Public mining stocks have declined in price considerably over the last six months.


00:00 Start

00:29 Intro

05:48 Simple metrics to look at

12:52 What leads to under performance

19:33 Hashrate under management

30:43 Large cap miners

37:16 Mid-cap miners  

44:55 Hashrate prediction

48:13 Wrap up

Audio Version


Foxley: Welcome back to the Compass Podcast. Today on the show we have Anthony Power an independent mining analyst Anthony talk shop about the state of public markets, including miner efficiency, how to value a Bitcoin mining company. And if smaller players can out compete against larger, more well financed players, this podcast is presented ad-free by Compass Mining the largest marketplace for Bitcoin mining, check out today, if you want to buy, sell, or host an ASIC and now onto the show. Anthony, welcome to the Compass Podcast. Thanks so much for joining us. I've really enjoyed your writing to date for us as a independent analyst. And I also know that a lot of Bitcoin miners out there also enjoying it, you just put a lot of nice touch on your writing you some nice voice, and then you also delve into the SEC paperwork that a lot of people are not willing to go into.

Power: Yeah, thanks. Thanks so much for having me. It started really, due to the just the boredom of COVID. I retired five years ago, I'm a qualified chartered accountant with a career predominantly in the military in the UK. And my retirement plans are actually traveling but two and a half years ago, that got cut short with with the COVID and the lock downs. And really that I started investing not in mining stocks, but in some, some of the sort of like blue chip stocks, the banking and the oil and gas stocks. And by chance, I made an investment in a company called marathon digital back in December 20. And I purchased the stock price, and within four weeks it had like quadrupled in price. And it got me thinking what have I done, I don't understand what's going on, I don't really know I've invested in it was very speculative. And I think I was sort of jumping on sort of the the Bitcoin FOMO at the time with with them the proxy stocks. So I started to sort of look into what I was doing more, and so on and do some research. And I followed another YouTuber called bloggity, who've been producing content on YouTube for for quite some time before I started investing in that area. And we got, we got chatting together offline, and we suddenly become friends. And I explain I was an accountant, I was interested in sort of maybe doing some analysis. And so September last year, I think I put my first my first tweet regarding the analysis. And it started from there. And it's sort of grown and grown. Trying to, you know, keep the information up to date. I obviously Maura was my first investment, I have invested in a number of mining stocks, and most of them I do actually analyze. So it's sort of it's a, it helps me keep in touch with my investments through the through the companies. I look at three carriers I look at I look at the performance of the company. So I'm looking every month that how they perform with the hash rate that they're disclosing. And that's really key. If you're disclosing a hash rate, you're giving an understanding to a shareholder, the anticipation of how many Bitcoin you should be able to mined with that hash rate. It's not really rocket science. I mean, we know what the global hash rate is, we know what the company hash rate is. And we can determine fairly accurately take into account the difficulty of a system, how many bitcoins you would normally expect to to mine. And I started this analysis, and there's a very big disparity between all the companies that I analyze, and some that are producing literally 100% of what they should be producing. And some of the companies producing far less. And those are quite, you know, quite clear to see through through my through my Twitter feeds. And basically just started from that point.

Foxley: So yeah, you've definitely brought in a lot of how should I say, like authority to what you're writing about, because you just do it in such a professional manner. And there's been a lack of people who are doing this. So I think there has been some people in the past wolfies out the block is one Matt Yamamoto, formerly at the block and coin desk is another person. But a lot of these people have moved on to different jobs or they analyze different parts of the sector. And we've seen a proliferation of Bitcoin mining companies this year, go public think about 20 went last year and more expected this coming year as well. If markets maybe get a little better. So there's definitely a lot of room for analysis and there's been a few companies doing it mostly research places like Galaxy digital has also done a good job with it and coinshares it should show out them as well. But there's there's definitely a lack I think of, of good quality analysis of these companies. And that's a shame because there's so much information, right? Like you just, you said that yourself like hash rate is such a useful tool for analyzing how you're going to invest into a company and for Trad fi, you often don't get a lot of these metrics, because they're not publicly. That's the nice nature of the Bitcoin Blockchain is that you have a lot of these metrics available, and you can use them to analyze things. It's very simple to go from hash rate to cash flows, and see like, why is this hash rate not producing this adequate amount of cash flows compared to this other company in this recording, put my money? Obviously, on this show, we're not giving investment advice, but we are going to delve into the analysis a little bit. So let's, let's keep rolling here. I'm curious, just from a layman's perspective, and when you started getting into independent analysis of these things, what were the you mentioned, the one metric that you use and some other metrics? What was like the first few things that you started looking at? When you're getting into this when you started getting into the writing side of things? What What were some simple decision makers for you when you were looking at Bitcoin mining companies and choosing their stocks for investments?

Power: So again, it was operational performance is key, and looking at the valuation of the company, so and the valuation of company based on on their ability to mined Bitcoin profitably. So I've looked at, I started doing analyses on the actual cost for each of the mining companies produce a Bitcoin, the marginal Bitcoin cost from a gross margin perspective. So that's just taken the Bitcoin revenue and deducting the electricity cost, the energy costs in that from that revenue, but also looking at what the full operational cash cost of mining a Bitcoin so that's taken away all the non cash, the depreciation, ignoring that ignoring the stock compensations, ignoring any changes in value of Bitcoins, which do affect the accounts, but they're not, they're not cash costs. So I'm looking at real cash costs to determine a forecast. And it's some analysis in November last year, and it showed that a number of the mining companies were able to mine, their margins are in the sort of the high margins were 84 85%. So the likes of Hive blockchain, Argo, blockchain and marathon digital tend to produce Bitcoin at the highest margins. From, from an energy perspective, when you look down at the whole cost, it was, again, it was the same three companies that were able to produce the full cost of a Bitcoin cheaper than some of the rest. So evaluation is really, really important looking at looking at the revenues, the future revenues that they would achieve based on what they're doing at the moment, and what they're saying they're going to do in the next 12 months. So most of these companies that we've seen now have have reasonably high hash rates. But if you look at what they're projecting in the next 12 months, it's that the landscape is significantly different. So if we take say marathon digital, at the moment, they've got a hash rate of I think, 3.9x, a hash per second, if you look in one year's time, from today's date, they're forecasting 23.3x, a hash. So that's like an 8x. In terms of size of the organization from where they are today, in one year's time. That's, that's a serious increase. If we take our Go blockchain far go blockchain at the moment that 1.6x A hash, they've just opened their flagship facility at Helios in Texas. And they're plans to grow to 5.5x a hash. So again, that's, you know, nearly three to 4x increase. And also with Helios, because they're going to use the immersion cooling technology, they're they're already suggesting that we're going to see some improvements in the ability to overclock the machines that are put into the into the fluid. And conservative estimates suggest something like 20 to 25% ability to overclock the machines, which means you effectively get a 20 to 25% boost in extra hash for those machines that are in there. So that might take them closer to sort of the 7x, a hash based on them achieving that hash rate by the end of the year. Riot blockchain, another company that's got an enormous facility in Texas at the windstone facility. They currently have a hash rate of close to 5x, a hash and they're going to grow to 12.8. But like Argo, 200 megawatts of their power is already been used for emotion technology, and they're just they're actually got their miners going in there at the moment. So I would imagine the next couple of months we'll start to see that Benefits of that of that system and be able to plan but the likelihood is they'll get to sort of 14 or 15x hash based on that technology. And the conservative estimates that we that they're forecasting to vote to be able to overclock the machines. And yes, before people say you're overclocking machines, there is an increase in the energy.

Power: But the increase is probably in parallel to what the normal usage is. So and actually might be a little bit favorable, the maximum benefits because you don't use all the components of a minor when you put them into fluid. So you don't need fans on a minor, which probably accounts for about 5% of the power cost in air cooled, so you do make some savings. And, and it's down to the the chief mining officers who will do the sort of analysis as to what the optimum setting is to get the best hash rate at the best value for energy. So they can, they can sort of like play with it with the numbers to make sure to get the optimum use out of it. So it just gives you an indication, those three companies there were where they are at the moment reasonably sized mining company is going to be really big mining companies by the end of 2022 going into 2003, one more company, Iris energy, have a hash rate at the moment of about one extra hash. And this time, sorry, in September next year, there plans to be 15.2x. A hash, that's a 15x increase. So you can sort of see, it's it is becoming sort of what we call a hash rate, growth, race. You know, the company that gets the most hash rate inevitably might win the race. But there are issues, there are issues to that. And we can talk about those if you want.

Foxley: Yeah, let's get into minor performance. I love the landscape you've just painted where every single public mining company is racing to deploy more hash rate and it's often by multiples them speaking multiples, we can't we can get into that in like, few minutes here talking about like why stock prices trade multiples above like cash flow or hash rate rather. But I'm curious to get a little information about mining performance. So I'm just gonna read a quote from a recent article you published with us. You said what the table also highlights is that half hive blockchain has effectively produced approximately 50% More Bitcoin per x a hash of hash rate than both marathon digital and Argo blockchain over the period this was published the end of April, as stated above, numerous external factors can lead to lower performance percentages than anticipated for example, curtailment of power has occurred in North America in recent months caused by an increase in domestic demand for said power. Due to the colder weather, both bid farms and hive blockchain report in their monthly updates periods for significant curtailment occurred. So curtailment is one example of a performance issue or reason why you have hash rate and you're not getting as much Bitcoin out of it as you should based on paper. But contam was just the beginning. Right. So what are some other things you've seen in the disclosures or the analysis that you've done that have led to depreciated performance over a certain period?

Power: Yeah, well, you mentioned algo blockchain. And the biggest problem they've had over the last sort of six to eight months is the S 17 Miners just haven't been performing anywhere near their expected output. They've had significant problems. And hopefully, I think these miners have now been shifted to heli OS to put in the immersion cooled system. And I would imagine they've done some testing there to make sure that that no other work because it looks like from the from where we saw the the boxes that were being stored were full of es 17 miners. So you know, that's that's been explained by ongoing various updates, they have had that issue. And other other reasons. Marathon blockchain have a at the Harding facility which is, which is next to a coal mining site. And they've had equal power issues at the site there. So they've lost power on certain days. They are they have put a public statement out to say that, you know, it's their intent to leave that facility. And they they're they're ramping up to move into compute North new facility in Texas, which is a 280 megawatt facility. And that's, that's happening as we speak. Now, we've already started to see the miners being going in there to get that hash rate ramping up, I think, having spoke to their CEO, Fred teal, early last week, they have something like 22,000 Miners already set up just needed the switch to be turned on. So they're waiting for the electricity permits to come through from the grid operator, once they're through 22,000 it's an extra 2.2x A hash immediately online, and they have something like 70 to 80,000 Miners are waiting to be installed. So you know, we talked about that growth at 23. There's there's you know, half that growth and just waiting to be switched on installed and switched on. So you know that, that it's been In a delay, but they're starting to sort of make good on some of the original strategies that they put out there. Other reasons, are effectively maintenance and software upgrades. And they'll play a part. Obviously, power, we talked about power and the fact that, you know, the power companies really appreciate Bitcoin miners, because what bitcoin does is it takes the load the excess load off the grid, as and when required. And these miners work in conjunction with energy providers to make sure they can, they can ramp up and ramp down, literally in minutes. So you know, you have a facility of 10s of 1000s of miners, it doesn't take any longer than five to 10 minutes to turn all those miners off and equally turn them back on again there. And even quicker than that, I mean, some miners are saying it's literally seconds, they can they can make that switch, which is really effective. Because there are certain times the day or maybe periods of the year where the domestic requirement does increase. So you can just imagine the morning when all the toasters get turned on at eight o'clock in the morning for breakfast, and say maybe in the evening, when the evening meal, you know, you might have a spike in the energy will, the miners will work around that spike and curtail their power. So that the domestic supply gets its full requirements. And then as soon as that that supply goes down, they can then ramp up the power on their machines and work around it. And it works very, very well. Because the power companies they have to provide the power to to meet the domestic requirements. But those those spikes are few and far between, it might be half an hour in the morning and half around the evening. So you have 23 hours of the day, where the power supply is not is not being utilized. So of course, you know, Texas being a big power state, they welcome the miners with open arms to come in because they they realize they can work in in real good, you know, conjunction with with each other to make sure they both benefit miners can benefit from the from the power at really good rates, and the power company gets paid for power that it would not normally receive a revenue from and enables them to reinvest in their company and deliver more that way. So it's it works that way. And a final thing. Also, there's an element of luck. So if you're thinking about Bitcoin mining, all these machines, these hundreds of 1000s of mining machines are literally chasing the number. So they're trying to determine what the next number is. This year, we've seen examples of individual machines actually gaining the block. So they've guessed the correct number they're not they're not part of a bigger, bigger organization, they found it. I mean, it's, to me, it's a bit like when you buy a lottery ticket, and you've won the lottery that happened four times this year. So the miners are part of pools whereby they, they will share the sort of the pool winnings to a certain extent. And miners can basically have a contract with a mining pool to say, you know, if I'm supplying 2% of the of the of the hash rate of the global hash rate, I'd expect to be going to censor the Bitcoin. And that's how some of these mining pool contracts work. So you can pretty much get within about two or 3% your expectation and what you would receive, and you pay a small fee for that maybe maybe 1%, or 2%, but you get there and there are others where you can actually get paid based on the actual look of the mining pools. If the mining pool does better, you might get slightly more if it does less, you might get slightly less. But I would think most of the miners I've spoken to go for the first option whereby they get a guaranteed return. And it's not unusual for miners to be in more than one pool. So you know, I spoke to one CEO a few months ago, they use three pools and have different different types of contracts and each one of them so those sort of spreading their risk a little bit there. So the lock thing comes in, but it's a it's a small, it's a small percentage. It's a small percentage.

Foxley: Definitely yeah, I've spoken with a few pools, or rather a few companies that use multiple pools while you always want to have like a failsafe it's your first pool goes offline. Moving the conversation over to multiples though, in terms of these stock picks are these investment strategies. Be curious to get your take. I don't have the numbers in front of me, unfortunately. But for a while there, a lot of these mining companies, their Terra hash, trading multiple I guess you could kind of make up a term right now on the spot was far above what the breaking or what the price was for just mining on your own. So let me explain this a little bit more. The cost per Tera hash is like a metric used for what an ASIC is worth. And then you could also use it for like how much Bitcoin you're going to mined There's a few different ways you can break out these metrics. And you can apply these same metrics to public companies as well. And basically understand how much hash rate under management do they have? And what does the multiple their stock price trade above that. And so a lot of times, we saw last year that a lot of public miners, the hash rate under management did not correlate very well with their stock price. Their stock prices were quite inflated, over what their hash rate under management was compared to what a private company would have. And I think that just tells you about capital markets at the time, right? There's a lot of money floating through the system. And these public miners were just taking advantage of it and their stock prices were trading above where they naturally should, based on the fundamentals, I'd be curious to get your take on that. And I don't know if you've looked into it recently, have any thoughts about the collapse of a lot of these mining stocks over the last 60 to 90 days, it's been pretty dramatic, some of them are down by as much as 60%. But yeah, I'll leave it there to get your take.

Power: If we if we go back to November the 12th. We should when sort of Bitcoin reached, it's reached, it's close to 69k. And we look at these mining stocks from that date, the majority of them of the listed mining stocks of which there are 29, currently, and are in the region of 80 to 85%, lower than the share price is lower now than they were on the on the November the 12. That's a significant reduction. I think you're absolutely right. I think there's a lot of capital in the markets. And there's a lot of retail investors going into these stocks without really doing any any due diligence or analysis. Some of them were over over over inflated in valuations. I mean, the key thing is, is when determining evaluation for a miner, the most important thing is is what are they doing currently? You know, what are they mining currently less? You know, let's not get overworked, what about what Mara's saying they're going to do next year? It's what they're doing. Now, it's important, and actually, performance wise, they've not been doing very well, at all. They're usually in sort of bottom two or three miners on my tables month in, month out. So if I have as much faith in what they're doing now, how does that translate to what I think that we're doing next year. So I do take, you know, some of the updates that these miners bring out, and then they're not the only one, in fact, this goes far to say that all the miners will try and put out the best, the best picture of their mind that they can possibly do without sort of like really being dishonest about it. I mean, you know, Mara have purchased 13.3 of excessive miners, which they said they would have by middle middle of 2022. They have purchased those miners The fact is the delivery of those miners is not the same as purchasing them that they're going to be some are going to be delayed. Their infrastructure is not quite ready for those miners yet. So they've got a lot sat in, in storage waiting to be waiting to be turned on. And so those miners that are sat in storage, I did I did a small calculation a couple of months ago to see what the impacts of that was. And the impact of Mara in lost revenue was something like $30 million a month. A significant amount of money now, it's great that they've got those miners there. But that's what's cost that's cost them an enormous amount of money, and that that amounts rising as each as each day. And that's the current price of Bitcoin. That's not an inflated price of Bitcoin. You know, if you look at the likes of core scientific hoo hoo, hoo got a hash rate of over 8x, a hash in self mining and a similar amount in host in mining. They're an enormous, they're a monster of a mining company. And they're planning to get to sort of 30 32x Ash by the end of the end of this financial year. But they deliver month in month out what they're supposed to do within within that sort of very small two or 3%. And Maurice has had that difficulty and so but what Mara benefited, benefited, along with riot against all of the companies was the fact that they were the first to us minus two go to the list on the NASDAQ. And with that listing came lots of potential new customers because you're going on to the prestigious NASDAQ Stock Exchange. It opened the doors to the likes of fidelity and BlackRock who invested heavily in these two miners. It gave them an absolute edge on every other miner because they had the capital to go out there and not buy 10,000 miners, they could go out there and buy 60 or 70,000 miners and they could buy in terms of right they could buy infrastructure they pay $650 million for their infrastructure in Winston and you know that other miners can't compete with that. So the bid farms, the hive block chains, the the Hotate and the Argos. blockchains which is classed as sort of like the middle, the middle ground, and miners use riot, Mara and core scientific as a sort of like in sort of like Division One, they're the bigger miners. The Division Two miners can't compete with with that at the moment. They're sort of still, they aren't NASDAQ listed now. But because they were late enough that listed we've got we've got some sort of like a saturation of minors in the market. It's like investing thinking, which one do I go for? There's so many to choose from. There's 29. And I want to make sure I pick the right one? Well, I've heard of more, and I've heard a riot. And I think I've heard of course signs that because they're big miners. Does that mean that the other miners, you know, don't get don't get the same look in and people are not picking miners on based, they're not based on valuation, they're based on probably the the unknown, the unknown brand of miner. And that's where it becomes a comes an issue. Because if you look at valuations

Power: and we look at the hash rate, and compare that to what each company valued at, then, you know, Morrison riots don't tend to stack up well from a valuation perspective, compared to others, albeit, their stock price has come down significantly now. So those numbers need to be really those that was being done, and just to see how it all almost all stands. But if all mines have come down, the same would apply, it would still mean that Morin right are still more overvalued in comparison to some of those division to Moses spoke about. I would I would without looking at the numbers. Now I sort of I'd stand by that point.

Foxley: Yeah, it's funny how easy money can get in and change things. And marathon is well known for having its access to capital markets that did a really nice move last year with that debt convert or senior debt note. That basically gave him like, 6 million. Yeah, so so much capital for almost free, especially in an inflationary environment.

Power: I heard Will, on that point there, they they went to the market for half a billion. And it was nearly four times oversubscribed. And so they went with a bigger number than 500 million big, you know, if you've got if you've got the opportunity to get that type of that type of funding at that cost, the 1% note cost, that's just that's like free money. Obviously they have to they have to make good on the on the note itself. So you know, they do that is it is a debt to the to the company. Since that then they went out and did I think it did another 500 million equity at the market offering and achieve that very quickly as did riot Riot did it I think the 600 650 million at the market offering for shares a dilution, and again, within one month, achieved the whole amount. Now 650 million is more than the market cap of the four middle miners individually. So that just you know, it's it's, they have jumped the gun they were they were physically smaller miners when they went on the NASDAQ but because of that NASDAQ Listing, they were able to jump everybody and just just get that that economies of scale, go out there and buy miners, you know, if you're buying 60,000 miners, you're gonna get a better deal than buying 5000 miners, you know, the smaller miners 5000 is a lot of miners to them. But if you're going an offering, you know, I want 60,000 miners, and Mara paid I think when when mine, you know when the pace of like 4000, a miner in April, May last year, but they paid an include that was a premium to get them delivered early. So they paid a little bit of a premium to jump the queue on the other miners. And that's where you have when you have the power of that amount of money. And I can tell you now some other miners at the same time paid double that amount for their miners. So they've made a massive capital saving, which will, which will enable them to get their return on investment quickly because every miner looks that's a key metric for a miner themselves. They want if they're going to deploy a miner in their organ in their, in their, in their facility, they need to know how quickly that miner will recover. It's an initial investment. And so I know some of the mining CEOs, they look at sort of like seven or eight months to recover that investment. And then the profit they're fully profitable afterwards. And that's that's the that's the difference with the big miners and the retail miners is you know, you can get those cheap electricity costs to give you that return on investment so that you're you're able to then work really profitable, you know, for the for the balance of the life of the minor. But yeah, last year, very much overinflated. I mean, just to just look at Mar itself, I think in November it was valued at eight Bill million dollars market cap. And it's currently valued at 1 billion. Wow, there's there's a change in there's a change in valuation.

Foxley: Yeah, then the whole crypto market has taken a nice hair trim.

Power: Bitcoin is not done by that by that. And I think Bitcoin is probably down by 55%. So we do see more volatility with regards to mining stocks, and we deal with Bitcoin. So there's more upside but equally, there's there's as much downside as well, so a lot more volatility. But, you know, hopefully as as these miners get bigger, and the volatility of Bitcoin reduces, and we might see that that volatility sort of slowed down with it with regards to the mining stocks themselves. But

Foxley: Yeah, I just want to pitch a question to you, now that we're sort of on the topic. And the way you've laid it out is marathon riot and core scientific, they're so big, and they have so much capital, other disposals that they can, they can not meet timelines, and they can not meet deadlines, and they can be okay, they can have lower mining performance. Obviously, everyone's gunning to have as high mining performance as possible. But when you're insulated with that much capital, nothing's going to happen. At the same time, though, our stock investors becoming a little bit wiser if we enter into a bear market, are they going to look at mining performance? And are they going to punish some of these larger companies for not performing the way they should? I'd be curious to get your take on that perhaps we just continue to see stock valuations for mining companies continue to be traded out of ignorance, which is what it seems to be to date. But I'd be curious to hear your take.

Power: Yeah, I think as as we get more and more information from these miners, and we're going to have more of a historic information available to us. Bearing in mind, you know, even look at say bit farms only started their mining a couple of years ago. And so it's you know, if you've got sort of three or four years of that information to show how they've grown financially, not just in excess cash, then then it means it's more meaningful to the to the to investors to go and do that due diligence. And to check what the before they even consider making an investment in a company. Mara, and Riot have heavily obviously had that ability to to grow. Morris and write production hasn't been as good as the other miners rights have invested in Morris, but not not massively better. But we'll see we'll see from the windstone facility, I really like the setup there, they've got great infrastructure, and they're sort of future proofing themselves as well. So they've got that facility to grow into. And they've just announced, they've just announced they're going for a one giga watt facility, another facility in Texas, and effective that sort of future proves them for probably the next five to 10 years. And they chose to go the infrastructure route. Whereas nearly all the miners that that all the listed miners have gone infrastructure, with the exception of Mara Mara have gone down the hosting route. They tended to what they decided was if we feel that we can deploy our capital in miners and get a better rate of return and having an infrastructure, then why not just keep doing that? And I think that's that sounds great, until you look at the performance. And then you say, well, it's not worked out great, in all honesty, and your performance has been shocking for the last sort of six to 12 months. When do we see that improvement? And if I'm a host miner say I'm core scientific and I've got myself mining and my my hosting facilities, and I've got issues with my hosting facilities, which mine is am I going to look after first my own or the ones I'm managing and that's sort of like that's a quandary that you know, often that that won't be in the contract but you can bet your bottom dollar core scientific form ensures its own self mining is preserved far quicker than the miners outs host knights hosted and that's that's my issue is the fact that infrastructure. I think in the long term, we'll win the race and infrastructure is expensive, we know it's expensive, you know, Whinstone cost $650 million to buy that site there Helios if you take away the miners it's going to cost is going to cost half a billion to develop that site.

Power: These are significant amounts. But if you look at the halvings everytime ever having what that's what that's what it means is the energy prices will double but to mine a Bitcoin. So you're only going to get an x having you currently get 900 bitcoin miner that you want to get 450 mined at the next halving. That means the the energy the hash rate well won't go down. But you're deploying that global hash rate to only get half the Bitcoin which means you All paying effectively, half. Yeah, sorry, twice as much energy to put to mind one Bitcoin. So if we look at, say two to halvings ahead, at the moment, most of the miners probably paying around eight to 10,000 in energy cost per Bitcoin, that could take the price of mining of Bitcoin allowing for a difficulty as well, at the same time as a hash rate increases, maybe 30 to 35,000 a Bitcoin in say, four or five years time. That's significant. And if you're a host, if you're hosting your your miners, and that an agreement is based on a percentage of the energy costs, what sounds okay now as a percentage of 8000 is going to be a whole different ballgame when you're saying a percentage of 35,000 that that, that that hosting elements of the of the energy cost starts becoming quite significant. And, you know, I'd be interested to see if any of the if more, I've actually done a full business case to work out as I was an accountant, where that breakeven happens, because we've got 118 years left of mining, it's not it's not finishing in four years time. So as energy costs keep going up and up and up. And they're not even allowing for the cost of energy, global energy prices increasing, I'm just taking what the miners are stating at the moment as their cost. We know even the Texas costs are going up at the moment for miners. They're not fully disclosing that yet. But they're not getting all of and getting that sort of two to two and a half cents rate forever, that that rate will change. If the global prices don't start coming down. All miners will be paying more for their their energy. So it goes back again, it goes it goes to see which are the best best place going forward. And it's interesting quandary it's not like it's not like one, one given, you know, set set set of metrics work for everyone. You've got to really go into looking at a number of metrics to see which one which one is, you know, which which company comes out best?

Foxley: Yeah, the hosted solution is definitely interesting. Just one of the questions I can add on here, interesting. Get your take, do you think there's a case for some of these middle group miners to join the Premier Division or the first division of miners like the riots and marathons of the world, during a bear market? Or do you see sort of a shake up? Or do you do you see some of these larger miners like marathon or riot going back down into the middle class of miners, just because of minor performance issues?

Power: It's going to it's going to be interesting. I mean, with regards to all these miners declaring really big growth, growth increases over the next 12 months. And most of them have actually got committed orders for miners over the next 12 months. So it's not like they're aspiring to get there when they're quoting. So marathan have got 13.3 of mine have will have 13.3 of miners during this year. So by the end of quarter three, which is our revised target now, those miners will be in place they've ordered them that they're actually been delivered, but just waiting for the Sancy to be able to take those miners riot, again, they've got big orders in going forward. And Argo have got 5.5x Ash of committed orders. Now the one thing that that will will be an issue is and so listeners who may not be aware of how these contracts work, is generally these miners when they make a note a significant order, they pay like something like maybe 35% of the order as a deposit. And then there'll be a second payment, which will cover the period of the lead time between order and delivery. So it's taking nine to 12 months lead time to get the miners once you've ordered them. So you might make a number of payments during that period of another 35% of the total amount. And then towards the end. So maybe three or four weeks before actual delivery, you make the final payment. So those miners are fully paid before you actually receive any of them. So and that's generally like a bit main contract, we'll we'll we'll go that route. And I'm sure all the other mining providers have something very, very much similar to that, you know, work on a three payments structure. So with these miners who've ordered these, they've obviously paid the big deposits. They're already paying the monthly payments. However, as we are sort of appearing to be in this sort of bear cycle at the moment, how are some of these miners going to get the necessary funding available to pay those balances off? Because I think a lot of people had aspirations of Bitcoin being at significantly higher price last year, and I don't think anybody really anticipated we'd be down at 30,000 pounds at the moment. Up to $30,000 at the moment. So what we heard at the conference last week in London, the AME conference was that was, there's an anticipation that up to 50% of orders may be defaulted in 2022. Now, that might or might not really be the big big miners, that might be some of the really small miners and retail sorts of miners who've gone out there and made these orders and thought they'd be able to, to fund it, because Bitcoin would appreciate in value and be able to sell a bit of Bitcoin to fund those left, but that that's not been the case. So if those numbers are true, and there's some serious people making those statements at the conference, that will be an interesting to see that see that roll out how that's gonna affect any of the miners, because, you know, I think riot and Mara will be in a, in a reasonable position. But they have got big orders out there to pay, and they want some and right wants to, you know, it's buying a new site and building new science. So it's gonna be interesting how this landscape works in this bear cycle. I think the middle, the middle division of miners are going to find it difficult or difficult, because I think they'll have to start selling their Bitcoin. So those that have said, No, we're using his huddle strategy. And that was another interesting point that came out. If before that conference, most miners would huddle their Bitcoin. Now I'm starting to hear, some of them would sell, when it was a necessity to sell, it's no longer you know, because they're going to need that funding. And, and if you think of the share prices, at the moment, the dilution doesn't really become an option anymore, because the share price, the share prices are so low, and the market capital is so low. If you were to take, say, Argo blockchain, if they did a 20% dilution, it would get them sort of 40 to $50 million, which, which, when they're looking to buy, you know, to, to find final payments to cover, you know, 30 40,000 minus, it's not really going to cover that, that that final payment. So you know, that Argo I've got, you know, they've they've managed to raise money through debt, and they've got Bitcoin, but I believe they'll have to sell Bitcoin to meet some of these obligations. And being with high, they'll have to sell Aetherium as they've been doing all year to meet their obligations. And, you know, bit farms, who, who've got a 500 million at the market offer as we speak. So they've got this, you know, in place, are they willing to actually utilize that that facility knowing the bid, the bid bid, farm share price is really low, and they're not going to get what they expected? is different. When you go out to the market, you think, if the share price is $6, but when it's $1.80? It's a whole different ballgame. You know. And we know from we know that shareholders the last resort for shareholders is dilution, they don't want dilution in the company because obviously they're they're elements of the company because that much smaller so then shareholders now even being more agreeable to Bitcoin being sold before dilution.

Foxley: Yeah, the capital markets have definitely changed over the last city

Power: Yes, but in a way capital markets change and the fact that companies are able to raise debt 15 months ago, that was no you couldn't do it. So, you know, you only have selling Bitcoin or dilution as your as your two levers. Now, there are three levers. And in fact, as the energy companies start coming into this space as a fourth lever, lever, so the fourth lever will be partnerships. Or you might get an energy company coming in and saying we want to partner with you, we have, you know, an immense amount of capital available to buy miners, but we haven't got the expertise in running a mining company. So you know, that's that's that's an option that's coming onto the table now. And I believe I think Exxon have already sort of made a move into the Bitcoin mining space and as Fred teal suggested a few months ago, he thinks in five years time, it will be predominantly be energy companies running running the show.

Foxley: Yeah, I mean, last week, and we'll publish I think this episode tomorrow, Jai Energy partnered with Mawson and TPL which was a big move for that energy slash landowner provider in Texas to jump into Bitcoin mining. Anthony I really want to thank you for your time on the show we'll definitely have to have you on again your your wealth of knowledge on all things Bitcoin mining and public markets. I do want to ask one last question I like to ask guests on the show and And that is for a hash rate prediction to end up the year a lot of people beginning the year were saying 300x A hash easily. But when we're midway through the year, almost probably five months is a year, and we're only about 220 x hash. So do you think we can get another 80x? A hash online by the end of the year? What's your prediction?

Power: So couple couple of points. One thing that most viewers of the podcast won't realize is that Kazakhstan isn't online at the moment. So when we say to 222 exahash, Kazakhstan, governments have said, the 31st of May will be the earliest date they allowed and switched back on. And they're only going to allow the white minus to switch back on. So there are a lot of black market miners in Kazakhstan that aren't following the protocols to get their facilities approved by the government, but also approved by the energy provider as well. So they need to approvals to mine in Kazakhstan, and half half of the miners, I've got that approval, and from what I'm hearing from a few sources, and I lived in Kazakhstan for three years, I know the environment out there is that the 31st of May, is the day that the hoping that they get switched on. So potentially, that could be another 10 or 18%, added to the to the hash rate. But going back to the start of the year, I was fully expecting 300 to 325x Hash by the end of the year, I probably be revising that down now to maybe 275. By the end of the year. What we're seeing is we're seeing some of the big miners, we've already spoke about the Mara bid farms have revised their exa hash target from eight to six, by the end of the year, hot eight, revise their target of six from mid mid 2022 to the end of 2022. And other miners are sort of going to be that same bracket, it's going to be down to, you know, expectation management of expectations. I think, you know, these numbers are startling. You know, Mara have got those machines in, you know, literally on site and storage, ready to be put in switched on. But it's a case of how many machines can they physically move per day, per, per week to get to get that hash rate up. So it's not this is not plugging in one or two miners is plugging 80,000 miners. And a good operation team will probably could probably do 1500 a day, on a good day. Nothing's got goes wrong. And they've got the you know, they got the right team team working together, like a Formula One team changing the tires on the other car, you know, these you know, if they get that they can do 1500, maybe 2000 a day. But, you know, how long will it take to put you know, nearly 100,000 Miners on Mars from the garage into install? And are they going to achieve quarter three, which is literally four months away now. So they've revised their target by three months? Because it's not happening by the end of June, which is literally four weeks away. But are we still are we still realistically going to get that hash rate by the end of that period. So all these factors play into that. And that's why I'm probably thinking to 75 is going to be closer to the mark

Foxley: 275. So a little bearish, but not too bearish.

Power: And I was still seeing growth, but not as we're expecting and as quickly as we're expecting. And it'll be good when I speak to Jason loads from Riot on Wednesday and from Dan Roberts, for IRS tomorrow morning. Because those two have got quite significant growth strategies this year. And I'll be asking, that's one of my main questions is, you know, how confident to your shareholders? Are you going to be achieving those hash rates in the in the times that you stated? And at what point? Are you going to be amending it if necessary? So we'll see how that how that works.

Foxley: Yeah, I look forward to seeing those numbers myself and when we find out what things look like well to have you back on it they thank you so much for joining the Compass Podcast again. Just a wealth of knowledge about capital markets and public miners really appreciate your time.

Power: Thank you for having me.

Hosted by Will Foxley