these great companies like salesforce.com, all of these, you know, Facebook, Google, et cetera, right? So, you know, we have gone through, you know, blockchain and Crypto 1.0, that happened. Now we’re moving forward into 2.0 and what’s in 2.0? Well I think 2.0 is where you really start seeing real use cases that cause people to wanna adopt it. And whether that is leveraging blockchain to validate data for AI systems so that they won’t be biased, or whether that is as oracles of truth for automated transaction systems where you know, your car’s driving down the highway and paying tolls automatically and things like that without you even thinking about it. There are all sorts of reasons to leverage blockchain technology and things we do every day. Not all of those applications need to be decentralized though. And so it’s, you know, how do you pick the right applications to build, deploy them on the Bitcoin blockchain. Today with Taproot and the other BIPS that have been adopted, and hopefully, you know, BIP 300 and BIP 301 will be accepted as well because Bitcoin needs to continue to evolve. You know, we’ll see great innovation and that’s what I’m most excited about because innovation drives adoption. Adoption drives growth, and growth is a tide that floats all boats.
• Yeah, absolutely, definitely agree with you there. Fred pleasure chatting with you. I’m excited to see the future updates around Marathon and we’ll try to meet again rather than two years later, maybe sometime next year. But thank you for joining me.
• Absolutely. Anytime. Good catching up with you.