With the bear market in full swing miners are getting squeezed from all sides.


01:03 Market commentary

10:48 Future of ASIC backed loans

15:33 Operational loans drying up

19:40 Interest rates

22:49 Macro forces

24:47 Miner selling BTC

28:49 Treasury management risks

33:58 More capitulation

Audio Version


Foxley: Welcome back to the Compass Podcast. Today on the show we have Cassie Clifton and Craig Birchall from Galaxy digital. We're talking about mining during the crisis, including using ASICs as collateral spiking interest rates, miners selling Bitcoin and capitulation. This podcast is presented ad-free by Compass Mining the largest marketplace for Bitcoin mining, check out compassmining.io today, if you want to buy, sell, or host an ASIC and now onto the show. Cassie, Craig, welcome to the Compass Podcast really excited for this conversation. There's been a lot happening in Bitcoin mining the last four weeks honestly, I should have done like 40 more podcasts but haven't had the time, right. So there's been minor selling, there's been a lot of miners de risking reorganizing their financial books in Galaxy digital with their mining financing team is right in the middle of that. So I'd love to get your guys's take just on the general market right now. How are you guys seeing things from your perspective from a lending desk? And then Cassie as well from from the mining side of things? How are you guessing from your portfolio crediting with her to you just a general taking that we can dive more into the conversation?

Birchall: Yeah, so I'm what I'd say is you've full, maybe I'll take a step back and set up kind of where we've gotten, you had a really big bull run, and you had a lot of folks going out there, you know, making large investments in sites and infrastructure, purchase orders, you know, kind of everything that goes into a mining business, because it was immensely profitable, to be able to do so. And then what you've kind of had happen, though, is is the lag time that it takes to really get online and establish the infrastructure where you know, back then, okay, underwriting alone was really simple, because no matter which way you looked at it, you know, ASIC prices were through the roof, they're over $100, Tera. Hash, you had mining businesses are grossly profitable. So there's, you know, there's almost no way in your model that you're going to come into a situation unless you really stress tested that you're not going to be able to service that type of debt, and then what start in the capital markets are flowing, it's very easy to go get from buyers to go have access to equity capital to debt capital, even in the traditional capital markets to an extent and so but then what's happened is, okay, you run into a situation where you've hit a limit on essentially, what you're able to build out. And you've run into a situation where Rackspace is very difficult to get a hold of, at the same time, Bitcoin is falling in price. And so you've created a situation where there's not as much ASIC demand by any means, either because you don't have the Rackspace or just because it's not as profitable. And it's kind of created us and also, then the equity capital markets have kind of pretty effectively dried up. And so you're in a tough situation where as a lender in this market, you know, your reliance is going to tend to be that you're going to want to have your your reliance is going to tend to be on your collateral and also on the credit worthiness of the borrower. And you're in a situation where mining operations that would have been very profitable just a few months ago, may no longer be profitable. And they may have to have your debt financing in order to essentially stay in business. But you don't really you don't, you can't even have reliance, one on the operation as it is obviously, and also on the collateral because the collateral values have fallen so much, that any kind of reasonable loan to value that you might offer, someone isn't enough to kind of keep keep them, you know, keep them going and continue their build out. And so, you know, a lot of miners, I'd say, are in a are in a good place and have had good operations. And maybe they'll just have to slow down a bit or take a pause or figure things out. But other folks are still kind of in the middle of that process in that build out. And had had probably been anticipating that equity and debt financing would be in a better place than than it currently is. And you know, we'll see how the market shakes out over the next few weeks to months. But I think it's definitely a very different environment from from all sides of it, but especially on the ASIC backside than than we had even just a few months ago.

Foxley: Yeah. Cassie, same question to you, Craig. I'm glad you brought up the ASIC financing part immediately, because that part of the market seems to have just like cratered. We're moving towards $25 per terra hash for ASICs very, very quickly. And I'll leave it there. Cassie, what's your take on the market so far before we jump further into the conversation?

Clifton: It's a it's really frothy out there right now. And it's tough to like looking at you know, the way that a lot of folks in this space are looking at underwriting and offering facilities against ASICs you know, we've seen it slice and dice a lot of different ways from from other players in the market. Some people are looking at the actual cost of the miner and offering an LTV against that which if you offer that against $80, a Terra hash, you know your that's a very, very shaky loan right now. But even if you offered it again 30 Or you know, 40 or whatever, like liquidation value you might have assigned to that LTV. It's it's a scary time right now, for a lot of people. And you know, that's one of the reasons that like a galaxy, we haven't been in the business of lending against purchase orders, we just feel like there's so much uncertainty. You don't know what happens from the A to Z point of like, maybe six months that it could be between getting, you know, miners plugged in, you know, we can we can talk about other solutions that could make sense for miners in that in between phase, but overall, it's it's dicey, I would say, you know, on the horizon, I personally think that it could get a lot worse, especially on the Asics side, kind of just like driving home Craig's point of like, it's a supply and demand issue, right? We have all time high demand of Rackspace, we have all time high supply of ASICs we have even more coming onto the market, like, there are people who haven't yet like gone into default, or on the verge of default, who have, you know, maybe a month or two of runway left before, they realize like, okay, we're now like out of Treasury, we can't pay off our liabilities. They're trying to get them off their books as quickly as they can. And it's really a matter of like, how did you prepare for the bear market in the bull market. And to be honest, like a lot of people, either this is their first bear market, and they, you know, didn't have the opportunity to learn the lesson, or they didn't prepare, candidly and like, that's what we're seeing. And right now, like, the name of the game is survival. And it's really just about like, trying to stay online for the next couple of years until we get to the bull market. And that's going to be difficult for most people. You know, I wouldn't be surprised if we saw like a large, maybe even majority of people get wiped out, it's going to be gonna be choppy out there,

Foxley: you have a way of putting things candidly, so I appreciate it. Let's go back to the ASIC part about this and then move over to wipe out of, and we'll get some lending stuff in there as well. ASIC lending or backing alone by ASICs has become like a more popular solution for financing operations, especially from my perspective, since we've moved out of China, it seems like there's been better ways for understanding where ASICs are add for seizing and collateral for understanding the price of that collateral beforehand. What's your take on it right now? Was it really irresponsible to ever use ASICs, for backing loans? Just just from your risk analysis perspective? And now, are we seeing like the cost of pushing people putting themselves out and that that risk profile?

Clifton: Oh, sorry. And then Greg, you want to I know, you have a lot of illness too. You know, I don't think that like, there's a reason to say you shouldn't ever do it, I think it requires like a really comprehensive understanding of the risks that you're taking on. And it's really difficult to understand that risk, unless you've been through one of these cycles, and you've been through one of these cycles as a miner to be honest. And, you know, our team has, so we do have that insight. And it does offer like a little bit more understanding of like, Hey, here's what could happen in a worst case scenario. And of course, like, you can't always plan for the worst case scenarios, like no one thought March 2020 was going to happen, like another liquidity crisis. Here we are, right. But yeah, I think that like, that has helped us but you know, at the same time, like there's a reason that you can't take out a loan against, you know, assets, like your car, right? It is a dicey model. And, you know, it's tricky, and it has to be structured in like, just the right way with just the right covenants for it to make sense. Which is like, why we have Craig and his wealth of knowledge to help us on that structuring side.

Birchall: We're in trouble if it's my wealth of knowledge, but it's not what I mean. Yeah, like, like to bring on Cassie's point, like, there's, like, there's a right way to do it. You know, I don't think it's, it's, it can never be as black and white as okay, there's, uh, you know, maybe it was a giant mistake or something. But what I do think is you do have to understand all of the risks that go into it, which, like, when I first started, I had no, you know, thank God for, you know, our mining team and their expertise. Because there's so many more, you know, I came from a world where, you know, lend against art and aircraft and, you know, private equity fund interests and all sorts of random things. But, you know, it's easy, it's harder to come up with just okay, this is where it's selling on hash rate index or something like that. And, you know, this is this is roughly where the fair market fair market value is. It's also factoring in okay, hey, mining team, you know, how much could you actually liquidate this for if we really had to, and then taking another step forward is how do you actually even do that? Like, okay, you're gonna have to go roll up to the site, you're gonna go have to load these into a truck. Are they hosted? Are they at you know, the counterparty site? What is how is the counterparty site being operated? How is it set up? Are they reading or do they own it? Like, like, just in These are like, this isn't really some kind of secret sauce. It's sort of like the almost like the basic next step situations where if you're walking through, hey, hypothetically, I'm going to go lend against this machine. When you lend against something you have to expect what happens when I need to go collect on it? And and then you have the aspect of, is it immersion or not? Can you actually go? Can you take this and go sell it? Or would you need their setup to go run it? And then at that point, yeah, you're sort of are basically lending gets nothing. And so I think that it depends on on the structure. But I think probably what folks are seeing now and what everyone's learning, including us along the way is you just need to really understand the risk that you're going to and you need to make sure that you're stress testing, you know, your models generally, to keep up.

Foxley: Yeah, I think prices are definitely walking off a cliff right now. I think the value is on hashrate index updated this morning, so I need to check it again. But we're much lower than right after the China ban, I think maybe the lowest since like December 2020. So ASIC price is a bad place to be right now. Curious, from your guys's perspective? Are people going to continue to do this just with like different LTV values? Or is that going to just die as a as a method model? Do you think after this? Or is it too early to call even Cassie, your take?

Clifton: Well, it may be a little bit too early to call, I think that people are definitely taking a step back and like reassessing the rest of taken on with the loans that they've currently underwritten. To be honest and Craig, correct me if I'm wrong, I actually don't know anyone else in this space who's like a principal risk taker on these loans. So pretty much everyone in the space is selling the risk off to someone else. And I think for the most part, people that are non endemic to the space. So banks, like tried fi institutions or funds or, you know, alternative asset managers, etc. And so they're really the ones that are stuck with that risk. And I bet that their appetite is drying up pretty quickly, which means if they're not taking the risks themselves, like we are, then I don't in that the appetite for that product dries up, I don't know who they can sell and offload that risk to. And so I would say like, most people are probably pressing pause until the appetite comes back, I would say, you know, we're not pressing cause by any means. But like, obviously, we have to kind of like reevaluate, and we're looking at risk a little bit differently. We're looking at it the same way. But obviously, the market has changed. And so we have to take that into account and build that into our models. And it's really hard to do when we're like Anna, like very much still on a price discovery phase with ASICs, it's really difficult to understand like, what fair market value we can even assign, if we were looking at a deal and totally hypothetical of like 30,000 ASICs like, and, you know, maybe we're seeing fair market values all over the place, like we've seen things cross our desk at 17, I've seen in the 20s, I've seen 30s. And then you look at like, you know, the hash rate index, and you know, even a day goes like in the 40 to 50 range, and some of the larger procures are in the 40 to 50 range, it is literally just this super wide margin, you're seeing like even further divergence of ASICs between what's miners in Atlanta is like, even greater than like the, what, $10 per Tera, hash 13 15%, that you were seeing that chasm is a lot a lot larger than it was. And so there are all these different nuances and things you have to take into consideration. And it's really hard to do when the market is moving so much. So, all things that like, you know, you have to just be like, Okay, well, if I don't know how to assess this risk, then I can't offer as much credit.

Birchall: Yeah, and I to that point, I would, I would echo that, you know, it's, I think this gets to kind of the point of you know, it for my understanding of you know, traditional kind of equipment, financing markets, it's very easy to just do a loan to cost type situation. And that's totally different when you're going and moving you know, Caterpillar, you know, bulldozers or whatever it might be, versus something that has such a something that's run so complex and a part of a broader kind of ecosystem, and to has such a beta to a high value asset or to I'm sorry, a high volatility asset like ASICs do. And so I think we've always been kind of of the opinion that you really have to look at what's the actual value of a machine in the same way that you would if you were lending as Bitcoin or something like that, in a margin loan. You know, and just on Cassie's point on the principal risk taking, I think, you know, at the end of the day, you know, there are some there are definitely you know, some other players out there that are principal risk takers, but you know, it's either it's either the end person that, you know, the originator is selling it off to is taking the principal risk, or you're just taking down the loan, structuring the loan and holding it on your balance sheet. Regardless, the folks that are taking the principal risks right now to our point have definitely taken at the very least a step back. If not just a total pause. And that's an you're seeing that kind of reverberate through the industry. Were some of the folks that would have been selling the loans before. Now since there is no demand. They're not originating either. And so everyone's kind of you know it, folks have taken a big step back and as you'll loans that we're probably going to see being made, if any, as you know, this time period kind of goes on are definitely going to be much more conservative terms

Foxley: that was keep riffing on the loan part here, but just talk about like the different backing from so we have debt and equity traditionally been linked to other two. But those seem to also be drying up. I know man who was at consensus two weeks ago on stage talking about like, how many machine orders are still outstanding for public miners? It's like $1.9 billion worth of machine orders are still on the books for these miners. How is this going to be funded? If equity loans are drying up? No one really wants equity for minors right now. And debt is also really expensive at only becoming more expensive, like how do these procurements are already on the books? The purchase? Like how do they complete these orders, I know that clean Spark, just purchase on the secondary market, what I would think was some sort of distressed order for cheaper, all the information wasn't there. But that was my understanding from reading the press release, I was kind of reading between the lines there. Are you expecting there to be like more distressed purchases of assets, from larger players that have healthier books? Is that what's going to happen with all these orders are there's just gonna be wiped out and people are just gonna like vomit all their orders onto the secondary market. Where are you guys seeing that Casita, you first? Have a lot of thoughts on this. But it's

Clifton: gonna happen, right? The most likely, I think, is that we will see just defaults to if you think about, like, where these manufacturers are profitable, like we know it, like $1,000 a rig, I'm sure costs have gone up like as you know, technology has like gotten better, and where they're more efficient and whatnot. But if they were profitable, $1,000 a rig, like, likely in the $6,000 range, like their margins are pretty steep. And if you were looking at let's say, I don't know what the average is, maybe people have paid like 70%. And there's 30%, outstanding on purchase orders. Like they've made so much money that basically the new price that they would reprice the machines to like, maybe maybe they're fine, maybe some of these people have already paid it off, and they'll be okay. Or maybe they've already made like well over 2x the margin that they needed to to cover their input costs. And so the manufacturer is not worried. So I do think that like there's a situation where we can see defaults. But when people enter like a state of panic, the it's not necessarily that they're like, Oh, this is the best path forward like liquidate assets, like oftentimes people ride it to the bottom kind of like we're seeing with Bitcoin price and minor selling off, right. So they're writing it to the bottom and wait until like the very worst moment to sell to sell off, some of the rest of they have to sell off these liabilities. And in doing so like that's going to be when all the other purchase orders on the market. And so it's going to be like a race, in my opinion to like, who can get the purchase order off their books is the fastest. And I think that's like a really dangerous scenario for a lot of miners, because then like we're in like a true state of default for a lot of these companies. I don't know, that's my initial take, Craig, I know that you you have have thoughts on that and have like more of a credit lending understanding of

Birchall: No, I mean, I probably couldn't articulate it any better. You know, I think it's the, the fact of the matter is, there's a lot out there for people to fund even just beyond the purchase orders on their infrastructure on their bill. And then you have like the, you know, the ERCOT, delays, and all the things like that, that I'm definitely not the expert in but like and, and not and the capital is just not there for it. So, you know, you either go try to raise equity at some insane discount to what you think like your true valuation is, you go try to raise that at a at best, significantly lower LTV than what you wanted and a significantly higher interest rate or to Kathy's point, you don't really have another option than to sell it off. And so I think the only other thing I would add to Kathy's point is probably you're gonna see some strategic investors, folks that are either outside of the mining ecosystem, or folks that are inside it that are very well capitalized, come in and look at this as an opportunity.

Clifton: We have a couple of months left before we like really see what people are made up like another couple months where people still had, you know, some bitcoin and their treasuries and some dry powder to like help sustain the situation. But these prices continue and these purchase orders start flooding the market. I don't know like I would want to be in bitmain or what's mine or shoes, or micro BT shoes, right, like where they've already recouped a lot of the costs. And then basically, people default the machines land back in their hands, and now they have to go sell it again. But they can sell it at the same price. Maybe they're making like 150% now. But who knows, market could get a lot worse. So

Foxley: what LTVs are we seeing right now and what interest rates are we generally seeing right now? And I know it's very situation specific. So it's a little bit of an unfair question, but I would be curious for many a public minor profile in a private mode or minor profile. What you guys are seeing for interest rates and Lt

Birchall: So it's always been different. So maybe I'll just generalize this to a lot of like, what we had been seeing. what we what we had been seen before. And to be honest, actually, I think, well, what you would get on the public and the private was actually not that far off from one another. To be honest, I know, like, because sometimes you would, frankly, private miners that were just as well capitalized or better than some public miners, and vice versa. Now, now, rate could vary. So maybe I'll like give ranges but like, look, we were seeing, not necessarily we were doing but we were seeing and where the sort of the market was was, you know, lending it anywhere from maybe an 80% to 100% of the fair market value, as you would see on like a hash rate index or something a lot, it like pretty close to 100% loan to cost for some folks. But again, that sort of depends on where the cost was. So you know, call it, I don't know, loans, it may be 60 $70, a Terra hash type thing, and guys feel free to correct me if I'm, if I'm, if you think I'm off at all there. And then on the right side, what you really have to do in this industry is look at what's the all in rate, someone's actually paying for it, because there's a lot of ways you can kind of play around with it. So you got your headline, interest rate, but then you also are going to have some sort of an upfront restructuring fee. And we were seeing anything from call it the mid teens is how it was now now you were for a while there, it was, you know, 1718 that then because the market got really competitive. And a lot of you wanted to get in it, you had miners down to the lower end to the, you know, 1011 12 in some cases, even sub that, you know, I can't comment on anything that's out there. But you had some some folks announcing things that were sub that. And you're definitely not getting that anymore, I think you're certainly back towards the mid to high teens. But again, if at all, like right now we really aren't, you know, you're not seeing a ton of deals get done, I think because folks are trying to see where the dust settles here. So, you know, what I'd say is you you kind of swung all the way down, when things got really competitive on the right side, and now you're swinging, you know, definitely back up. And and on the LTV side, I'd say it really just depends on your methodology, whether you're looking at loan to cost or whether you're looking at fair market value, but I'll tell you, like you're probably not getting loans anymore beyond maybe 10 to $20 Tera hash in loan value against the machines. But that's that's to be seen, frankly, what's eating into the interest rate more?

Foxley: Is it the federal funds rate inching upwards and seeing like as aggressive macro posturing from the Fed? Or is it more so bitcoin price dropping catastrophically and just becoming much more risky to put money into any sort of Bitcoin operation? Are they working in tandem is one costing more one than the other, obviously, the Feds positioning and posturing is causing Bitcoin to sell off in a lot of ways. But I'd be curious to know which of those two factors you guys would see being more important when we're looking at, like the overall rate for creating a loan for the mining market? Craig, I'll throw it to you.

Birchall: So I think I mean, like, like, you name both of the reasons, and it's definitely not necessarily one or the other, what I would say is, it's, it's definitely the risk profile of the loan, though, is what's driving like, you know, if we go back to and again, I'm just throwing numbers out there because, you know, this is price discovery of a lot of points. But if you go back to 17 18%, all in like the, you know, the, the the Fed Funds didn't go up by that much. Now, that said, there is a bit of tener that comes into these things. So like if you're looking at a two year deal versus a year and a half or something like that, like you know, then actually the the effect of kind of the the Feds increasing schedule does have more of an impact and maybe you maybe you would structure a floating rate structure or something to try to get around that but but I think that the long and short of it really is it's the risk profile mainly and then but but the rising interest rates don't help and it's something that we have to factor into and to that point depending on how long out you know, maybe it doesn't matter as much for a year but once you go out two years we don't really know where the hiking cycle is gonna go and so you have to price for that uncertainty.

Foxley: Definitely again, thanks for that for that answer. I had a feeling it was be like that you know, it's kind of like they both feed into each other at some level and then Bitcoin sell off is has a lot to do with what the Fed is doing. Let's move over two miners dumping Bitcoin on the market may think it was like the highest USD value all time high and like, last few years at the very least, of Bitcoin miners selling It's an open market. What's your guys's take on that? It makes sense just from an operations perspective. And Cassie, you alluded to this earlier, you've actually directly stated it, a lot of these miners are having to sell, because they're in this position where they're huddling for so long, and they're having to sell at the bottom, just to keep their operations running. But what's your take on miner selling Bitcoin? Is it moving price very much? Is it just keep operations afloat? Is it a winning strategy? I know Amanda had a really great thread about this the other day where she was chastising miners for dumping at the bottom. I'd love to get your take on it.

Clifton: Yeah, I feel like I'm like entering the Galaxy slash Amanda echo chamber of like, screaming for people to use treasury management. Like, I know that a lot of people have been thinking about it and floating the idea and didn't nail anything down. And I'm sure that there are a lot of regrets there. It's really hard to say like it how much minor sell offs. I mean, you know, historically, people have said that minor sell offs are like the minor capitulation is kind of like the beginning of the bear market, the end of the bull market, you know, I would want a lot more data to be like, 100%. I know this for a fact. I don't know how much that's moving the price. I would say that miners are like more so at least, you know, logically thinking through it, I would think they're kind of following suit as the price moves and realizing like, you know, they need to like lock in kind of their operational costs for the next couple of months, and not sure where the markets going and need to go ahead and sell some of that off to take risk or their, you know, maybe have gotten margin cold or whatever it is for, like whatever reason that they need to sell. That's not, you know, 100% publicly stated for some people. So there could be a lot of different reasons. Greg, what what do you think about that? Yeah, I mean, it's, again, it's something that we've been saying for a while, it's something that a lot of money, a lot of miners have been,

Birchall: had been warming up to, you know, I think some folks started executing I mean, like, look, put it this way, when I, when I came into Galaxy, about a year ago, very few folks even wanted to entertain the idea of doing some type of a hedge or even some type of a yield generation strategy or something that was like, No, I have my bitcoin I'm holding my bitcoin, we don't need to get fancy about it, you know, the investors don't like any of those, like gimmicks and whatever. And then, you know, pretty quickly folks found out that, okay, you could do a call overriding strategy to generate yield, and you could write it. Now, again, this was when we were going up in the bull market, but there were times where Bitcoin was like, 5060 grand, and you could write a $100,000 call strike and still clip a one month and still clip a really large yield on that. And it's like, okay, worst case scenario here. Bitcoin earns 100 grand in a month and goes over and you give up a little bit upside, like, that's the absolute worst case. So, you know, we had been setting for a while, it was almost like, like, it almost didn't make sense to not do something like that. And then on the hedging piece, like, you know, it doesn't real companies hedge, you know, like, airlines hedge, like, you know, other types of mining industries, they all have, you know, clearly, like the gold industry is bullish on gold, it doesn't change the fact that they're going to go and, you know, have, you know, what you might say, would be prudent just treasury management for the downside. And so I think that, you know, that's something that a lot of Myers actually have gotten, you know, warmed up to probably in the past year, some of them have engaged in that. Others Not, not so much, but,

Foxley: but certainly, I think now, it's become pretty clear. And the folks that did engage in some of those strategies are definitely very happy that they did. And I think that, um, you know, it's just, it's an iterative process, and everybody learns along the way. And, you know, but I think folks have definitely, you know, see the value in treasury management. Let's delve into the psychology of mining for a second here, because you guys get to see like these books and you get to talk with them. I only get to talk to them on the podcast, right? So they're only gonna give me their marketing pitch, you guys you actually get to see to find numbers. What is it about this Hottel strategy that made it so predominant last year like all these miners wanted to tell people that they're hot, like they were trying to get like in the Bitcoin magazine tweets that they're they're huddling their Bitcoin, but it's like, there's a lot of ways to generate yield. There's even ways of selling your Bitcoin during the bull market to make your operation more profitable, or less sustainable. So like Iris energy, I think is one example of that where they sell Bitcoin immediately, like weekly, and to my knowledge, their books are pretty solid, right? They're up there with everybody else in terms of efficiency, and in terms of profitability, but there's some of these other miners are now holding on to a lot Bitcoin, and are having to dump it towards the end of the cycle and just looking at the prices from November to May, I would have rather sold my bitcoin in November and I think that an operations standpoint, and an investor standpoint, I would have rather had Buy Bitcoin sold in November as well. So can you tell me a little bit about like the psychology behind these mining

Birchall: minor Treasury strategies, Craig first and Cass we'd love to get your opinion on it. Yeah, yeah, I'd say, you know, it helps to be able to work with Amanda and Cassie and, and having met a lot of Myers and really be able to get into into their head because Amanda will be the first person to tell you like she's like, you know, that, you know, it took a little bit of convincing because at the end of the day look

Clifton: Bitcoin miners, and this is my my take on it, having now met them over, you know, call it the past year or so is they are really passionate about the Bitcoin network, you know, they are Bitcoiners through and through and, you know, and the answer is if you're a Bitcoin er through and through a lot of times, like, it's, it's Hottel, it's been Hottel, it's Hodel the whole time, it's go all the way we like bitcoins going to the moon no matter what. And it's awesome in the sense of it's, it's the passion, it's the power of the industry, you know, that like with a community like that, that really believes in what they're doing. It breeds a lot of transformative leaders and a lot of really great folks out there and businesses. So I really enjoy that aspect to it. But I think that I think that part of the psychology is part of having such a strong belief in what you're doing. Like no one thinks that that's mine, that's, you know, drilling oil, you know, like drilling oil is saving the world, and it's gonna do a lot of things to change the way that we handle payments and security. And, you know, it's just, so I think that that's really what what it came down to. But at the same time, you know, I mean, you know, you heard me make the argument is, I don't think that the two are necessarily mutually exclusive. But that's my view on what the psychology came from. But Cassie, I'm curious to hear your thoughts on it, too. I think that was really well said, um, you know, I think that like, I would bucket miners into probably three different categories, the first being the one that Craig has described so well, where like, it is really an emotional roller coaster. And when you're emotional, you're a really bad trader. But like, you know, I I would definitely put myself in the camp is the majority of the coin miners out there where I'm like a Bitcoin Maxy. And I'm just huddling my stack and the highs are really high, and the lows are really freaking low. And it's like Max pain right now. And it's not great. But at the end of the day, like, this is the choice I made, I'm here to live with it. But I also don't have you know, tons of outstanding liabilities and you know, a company that I now have to gamble because of those decisions that I made. And if I did, I might think about it a little differently. Maybe I say that now hindsight is always 2020. So I really don't know what I would have done. Then like on the far other end of the spectrum, you have miners who like really look at this, maybe aren't even Bitcoiners, maybe don't really care about crypto, maybe don't hold any and are looking at this, like purely as a production game like this is, uh, you know, you're using hardware, you're producing an asset, and that's it. And it's like a cash flow game for them. And it's great because like, maybe you even do it in an opportunity zone. And now you're cash flowing in an opportunity zone, you have these like really, you know, strategic advantages here. And then you're sometimes that you have a minor, the rare minor that's like somewhere in between where like, they want to hold some of their stock, but they also see the value of like, setting a strategy before they start riding the waves. And that strategy maybe is like, Hey, this is the price that here's a tiered structure of what my sell offs will look like. And I'm gonna go into this, and I'm gonna, like have an option strategy that I rotate in and out of and adjust my positions kind of based on where the markets falling. And maybe you know, your strikes are a few months out, or wherever the market is telling you that you need to place them. And that one, those miners are doing quite well right now. But there aren't, you know, tons of them out there. Most people that are in this industry got to this industry, because they're super passionate about Bitcoin and the network as a whole.

Foxley: So just a follow up question sort of pulling from a point you made earlier, Cassie, do you think that that almost religious fervent belief in holding Bitcoin paired with the really bullish choices on purchasing ASICs ahead of time to lead to this wipe out scenario? Like those are the two factors that are going to go into cause wipe out? Or is it more so the ASIC purchases, the aggressive ASIC purchases and other operational costs that just stacked up at a time?

Clifton: I think it's really hard to point to any one thing to be honest, because like, no miners are the same really, and everyone has kind of a different strategy. You know, like there's an argument to be made that like vertical integration is the way but there's also an argument to be made, like maybe we want to be asset light. There are a lot of different ways that you could kind of slice and dice it. So I don't know that there's any like one right way to do it. I would say like it comes down to a whole host of things, you know, with the largest differentiator being cost to power for everyone I would say.

Foxley: I appreciate you jump right through my either or fallacy there. I like to ask people on the podcast that and you totally nailed it. You went right around. most people are like, Oh, I don't know, you gave me like two choices, the both suck. Let's let's stick with hash rate and operational costs. As we close out the conversation. I always ask people where hash rate is going to give a hash rate predictions, we'll do that last be sure to get that because it's interesting to see in January, everyone's like 300 to 350. And now everyone's readjusting that. But from your guys's perspective, and looking at operational costs, where do you see hash rates are tapering off? And do you see like price levels or hash rate levels, where we're going to start to see ASICs shut off and different operations? I don't know if it's this is just like, something that you guys have insights to due to the books you guys are working with? Or maybe it's just something from a mining analyst perspective, you guys have insights too. But I'd be curious to know, looking at difficulty right now looking at hash rate, looking at hash price, and the cost of running an ASIC? Where do you see things start to peter out? Where do you see people start shutting off machines? Craig, over to you first, if I can. And if that question was really confused, I can definitely

Birchall: I'll actually, if possible, pass the ball to Cassie, to be honest, because our team leverages her team for, you know, for these types of analysis,

Clifton: I'm gonna do that thing where I jump through the logical fallacy of the either or decision and kind of like, go down that rabbit hole a bit. First, like you kind of wrap the question up saying like, what I was thinking where it's like, really difficult to say, no pun intended, because we haven't had a difficulty doing that yet. Right. And so I'm not I'm not quite sure like where that needle is moving. Like looking at kind of the average block times, I think it was like, we were looking at 1013. And now we're at like, 1034, something like that. Which like, Who knows if that's like meaningful enough to move the needle, like, statistically, I don't have like, I haven't done a ton of analyses on like, discrepancies in block times based on each difficulty adjustment. So I can't really say, That's what kind of our team the high level research that we're trying to look at. But it's really tough to say. And the other side of the coin, too, is that like, People's Power agreements are structured really differently. Some people prepay entirely and so they've already paid for the power. So they're not going to shut off, it doesn't make sense for them. And maybe they have like a hosting contract where there's like a, like a dormant fee or something. And they pay a dormant fee, and they can kind of give that power back. You know, maybe like they're not behind, like maybe they don't actually have a power agreement. Maybe it's just like whatever market is. So there's tons of different like reasons and ways that people might shut off. So it's hard to say like, what makes the most sense, I think, obviously, like price and power costs are the two biggest drivers of that. And we're kind of seeing those like inverted. So just Max Payne. On the price side, our internal research, I would say the shut off. And it's hard to because like when you talk about a shut off price, there's you have your marginal cost of production, you then you could include depreciation, then you could include depreciation and SGMA. And then we also don't know the details of most of the Putco like power contracts. So we don't know exactly how they're structured. You know, we don't know if there's a curtailment involved. We don't know if they're a controllable load resource. There are all these other things that you have to consider that like, just don't know the answers to for a lot of these people to be able to like build a pretty model like Brandon on our team would absolutely do if we had that information. But yeah, I would say like, price is probably the biggest differentiator. And we're like, right at that shut off phase where people are probably using their treasuries.

Birchall: Yeah. And I'd say just blessing that on to that point is on the financing side, it's been actually one of the biggest key pieces for us is, hey, you know, when are you operating at a loss, but it makes more sense to keep the machines on which that point, there's not you don't really know where it's okay, you're going to be operating at a loss. And it makes sense turn the machines off. Because, you know, if you're in this in the ladder situation, that it improves the credit worthiness of a lot of like the ASIC back deals or debt financings, you might be looking but if it's the former, and a lot of folks are in positions where they're like, Nah, forget it. We're just going to keep the hash rate online as the price stays depressed, you know, then it's obviously much worse. So it's and that's something that, you know, we definitely don't have the answer to here. Definitely. Okay. We're coming to the end of the show. It's time for me to ask unfair, really quick questions to both of you that you're going to regret later.

Foxley: So we're gonna start off with public minor capitulation. What happens to the public minor sector? If hash price continues downward, and we have bad loan structures? What does that look like? Cassie at first? Oh, my gosh. Okay. Yeah, I wish I could put that to Greg first. That's a tough question.

Clifton: I want to say consolidation. And like I mentioned, there are a lot of miners that are Bootstrap. So, you know, I think that that with the number of ASICs that are flooding the market I don't know that consolidation is really what's going to happen like there aren't a ton of vertically integrate bid sites where you're like, yeah, they're super distressed. And I want that site where that makes sense. It's just going to be ugly for a while, like, if that's the case, I think that we're in for like, you know, 18 month, like really bearish ASIC prices, which can be good for a lot of people, as they're, you know, fiddling.

Foxley: Craig your take?

Birchall: Yeah, yeah, my take is it's going to be some folks, some folks for the record at these levels are fine. But your end, so I think it's going to depend on like, some of them have been very public about their plans to get into acquisitions, and there's always going to be, you know, financiers that are out there willing to kind of provide acquisition, financing and things like that, but but to Kathy's point, there has to be synergies that that you can really utilize there. So I'd say like, you know, at the end of the day, if you're really desperate, you're gonna, you're gonna go out, you're gonna see, okay, what kind of debt can I get? Is there some kind of like, distress special situation, something that's going to rip your face off? Like, you know, maybe same thing on the equity side, and, you know, like, worst case, you may have to, you know, sell off a piece of your company or assets or, you know, potentially have emergent situation like, I have to be honest, it's something that we've been mulling around with a lot. And honestly, I think the answer is going to be different depending on each individual company and what their setup looks like, and their cap structure. Okay, last question. hash rate, where is hash rate the end of this year cast at first? Yeah, I mean, total stab in the dark, right, based on who may or may not be coming offline. Also, who knows what the current hash rate is today? I would say like 250 cap on deciding whether it'd be bullish or bearish. But to be honest, I don't know which way bullish or bearish will go. So okay, I'll say, I'll say, you know, 200. And in my view, that's almost Well, I guess depends on which way you're looking at it. But I just think, you know, more folks turning off machines is better for those that are out there now, trying to, you know, try and the last machines that get turned on ultimately from the new purchasers is better for the folks out there. So I'll be bullish for some of our friends that are out there in the industry.

Clifton: I like that you gave a perma bear answer and then you tried to turn it around and make it bullish. I appreciate that.

Foxley: Gotta make the people happy. Got to play their sides. It's very commercial,

Birchall: very political answer that didn't actually make any sense at all. When it comes to my underwriting, I just asked Cassie and her team and I go give me bull bear neutral.

Foxley: So one way to do it, Cassie Craig, thank you so much for joining us on the compass, podcast a lot of good information. I don't know if I should be encouraged afterwards. But really, really good information at the very least. So thank you for your time.

Clifton: Thanks so much for coverage. We're gonna make it Oh, yeah, I was really I like I'm actually really excited about the future of mining and Bitcoin so don't be in that negative.

Foxley: Like you're a Bitcoin maximalist

Hosted by Will Foxley