Ep. 584 The Power of Bitcoin with Core Scientific
Ep. 584 The Power of Bitcoin with Core ScientificPowered by RedCircle
In this episode of Crypto 101 we have Adam Sullivan who is the CEO of Core Scientific who is a leader in the Bitcoin Mining Industry and they design, own, and operate best-in-class facilities and electrical infrastructure with the goal of enabling a more sustainable digital world. Adam also has expertise in financial services so he has a great perspective on the mining industry but also the markets around Bitcoin and the upcoming Bitcoin Halving. With the ETF approved it is crucial to learn about the underlying product which is Bitcoin so we hope you enjoy this one!
— TRANSCRIPT —
SPEAKERS
Bryce Paul, Brendan Veihman
Bryce Paul 00:09
All right, ladies and gentlemen, boys and girls, welcome back to another episode of the crypto 101 Podcast. I am your co host Bryce and as always joined by my notorious compadres, Mr. Brendan Beeman. How’re you doing? Brendan? Things are okay. You’re you’re holding up through this extreme weather that we’re having in Florida.
Brendan Veihman 00:28
Yeah, I mean, we were just talking about it before this definitely some crazy weather outside of our typical cold weather season in Florida. But man, I’ll tell you what the crypto markets are poppin it is so much happening, especially when it comes to Bitcoin, which I’m excited to kind of talk more about in this podcast here.
Bryce Paul 00:45
Absolutely. This is actually going to be a Bitcoin only podcast for all you Maxis out there. Now we’re gonna dive into a lot of amazing concepts. But really, we’re really excited to be joined by Adam Sullivan, who is the CEO of core scientific. And we’re gonna let Adam tell you all about what this amazing Bitcoin data provider and mining company is. But first, let’s welcome Adam on the show. Adam, how are you doing today?
01:12
I’m doing great experiencing that. That amazing Florida weather we were just talking about. But you know, the tornado that happened just 30 minutes off me it’s kind of similar in the crypto markets right now. Things are ripping around, things are
Bryce Paul 01:24
ripping right now in in all sorts of different directions. Just for context for listeners, just so you could kind of get a sense of when we’re recording this. We’re recording this on Tuesday, January 9, and this is kind of the eve if you will, of potentially the Bitcoin ETF being approved and, you know, speculated on that it’s going to maybe start even trading the day after. And so we’re hopped up, we’re really excited. And we’re joined by as well, you know, a guy who’s probably very similarly excited, you know, do you share that excitement on this Bitcoin ETF? Or do you think it’s kind of maybe hyped up and kind of blown out of proportion?
02:06
I think it’s exciting. I mean, when companies large institutions start making money off of the Bitcoin network, specifically, they’re going to invest proceeds into helping grow the network consistently over time. And so for me, it’s a huge bullish signal in the market that, you know, it’s it doesn’t just stop the ETF. It continues on as these companies continue to invest. So it’s not just exciting for the ETF getting approved. It’s, you know, it’s an excitement about the long term growth opportunities for the network. Yeah.
Bryce Paul 02:34
Awesome. And so So what is core scientific at its core? You know, you know, and what is Bitcoin mining?
02:41
Yeah, so core scientific, founded in 2017. We are one of the largest Bitcoin miners publicly traded Bitcoin miners. We’ve mined over 13,000 Bitcoins for ourselves and 2023 We’ve consistently been the largest Bitcoin mining company, since really our inception back in 2018, in North America. So, you know, obviously a significant bitcoin miner, we’re, we’re been very notable for owning our own infrastructure. So we have seven facilities across five states. We operate numerous different climates. And we’ve had the opportunity to go through a process over the past 12 months, leading to our re listing on the NASDAQ later this month, which was an incredible story for us as a business.
Bryce Paul 03:27
Wow, what got you initially interested in Bitcoin? And how did that maybe initial interest in Bitcoin translate to a love for Bitcoin mining?
03:37
Well, my love for for Bitcoin actually stemmed from my love of Bitcoin mining. So, you know, sort of back, it started back in 2016, I was working for a hedge fund in New York City seated next to me was an energy trader, a longtime friend, and he was leaving to go start a crypto fund. And so he got me interested in in Bitcoin again. And I started mining in my apartment in Brooklyn, which the calls from the electricity provider were quite hilarious when I was consuming more power than both my apartment complex and the apartment complex next door. But it just got me go. And when I saw the percentage of the network that I was, I was so small, but I was like, I dedicated so much time putting up these machines, maintaining the rigs, doing all that work, and yet, I’m not even, you know, a blip on the radar of the network difficulty. It’s like, Alright, hold on. There’s a lot of people dedicated a lot of time to this, that and that got me excited. And so 2017 I jumped full onboard into the crypto world. I started the first crypto investment banking team on Wall Street back in 2017. And for six years, we were top of the league tables in terms of crypto m&a, capital raising, and in April of last year, I decided to join core scientific so It’s been a long road, but an exciting road mainly focused on mine. In
Bryce Paul 05:04
one way, just one thing I want to clarify, because I know a lot of people who are listening, like when they hear Bitcoin mining, you know, I was talking to some some of my family friends over the holiday and you know, people were actually, you know, really starting to get interested or say, Hey, I’m here, and I’m gonna be able to buy bitcoin, in my fidelity account that kind of started the conversation. And what’s mining in my, my friend’s dad? Yes, you’d like, you know, no BS? Because there’s not like physical like, you know, you’re digging into the ground for any anything, right? And I’m like, wow, like that there’s such a gap and understanding of just like, you’re very affluent, very, you know, normal sort of person who is starting to think about allocating to Bitcoin but knows nothing about it. And so, so if you were to speak to that person, maybe 60 year old person, you know, who’s trying to understand this concept of Bitcoin mining, you know, what is it? And why are you doing it? And in what are you doing? What are you trying to achieve with it?
05:57
So, Bitcoin mining is securing the network, and solving blocks. So we saw blocks, regardless of whether there’s transactions in them. The goal of mining is to solve the next block. And how do we do that, we do that with computers that are specifically built for mining Bitcoin. So it doesn’t look like your traditional computer, it looks a bit different, it essentially looks like a mailbox with a high performance computer inside of that mailbox, that we’re running as hard as we possibly can. And so what what those boxes are doing is they’re solving a single algorithm to compete to solve the next block. If you do solve the next block, you receive a reward for doing so. And so Bitcoin miners across the world, and we have Bitcoin miners in almost every country in the entire world, which is pretty incredible to say, at this point, but we’re all competing to solve the next block in the network to help secure the network, which is the end goal of Bitcoin mining.
Brendan Veihman 07:07
Today, no, I think it’s amazing to have been able to start the first crypto investment bank. And I’m kind of curious, did any of your skills while you’re while you were working in New York, in in all of your Trad fi stuff that any of those skills or experience transfer over to crypto? Or did you feel like you had to start things from a fresh like, cut?
07:25
That’s a good question. It was. So I joined a company, I joined investment bank in 2017, to start this team. And it was interesting. So in my previous role, I spent a lot of time with executives, you know, learning about their businesses learning about your business models. And when I got into investment banking, which I had not been in previously, we were working with publicly traded companies that were interested in exploring crypto, and it was, you know, came from kind of two different angles. One was a financial angle, obviously, that companies were really interested in the gains, you know, the news, the media hype around around crypto more broadly. But the second one was really application specific items related to blockchain. So not just the ICO craze, but really operations that were specific to applications that could be used, or it could be solved via blockchain. That was completely new to me. And so, you know, there’s definitely a lot of learning over the course of the first few years. But I gotta say, I think personal interest and the amount of time I wanted to spend on it personally, really trumped anything else because people could feel the enthusiasm I had, especially in mining. 2018 was a unique year, you think back to the crypto winter, it was a completely different market for mining. I went on, went out and visited about 60 mining companies at the time. These were all small scale miners, but they were the biggest miners of the time, they are running 510 megawatts. And at the time, people thought maybe 20 megawatts was gonna be the largest facility. And so it was really interesting meeting with a lot of people, not necessarily traditional business people. And just their enthusiasm for the network. And I think we brought a lot to the table as an investment bank helping some of these companies in their early innings become some of the larger companies we see in the industry today.
Bryce Paul 09:25
Yeah, and fingers crossed that we see a lot more kind of Trad fi people or institutions start to come into bitcoin specifically. And, you know, because like you see some of these banks doing their inter bank Ledger’s or the JP Morgan coin not to throw shade at any one bank but but would you have any advice to you know, a bank, you know, basically to say, hey, like, maybe Bitcoin actually might be a better ledger to utilize than your own ledger and and here’s maybe why,
09:56
you know, that’s a good question. I think from from my perspective, It’s institutions right now are looking at this from the perspective of whether they want to be involved in crypto or not. I think the ones that are trying to get involved are looking at purely from can we gather assets, you know, most of these funds are in the asset gathering business. And so if they can gather, if they believe they can gather assets, which is mainly via marketing, then they’re interested in the network, if they don’t believe that they can gather assets, then they’re most likely not going to get involved,
Bryce Paul 10:28
I think from like, so that they can charge an AUM
10:31
charging AUM fees, right? You know, Asset Management is an asset gathering business, it’s like your pokimane, you’re trying to catch them. All right. So it’s, you know, that’s what all these ETFs are going out, that, you know, there’s gonna be a lot of dollars spent on marketing as these ETFs are to launch. And I think for those folks, they’re going to continue to invest in the network, and the big asset managers who don’t believe that they can gather enough assets. I think they’re just going to continue to ignore crypto for a while. Yeah,
Bryce Paul 10:59
yeah. No, it’s interesting. I’m very curious. You know, you know, when you look at Bitcoin mining and and all the infrastructure that’s kind of going into it, there’s a lot of thought and a lot of planning that goes into it, particularly, because, you know, the Bitcoin halving cuts the block reward every four years. And it seems like there’s more and more competition on the Bitcoin mining network, year after year after year, as it gets more difficult with the algorithm adjusting. How do you plan for all this? Like, you know, what, what goes through your mind, you know, when you’re forecasting and planning for, you know, capital expenditure and stuff in the Bitcoin mining world?
11:41
Yeah, I mean, the halving is really a defining moment, for two reasons. The first one is it really separates people who own their own infrastructure from people who don’t own their own infrastructure. You know, the margin compression that’s experienced in the dislocation and margins that happened right after the halving are always larger than people would expect. You know, if you look back at 2020, which in my view is a lot different having than what we’re going into here in 2024. You know, none of the predictions were anywhere close to what actually ended up happening. You know, today, when we look at what’s going to occur at this having, I think we’re gonna see a lot of hosting come offline, I think we’re gonna see a lot of folks who have higher price power come offline. And then the second part of this is, what is your stance on the halving? And by what I mean by that is, are you aggressive? Are you defensive? Because you have a choice, if you have a fixed amount of capital, you can either maintain your existing rigs, which might be t minus one or t minus two generations, and own more Terra hash go into having, or you can sell those machines, go to less Tera hash, but have greater efficiency and protect your gross margin on the way down. And so that’s the big stance that mining companies have to take. And really that stands you have yet to start taking to the near the summer of last year, and start actively pursuing what your strategy was going to be for April this year, which is one that our next having us. Yeah,
Bryce Paul 13:13
man. It’s crazy. How was the mining landscape changed since the last having, right, four years ago? Was there such an active, you know, group of miners, I know there’s you and there’s several competitors that are publicly traded, and that you trade OTC and some are private. I mean, what’s changed since 2020,
13:34
a lot has changed. We have a lot more institutional Bitcoin mining than we did in 2020. Back in 2020, you still had a lot of what I would call kind of the mining energies involved. So a lot of folks that I met in 2016 were some of the original miners in 2012 2013. Those people a lot of them chose to stay private, a lot of them chose to maintain their operations. And then when we got around to 2020, you know, many of those people start to exit the industry or the industry. You also saw their minds, they sold their minds and decided to walk away, understandably so. Mining has become an institutional game at this point. And they had all become independently wealthy enough from mining early on that they decided to exit the industry. What took that over was institutional Bitcoin miners. Institutional Bitcoin mining is a theme that is only going to become stronger over time. What we’re seeing in 2024 are, you know, almost 30% in network controlled by publicly traded Bitcoin miners. You see large scale infrastructure players across the globe entering the space. And you see people in the mining industry that made mine in what I would call irrational economics, meaning mining, even if it’s unprofitable because they are The cash on balance sheet, and they don’t want to show a decline in Bitcoin production. So we’re entering into a very different market than we saw in 2020, when you didn’t have cash on hand for many of these Bitcoin miners to sustain themselves through negative margins, we see a lot different story here in 2024, where there’s a chance that much of the network could stay online, even at negative rates or negative margins, which will make this housing very interesting to see how long that irrationality could actually last. Yeah,
Brendan Veihman 15:37
you know, so I’ve got to ask, I guess just following up with that is, you know, what’s your view of a perfect mining infrastructure?
15:45
Perfect mining infrastructure starts with power. It always does. We Bitcoin miners are refiners of power into compute. And that end commodity for us is Bitcoin. So for the perfect infrastructure, it really starts with intermittent power, that is low cost, or I should say, say two different way, low cost power that has the potential to get lower with intermittency meaning, if you’re able to turn off at some periods of time, you can lower your power costs. If you have that, you can solve for almost anything else you can solve for climate. You can solve for many other risks. You can’t solve for regulatory risks. So I would say an area that has low cost power that has the potential to get lower with intermittency. And from there, you can solve any of the other challenges that you could face. And we’re kind of the highlight of that, right. I mean, we have infrastructure in North Dakota, that’s been negative temperatures for power ready for over a month, and will continue to be negative temperatures for the next few months. And we have infrastructure in Texas, where over the summer, it was 100 for nearly 90 days over 100. So you can solve for any of the other issues if you have the right power to draw from?
Brendan Veihman 17:08
Yeah, I think one of the most asked questions at least from like, the retail side of things is an in price. I know me and you get asked this all the time. But do we think that this having is going to be the same as others, because what we see in a lot of these previous halvings is that price ends up topping out just over a year after the halving itself actually happens about 15 months to be exact. And so I’m curious to kind of get your thoughts on that. Because when it comes to, I guess the price side of things, again, not financial advice, for sure. But a lot of people are curious, especially on the retail, I know that the institutional side is very much focused on the on the long term, or else they wouldn’t be getting in to begin with. But I guess Yeah, you know, do you think that this one is going to essentially be the same as others? Or do you think it has the potential to kind of be different, we’re
17:55
facing something different 2020, we had COVID, 2016 was a non institutional market 2012 was a lot of individuals. You know, each of the different that was
Brendan Veihman 18:07
really the Wild West.
18:11
So when you’re looking at 2024, I mean, now kind of the headline is ETFs, right, like, could large macro events completely change what we saw on previous events? I think that’s probably the case, I think each one is going to be a bit unique from here on out around different macroeconomic events. You know, the trade that Bitcoin would trade higher post having, you know, we kind of felt that the previous having, but you felt the run up before. And obviously COVID hit and we felt we went into the doldrums for a while. So it’s really hard to predict where price is going to go given some of these broader major shifts, I would say, in the Bitcoin ecosystem that could present completely different outcomes to the forecast that we see from previous happens.
Bryce Paul 18:59
Yeah, interesting. No, um, I think the having discussion like, like we said, it’s all speculation. And you know, there’s only a few data points, maybe three data points, I think there’s been three happenings in the past. So it’s always hard to kind of extrapolate those three into the future. But I do want to go back to the mining infrastructure, because I think it’s interesting what you mentioned about the Diversified geographies. And that’s something that I didn’t really think of, like that mining company. And I think, Oh, you have one big data center or whatever. But do you have like many data centers? Are they all around the world? Are they just in the United States? And, you know, kind of a follow up to that, like, how do you think about, you know, competition in China or, you know, Venezuela or some of these areas that they could get electricity for, you know, two cents per kilowatt hour? Yeah.
19:44
So today, we have some facilities in five different states. So we’re spread geographically across the United States. It gives us great exposure to different power markets. It gives us great exposure, different climates, and we’ve been able to optimize infrastructure across Each of those climates which has provided us unique insight into the future development we have across our different facilities. So, you know, we’re obviously very happy with our diversity of our portfolio. And I think it provides us a very unique insight into what different power companies what different utilities are thinking about when it comes to Bitcoin mining, which has been an evolving topic for power companies over the past few years. When you think about competition, we don’t necessarily think about the other public companies necessarily as competition. You’re absolutely right. When you think about competition in the Bitcoin network, it’s a global scale. So China definitely didn’t stop mining completely when they said they shut down mining. You know, I think you can, you can point to some of the pool Chinese pools to see how much mining is potentially occurring in China. But absolutely nation states that are entering the network, they are going to mined almost regardless of their profitability, which is a big issue for large institutional Bitcoin miners that are focused on profitability. And I think one of the big positives, though, that we’re seeing when it comes to global adoption of mining is we’re seeing many smaller mining companies pop up in many developing countries, where there is readily available renewable energy, which is incredible to see. I applaud that I think that’s one of the one of the one of the huge things when it comes to adoption, is adoption in developing countries in showing real life use cases, for reasons to use Bitcoin. And this is one of the highlights of it. It’s capturing standard energy to produce Bitcoin and give profitability to local communities. That type of adoption is something that you can’t, you can’t sell this somebody, they found it, and they developed it themselves. And they’re developing their own ecosystem. They’re in their country, which is huge for me when it comes to adoption. Yeah,
Bryce Paul 21:59
no, no, on that point, just about like the energy sort of aspect of Bitcoin. I know it’s super complex topic. But like, you mentioned that there are some of these companies I even saw in 60 minutes, there was a company called Caruso energy or something like that. And they were doing this carbon recapture that you mentioned. And they were taking flare flare gas, and they were mining or something. Is this kind of could you kind of tell us about that? Like, because there’s so much fun out there. I think there was like reports that, you know, Bitcoin uses all this energy. And you know, it’s fun, right? Because in reality, it uses a lot of carbon neutral energy, and it actually sometimes takes carbon out of the environment. Can you kind of just give us your high level take on that? Yeah,
22:45
so you’re seeing a lot of new methods for mining Bitcoin Caruso highlights one of those, there’s a number of other companies that also would also do natural gas flaring. So natural gas flaring takes what would be essentially exhaust from the oil extraction process. And what would normally be flared off into the environment is being captured by generators that are producing energy, which is then being used on site to mine Bitcoin. We’re seeing other adoption cases as well like the burning of garbage, which is outputting, a significant amount of methane. And that is being used in a similar way, where that power is being used on site to mine Bitcoin, which is a massive issue across the globe in terms of the amount of garbage that we’re dumping into the ground every day, this actually provides an alternative to that. So all of these new use cases are fantastic for Bitcoin. You know, stranded energy is something that we’ve had issues with, across the country and across the world. For since energy has existed, right? The cheapest places to put up generators are not usually near big cities. And so any ways that you can find stranded energy and use it in that stranded location, it optimizes our entire economy. And so you’re seeing that in the case of natural gas, we’re seeing that case of the methane capture, you’re seeing it across the globe for Bitcoin mining because we’re the most optimal thing to use it for, right? It’s like, you can put a Bitcoin mine anywhere, you can put it in the middle of a natural gas field, you can put it in the middle of a garbage dump, you can put it anywhere. You can run miners, which makes Bitcoin mining unique. You could
Bryce Paul 24:35
even put it at the foot of a volcano, like I hear they’re trying to do in El Salvador.
24:41
As long as you don’t row thermal mine. You can you can run it.
Brendan Veihman 24:44
Yeah, I think a lot of these innovations that we’re seeing in the mining sector are also helped contributing to hash rate and it has to be like one of the most overlooked metrics right now. Because bitcoins hash rate just is now coming off a recent all time high, so I’m curious Just kind of from your perspective, Adam, like what is hash rate mean, and why is that significant that bitcoins hash rate is near an all time high right now?
25:08
Yeah, so hash rate on the network is the amount of Tera hashes that are being applied to the network. As the number of Tera hashes grow on the network, essentially, our mining reward gets lower. And that
Bryce Paul 25:21
is your hashes are coming from those little units that you described earlier. That look like mailboxes. Is that right?
25:26
Exactly? That’s exactly correct. Yeah. And so for Tera hash to come, or for an extra hash to come online, which today, you know, let’s say we’re near 500, extra hash, about one exa hash is consuming today about 30 megawatts of power. So that’s a pretty significant amount of energy infrastructure to put up. And so for us to see the rapid growth of hash rate means that there’s a significant amount of power infrastructure not only being built but also being used to mine Bitcoin. So the hash rate growth is definitely the biggest conversation of Bitcoin miners right now, because we’ve seen it consistently climb over the course of 2023, really in the face of a number of headwinds, including bitcoin price. And really the one thing that’s helped support Bitcoin mining economics is transact transaction fees. So the congestion on the network over the past few months, has really helped support Bitcoin mining economics. And it’s the big question mark is about what occurs at the halving from all of this new hash rate that has come online? And is it going to stay online? Because, you know, last halving, we saw difficulty dropped by about 15%. The question is, you know, how much is going to drop in this next halving? Because hash rate is definitely above what our forecasts were looking at, for this having I think we surpassed those at the end of 2023. And hash rate doesn’t look like it’s going to slow down. You know, we had a 7% difficulty adjustment, I believe, two difficulty adjustments ago, we saw another adjustment higher than the last difficulty adjustment. And it’s looking like, we’re seeing another difficulty adjustment higher coming up in about 11 days. Yeah,
Bryce Paul 27:15
that’s, it’s very interesting, you know, kind of, to reflect on this difficulty adjustment algorithm. I know some Bitcoiners say that this is the sort of novel thing about mining, how kind of every I think it’s 2016 blocks, the network kind of references itself and says, Okay, how many miners? Or how much hash rate is on here? Is it more? Or is it kind of less than what it was in the last period? You know, internet, it adjusts, and it makes it either you have to expend more energy to mine Bitcoin? Or you, you know, the difficulty comes down, you expend less energy to mine, that kind of same amount of bitcoin. Does that kind of summarize it? Or is there any more kind of nuance there?
27:57
For difficulty adjustments? The network is always trying to solve for 10 minute blocks. And so when Bitcoin blocks or so are found faster than 10 minutes, consecutively over two weeks, meaning the average block time is lower than 10 minutes, difficulty will adjust higher, if these are
Bryce Paul 28:16
blocks of transactions, right? Like all the transactions that happen, they’re in these blocks. Exactly
28:20
right. Yep. So every 10 minutes a block is, is supposed to be found. And so the difficulty is always trying to find that equilibrium, to make a block be found every 10 minutes, based on how much hash rate was online over the past few weeks. And so that’s really what’s occurring, which is, you know, every two weeks, we know another difficulty adjustments come in. And you really have to pay attention to what is the average block time? And how quickly are those blocks being found, is you’re seeing something lower than 10 minutes, you can expect difficulty to rise in the next adjustment. That’s fascinating.
Bryce Paul 28:55
I love that it has that that targeting of you know, kind of trying to make the network settle all the transactions going every 10 minutes. And then if there’s a lot of transactions, those fees get spiked. And you definitely mentioned, sort of the the innovative sort of things that are happening on Bitcoin more applications using it driving up the fee market, which I think is incredible. You know, tell us a little bit maybe anything else that kind of, you see along, maybe along the same lines as the network, hash rate, any metrics that are like, you know, eye popping, maybe to you were surprised I mentioned, you know, you mentioned hash rates higher than you expected, these fees are maybe higher than you expected. You know, what else is kind of a metric that you find I pop in, you
29:39
know, right now, it’s transaction fees. You know, there’s always the question mark, when you look back historically, transaction fees haven’t necessarily stayed as elevated as they are right now, for this long period of time. And so, you know, we’re seeing blocks go over 100% of the block reward meaning of the block or today, every 10 minutes is 6.25 Bitcoins. And so we’re seeing blocks that are coming in above that on the transaction fee side, meaning the total block reward is above, you know, 12 and a half in total, which those are eye popping numbers when it comes to transit 500
Bryce Paul 30:17
grand.
30:18
Yeah. So it’s, you know, it’s a really interesting time period, because transaction fees could stay high for an extended period of time, if we continue to see this type of market or this type of network congestion. And, you know, miners have a little bit of a different incentive mechanism mean, you know, we’re excited when we see congestion on the network, because it means greater profitability for for us. And so we’re obviously supportive of a number of the things that are occurring that support congestion, mainly because it raises our profitability. Yeah,
Brendan Veihman 30:55
I mean, there’s just so much going on. So many positive things happen happening right now for Bitcoin. I’m kind of curious, you know, do you have a bucket list that is set of side of things that you want to see happen to Bitcoin? I mean, this could be anything from technological upgrades to different forms of adoption, maybe even like a monetary milestone of like 100k 500, cakes, you know, etc. Do you have anything? That’s a bucket list that you want to see Bitcoin achieve?
31:21
Yeah, I think there’s probably a checklist I have somewhere, but I think it’s your wish list. Yeah, I have a wish list. Your, for me, it’s, it’s about adoption. I talked about this earlier. You know, ETFs are great. I talked about this in the beginning, the main thing that’s going to come from ETFs, is you’re gonna see large funds, like pensions, overcome all the hurdles that they’ve talked about, for all these years about entering Bitcoin. All of those will go away, once we have ETFs and pensions can begin to invest in Bitcoin, they’re going to, once one pension starts to invest in Bitcoin, you’re going to see all of them start to flood because all of them are chasing the same return metrics. And so if one company one pension is outperforming, because they’re investing in Bitcoin, will suddenly every group is going to be able to allocate to Bitcoin. No, that’s huge. And then the companies that are making fees off of ETFs, they’re all going to continue to invest in the network and help grow the network to help grow their fee base. So those two items are huge for me. I think that’s a major adoption milestone that, yes, ETFs are great for price action in the short term. But, you know, if you’re thinking about Bitcoin on a 510 year basis, those are major milestones that we’re overcoming via this big news around the ETF. I would say the other part of adoption that’s really big for me, is really personal level adoption. You know, this is about people having Bitcoin in cold storage. This is about people using Bitcoin in countries that have unstable currencies. This is about groups coming together and developing countries where they have excess power to mine Bitcoin and reinvest in a local community. You know, Bitcoin is the only unbreakable currency, from my perspective, we have miners in almost every country, you have a greater incentive to participate in the network than then you have to break it. This is the currency that we’ve all been looking for. And adoption is the key to having a stronger currency right now for us. So, for me, all of the metrics around around what I want to see happen to Bitcoin are really all around adoption.
Bryce Paul 33:26
Amen. Let me let me just give you a loud and proud amen on that last five minutes there. And I’m so curious, like, kind of like what you said, like, you know, this is the currency of the future. It’s, it’s, you know, it’s, you’re more incentivized to join it than to fight it. There’s so many things about this. It’s a really hard protocol. It’s ossified, right. Do you think there’s ever a future in which maybe central banks kind of take a look at Bitcoin seriously as a reserve diversification, potentially in the same way that they might hold gold and other foreign currencies on their balance sheet? Now, they might hold something like Bitcoin? I mean, you know, think Russia, they’ve got $300 billion. That’s kind of frozen right now, in this sort of international markets. They might think, Well, why don’t we have you know, Bitcoin, which is unseasonable? Is that is that in the future? I
34:17
can’t say it’s not going to be in the future, right, central banks are going to have to start looking at crypto much with a much finer lens than they have in the past. You know, all of the news that we saw out of a lot of central major central banks was always denouncing Bitcoin because it challenged their power, essentially. I think where we would see it first is definitely developing countries. You know, developing countries don’t want to be relying on the United States, they don’t want to be reliant on the US dollar. And for them to do that they need to find other currencies that they can attach on to. And there’s a lot of instability across the world right now from a currency perspective. And bitcoin is providing a lot Oh, stability in a market that is very volatile for for global currencies. So I don’t know what the time period looks like. But I feel like in the near future, we’ll probably be reading a book about the first central bank that, you know, it took a very hard look at Bitcoin. Yeah. Awesome.
Bryce Paul 35:18
Now, kind of, again, a tangential question, but more focused on your personal business at core scientific? Do you guys you know, actually hold the Bitcoin on your balance sheet? Or do you hedge out like, every time you make that profit? Or are you guys huddling kind of over the long term, and there’s a blend maybe? Yeah,
35:39
so we sell all of our Bitcoin that we mined? So historically, back in 2020, to give you a little history of the company, we were holding all of the Bitcoin on balance sheet, we were one of the largest holders of publicly traded companies, for Bitcoin. Unfortunately, 2022 was, you know, a bit of a difficult year for core scientific. So we went through that cycle in 2022, or Bitcoin prices started to fall, and power prices start to rise, which really compressed the margins of the bitcoin miner, right? If your income or if your revenue goes down, and your cost of goods sold goes up, that compresses your margins, and we had to begin selling our Bitcoin in order to maintain liquidity. For miners, it’s it’s one of those things where you have to be very focused on what your risk exposures, you know, we went into 2023, expecting to mine nearly 15,000 Bitcoin. So our foreign exposure was extraordinarily high. And we’ve been selling our Bitcoin on it on almost a daily basis since that time period since beginning of 2023. So you’re on a go forward basis, it’s something that we’re going to continue to manage much more actively from a treasury perspective. There’s a lot of products that are being developed around Bitcoin futures Bitcoin options, liquidity is improving on all of those products, which is only going to improve Bitcoin miners stability, which I can’t overstate this. The stability of Bitcoin miners is incredibly important in the ability to forecast. free cash flow is incredibly important to us. We’re a commodities company, essentially, I said earlier, we refine power into Bitcoin. And if you can do that consistently and generate consistent free cash flow, you can withstand market cycles, which this business of Bitcoin mining is about being able to withstand the lows, so you can capture the highs. And, you know, right now, we just was standard, some of the lows, but, you know, we’re seeing some of the highs, hopefully, it’s not the top but you never know in Bitcoin mining,
Bryce Paul 37:53
ya know, that’s a kind of a great segue to kind of one of the last questions that we had for you. But you know, like I said, 2022 is historically bad. In fact, I heard it was the worst 6040 portfolio performance and, you know, like 80 years, and the worst year for American bonds since the Civil War. So, we got wrapped up, obviously, in a lot of selling. I know, everything happened, that was pretty crazy. Nobody wants to ever live 2022 Again, but 2023 was a recovery year. But now my question is looking forward for core scientific, you know, kind of what can people expect from core scientific this year? Or what are your big goals? And you know, what, what’s this near term future looking like for you in the team 2024
38:38
is going to be a blockbuster year for core scientific. We’re relisting on the NASDAQ by the end of January, which we’re incredibly excited to rejoin the NASDAQ. And we’ve outlined, you know, a very measured growth plan over the next three years that improve our existing facilities that continued the development of our infrastructure base. You know, we’re unique business, right? In 2022. We filed for Chapter 11. We were a company that was hyper focused on growth. We have over 372 megawatts that were in the midst of developing in 2022, that essentially all came to a halt. The good news is, we’re coming out of our chapter 11 process. At the end of this month, we have several 124 megawatts operational, we’re bringing online another 372 Over the next three years, but all of those megawatts are partially developed. So we spent the money on the high voltage, we’ve spent the money on much of the infrastructure. So we have a very cheap cost basis. It’s about 200,000 megawatt to continue the development and finish out the rest of our infrastructure. So we’re really excited about the growth of this business. You know, infrastructure is going to win the day for miners over the next few years. And you know, that’s something that we do better than anyone else. So 2024 We’re very excited about, you know, we’re kind of rejoining the pack again, it’ll be great to see our names. Finally, back on all the charts on Twitter, people following publicly traded Bitcoin mining?
Brendan Veihman 40:15
Well, Adam, before we let you go, I know that there’s gonna be a lot of people out there who are listening to this podcast, and heck, there’s gonna be a lot of people that are getting ready to get back into crypto. So I’m kind of curious, you know, what kind of advice or what do you want these people to know, as the masses are coming back to the crypto markets,
40:34
I’ve counseled a lot of people leaving Trad fi coming into crypto or the past few years. I always tell them, crypto is a big space, there’s a lot of niches inside of it. And if you’re trying to work in a full time, find your niche, find something that you have a passion for, because the people that you’re joining all have an extraordinarily high passion, because they’ve decided to dedicate their life to crypto. So if people are joining the ecosystem and want to join it full time, you know, there’s plenty out there in the entire crypto space to find your niche. And the other point I make is for people that consistently asked me for what to invest in, in crypto, I always say, do your own research, and actually understand what they’re building. It’s probably the best piece of advice when people actually understand what’s being built. And they’re not blindly investing in in different crypto and a long time in this industry. But you know what, I couldn’t be more happy about where we’re at today. It’s, it’s great to be on things like this right now. We’re at the precipice of a very big market event. And it feels like 2024 is going to be a really good year for all of us. Yeah,
Bryce Paul 41:45
Adam, I couldn’t agree more. What an incredible, wide reaching discussion that we’ve had today. And I sincerely invite you back for another big episode. Part two, we could dive deeper into into anything that you think And so unfortunately, that’s all the time that we have for you today. And we just thank you so much for coming on and joining us. Mr. Adam Sullivan, CEO of core scientific.
42:12
Thank you both for your time. I appreciate it. Awesome.
Bryce Paul 42:14
All right, everybody at home listening we hope you enjoyed. Please check the show notes. For more links to core scientific. Alright, take care, everybody.
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