#1349 Adam Sullivan | Core Scientific CEO on Bitcoin Halving & Mining Industry

Adam Sullivan is the CEO at Core Scientific, one of the largest bitcoin miners in North America. In this conversation, we talk about building Core Scientific, public company impact, bitcoin halving, bitcoin ETFs, future of bitcoin miners, consolidation in the industry, metrics to evaluate a business, and future plans for Core Scientific. ======================= Buy and sell cryptocurrency in a tax-advantaged crypto IRA with iTrustCapital. Enjoy 24/7 access, lowest fees in the industry, and tax benefits for your retirement. Open an account today at ⁠⁠⁠⁠www.itrustcapital.com⁠⁠⁠⁠ ======================= Core Scientific (NASDAQ: CORZ) is one of the largest public Bitcoin miners and hosting solutions providers for Bitcoin mining in North America. To learn more about Core Scientific, please visit: ⁠⁠⁠⁠www.corescientific.com⁠⁠⁠ ======================= Pomp writes a daily letter to over 265,000+ investors about business, technology, and finance. He breaks down complex topics into easy-to-understand language while sharing opinions on various aspects of each industry. You can subscribe at https://pomp.substack.com/ ======================= View 10k+ open startup jobs: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://dreamstartupjob.com/⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Enroll in my Crypto Academy: https://www.thecryptoacademy.io/

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:02Anthony Pompliano?

  What's up everyone? This is Anthony Pompliano. Many of you know me as Pomp. You're listening to the Pomp Podcast, which is my effort to find the most interesting people in the world and sit with them for hours while I ask questions in an effort to learn. So it would mean the world to me if you would subscribe to the show on your favorite audio platform, watch episodes on YouTube, and tell your friends and family about the podcast. My goal is to help millions learn from the world's most interesting people. So let's get into today's episode. Today's episode is with Adam Sullivan. He is the CEO of Core Scientific, one of the largest Bitcoin miners in North America. Adam and I talk about how Core Scientific has built their business, merging from bankruptcy, what it's like to be a public company again, what has changed since they're back in the public markets.

• 0:47Anthony Pompliano?

  We also discuss how he thinks about the Bitcoin halving. Is it a positive or a negative development for their company and other miners? How these miners are using debt for financing? And how they think of the trade-off between equity financing at the same time? Then we get into things like why Bitcoin miners have a bright future, how there will be consolidation in the industry, what are some of the metrics that Adam looks at when he's evaluating a Bitcoin mining business, and whether he thinks that it's a good business or not. And then, what is the plan for between now and 2028 where Core Scientific wants to continue to grow to keep their position as one of the largest miners in the world? This conversation is packed with insights. Adam does a great job and I learned a ton. So I am excited to show you my conversation with Adam Sullivan.

• 1:31Speaker 01

  Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only.

• 1:55Anthony Pompliano?

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• 2:36Anthony Pompliano?

  However, if you do the same thing in your Roth IRA and you make a $20,000 profit, you don't need to pay any taxes. That's right, you get to keep all the profits and not have to pay taxes because it's in a tax advantaged account. So, opening a tax advantaged IRA at I Trust Capital only takes a few minutes. You have 24/7 access to the markets with some of the lowest fees in the industry. The bull run has begun and people are starting to see their accounts go up. So, start taking advantage of tax benefits with an IRA at I Trust Capital. You can start maximizing your crypto investment today. Go to Itrustcapital.com. That's Itrustcapital.com.

• 3:16Anthony Pompliano?

  Today's episode is brought to you by Core Scientific. They are one of the largest public Bitcoin mining companies and hosting solutions in North America. They specialize in transforming energy into high-value compute with exceptional efficiency at scale and recently announced a contract with CoreWeave, a leader in AI cloud compute, to provide up to 16 megawatts of data center capacity. With a substantial fleet of their own miners, Core Scientific not only earns Bitcoin for their own account, but also provides hosting services for large-scale Bitcoin mining customers operating out of seven data centers in Georgia, Kentucky, North Carolina, North Dakota, and Texas. You can learn more about Core Scientific by visiting corescientific.com. That's corescientific.com. Go check them out today.

• 4:03Anthony Pompliano?

  All right, guys. Maybang, I've got Adam here with me. Adam, I thought a great place to start this conversation is the Bitcoin miners, obviously, like when Bitcoin's price goes up. We've seen Bitcoin go very high. It hit new all-time high, but it happened before the halving. And the Bitcoin halving, I think a lot of people question, is this good or bad for the miners? So how do you think about these two kind of inputs into, you know, the next, call it, six months or so? We have a high Bitcoin price before the halving, and then we have the halving coming. And so how are you guys thinking about your business today?

• 4:29Speaker 02

  Yeah, I think one of the big questions is, is the ETF, the mechanism for Bitcoin to go even more parabolic post-halving in a way where it's allowing more institutional investors, more retail investors, access to the market? If that's the case, then we might see a much different bull run than we've even seen in the past, where we actually see it go higher than we expected. But the Bitcoin run-up prior to the halving is actually creating a very interesting situation post-halving, where a lot of the machines on the network today are still going to be profitable post-halving. That's much different than 2020, much different than 2016. And so as we look forward post-halving, you know, we're looking at a, because we're looking at a point where a lot of miners are going to be marginally profitable,

• 5:13Speaker 02

  and they're going to stay online for kind of three to six months. So I think we're going to see a much more drawn-out process. And instead of seeing what we saw in 2022, where we saw a much more sped-up process in terms of crypto mining or Bitcoin mining companies and having failures, you know, that's going to take a little bit longer, and we might not actually see it until 2025.

• 5:32Anthony Pompliano?

  And are there things that would affect how you view this, whether it is regulatory, like kind of external shock? Could there be other ETFs that are approved that like draw institutional attention away? Does the ETF open up the floodgates for institutional capital to kind of plow into mining and say you have more competition? Like, how are you just thinking about like other things that could happen in the industry outside of just this halving moment?

• 5:58Speaker 02

  Yeah, I think right now, what we're seeing is just the fact that more institutional investors are looking at Bitcoin miners because of the ETF. That's a trend that we've seen really since starting in December, where more institutional investors recognized the ETF was coming. We're trying to find other ways to play the ETF launch. You know, Bitcoin miners represent a leveraged way to play on Bitcoin. Because you're investing in a Bitcoin miner in order to get a multiple on the US dollars that you're investing in a miner versus just buying Bitcoin. And so that's really one catalyst is I think institutional investors actually could present kind of the next bull cycle for Bitcoin miners. Whereas retail has generally driven that in the past.

• 6:38Speaker 02

  And the only institutional holdlittership you see really amongst Bitcoin miners today is mostly passive funds. I think you're going to see a lot more large active funds taking positions, especially as these institutions get a lot smarter on our economics. Really, for the first time, those are the questions we're getting from institutional investors. Explain your economics, explain your power costs, explain your miner fleet, explain your facilities, explain your advantage. We never heard that before.

• 7:03Anthony Pompliano?

  How does the evaluation change in conversations as they're having it with you? Like if they know where your wallets are, they should be able to see how many Bitcoin that you're actually mining. If they know how you're treating that, if you're selling it all, if you're keeping it all. Do they have like more insight into what the revenue in a quarter is going to be for a Bitcoin miner than maybe they would say, you know, in a Facebook or an Amazon or anywhere else?

• 7:25Speaker 02

  Well, we're incredibly transparent on this point, so we actually post our daily Bitcoins mined every single day.

• 7:32Speaker 02

  You know, we like the fact that people can understand how our business is performing and they can judge us in real time. They can also see the effects of weather events and when we have to curtail. And so all of those factors, I think, are really good for institutional investors who are seeking greater transparency. You know, initially, this was driven towards giving the masses, you know, access to more information about the company. But now it's institutional investors that are saying, yeah, if you're not doing that, it's a problem because we want to know how you're doing. Other companies have similar type, I would say, information out in the market, whether because they're running their own pool. But it's very difficult to know what some of the other miners are mining on any given day.

• 8:13Anthony Pompliano?

  And as you're talking to these institutions, what are they looking to do? Are they interested in investing with debt? Are they interested at just buying the stock and kind of equity capital? And then how do you guys on the flip side of that think about equity and debt to help fuel the business?

• 8:28Speaker 02

  Yeah, so today, we have about $600 million in debt and we have a number of different instruments that are all publicly traded. And so we have a wider range of institutional conversations than I would say most miners in this space have. You know, we have convertible notes, we have term loans.

• 8:47Speaker 02

  And we have also, we have warrants on the equity side as well as our common equity. And so we have about six publicly traded instruments. And so institutional investors find that fascinating. And they love the fact that they can be trading different instruments in a Bitcoin mining company. You know, as we're thinking about going forward, I would say over the long term, having about one turn of debt in this type of industry, it's probably the right thing in a non-volatile environment. Because then if you get into a downside scenario, you know, let's say you're two turns or two and a half turns in a deeply downturn, in a deep downturn. But then in a bull case, you're at a half turn. I think there is a place for leverage in this industry. You know, the industry has historically been funded through equity. We've seen some players take on debt.

• 9:29Speaker 02

  Minor equipment debt was the, was definitely a, a pretty dangerous instrument for companies to take on. I would say short-term amortizing debt in this industry is, you know, that's a dangerous place to be. Because you have very short dated fixed US dollar payments and you're sitting out, you're mining a volatile commodity. And so it can create cash flow scenarios that are very tight. And so for us, you know, we're in a very good situation. Our debt's mostly four and five-year debt. And we have a lot of optionality in the capital structure. I think that's really key. You know, convertible notes are really interesting for miners. You know, you're seeing it being used heavily by MicroStrategy. Obviously, if Bitcoin outperforms, you have a chance to delever. And that's, that's a great place to be.

• 10:15Anthony Pompliano?

  And when you think about the strategy around, do you hold the Bitcoin or do you sell the Bitcoin? You're mentioning like you're mining Bitcoin, you're telling everyone, here's how much Bitcoin that we've mined. But then you've got this like volatile commodity, as you call it. You have fixed cash payments, both in debt and expenses. And so what is the strategy? Like, do you try to time the market? Do you hedge? Do you sell immediately? What are you thinking?

• 10:39Speaker 02

  Yeah, I mean, for us right now, we are currently selling our Bitcoin on a daily basis. You know, what we're really focused on is operating extraordinarily profitably. You know, we're the best Bitcoin miner out there from a number of different angles, and we're one of the largest Bitcoin miners as well. We actually led a number of Bitcoins mined since 2021. We're leading again in 2024. So, you know, for us, we're really focused on driving additional growth into the company. Other companies have really focused on diluting shareholders to pay for cost of revenue, to pay for their OpEx so that they can put Bitcoin on balance sheet. Essentially, that's shareholders buying Bitcoin at a massive premium. You know, you could say that's a similar situation with people buying MicroStrategy,

• 11:20Speaker 02

  but that you're buying into a leveraged portfolio of Bitcoin in the MicroStrategy situation. For miners, you're just funding operating expenses so that the miners can hold Bitcoin. You know, for us, if we're going to continue to grow this business, we have a massive growth portfolio of facilities ahead of us, of partially developed infrastructure, and we have a lot of ambitions. And if we want to achieve those ambitions, we just can't be sitting on a significant amount of Bitcoin because there's an opportunity cost to that, and it's going to come at the expense of our shareholders.

• 11:48Anthony Pompliano?

  Now, what is the counterargument that you, like, most resonates with you? Is it just like, hey, if Bitcoin goes up, then we're giving up upside? But really, as a public company and as a fiduciary, you're trying to manage the downside and kind of the Bitcoin volatility?

• 12:02Speaker 02

  Absolutely managing the downside. This business is about time and market. You know, as a mining company, you're playing for the three months a year, four months a year, where Bitcoin price outpaces hash rate growth. So that's when mining economics expand rapidly, and you have to be alive for those types of bull market cycles because that's when you're making significant outsized returns. So really, that's, you know, that's our focus right now. And the other part is, we have better margins than all of our competitors at scale and many of our, and many of the companies that are operating smaller as well. So for us, we're experiencing a much larger upside going forward as Bitcoin price expands than our competitors. So from our perspective, we don't need to put Bitcoin on balance sheet

• 12:45Speaker 02

  to experience the upside of a Bitcoin bull market.

• 12:48Anthony Pompliano?

  What drives the kind of better margins for you guys?

• 12:53Speaker 02

  Lower power costs and better operations. So for us, it's having the best hash rate utilization or one of the best hash rate utilizations in the industry. So that requires significant operating experience. Our team's run by mostly ex-traditional data center folks, so they know what it means to actually have very high uptime. The other part is software. We had to build our own software stack. We were the first institutional miner in North America, first one to 100, first one to 500, first one to 700 megawatts. We had to solve a lot of problems before people knew that they were problems. And so for us, it was build software that makes our machines more efficient, build software that allows our machines to run longer. All of those things contribute to a much higher hash rate utilization than others.

• 13:36Anthony Pompliano?

  And then talk a little bit about, Core grew very quickly, went to bankruptcy, has now emerged as a public company again. And I think a lot of folks know only one part of the story. They know the fast growth, they don't even know about the bankruptcy. They know about the bankruptcy, but they don't know about the fore and aft. So like, just kind of like, walk us through, how did the company grow so quickly? And then why did it go into bankruptcy? And is that actually a risk for some of the other miners that they need to try to avoid?

• 14:02Speaker 02

  Yeah, let's go back to 2021. You know, every public mining company was raising a significant amount of capital, and the market was rewarding aggressive growth. We achieved the most aggressive growth strategy in the industry. We built the largest infrastructure footprint and really the best designs in the industry, which are allowing us to achieve these high hash rate utilizations. Now, we went public in January of 2022. We already had a significant debt load on the company. And so as we went through 2022, network hash rate was increasing, Bitcoin price was decreasing, and we had the war in Ukraine, which jacked up power prices due to the natural gas spike. And so all of those things contributed to negative levered free cash flow, which is essentially your free cash flow after you pay for debt.

• 14:46Speaker 02

  And so we went, we filed for Chapter 11 in December of 2022. In 2023, we went through a 13-month process, starting in December, ending in January of 2024. I joined the company actually in the middle of the Chapter 11 process, so in April of 2023. And we were able to eliminate Over $400 million in debt, the main part of it was, we were actually able to extend the maturities and include optionality in the capital structure. So I talked about that earlier. Optionality in a capital structure is incredibly important. So for us, we have, if our stock performs well, we have a warrant that is a cash exercise warrant that brings

• 15:25Speaker 02

  in $670 million into the business, which more than covers, double covers our non-convertible debt. Then our convertible debt has a mandatory conversion feature. So between those two instruments, we can be debt-free. And so that's really a highlight of going through that process, was just actually making the structure of our debt proper for a Bitcoin mining business. Because there is a structure that works, and it includes long maturities, and it includes optionality in the capital structure.

• 15:56Anthony Pompliano?

  And talk a little bit as to, like, you're coming in, how much of the team turns over in that situation, both executive team and then also kind of, you know, the employee base? And like, how do you change the business? Is it all just literally like, financial engineering and balance sheet and debt and kind of the things people would assume are happening at bankruptcy? Or are there also things that either culturally or kind of with the employee base that you've got to do to really make sure you're in a good position to come out of a bankruptcy?

• 16:24Speaker 02

  Yeah, bankruptcies can be extraordinarily challenging for companies. I would say, when I joined the company, you know, we had the best operations team in the industry. Obviously, you need to have the best construction, operations, software team to actually build all of that infrastructure at scale and build it that quickly. So I came into a, I would say, the most talented team in our industry. And so it was really about shifting the focus of that team, really from a hyper-aggressive growth, to let's focus on drilling into efficiency and making our operations the best they can possibly be. Because we knew we were going to be on the playing field at some point in the near future. It ended up taking, you know, another seven months to get back on the playing field of being a public company

• 17:07Speaker 02

  again. But it was really about that shift in focus. But, you know, absolutely, there's challenges going through a Chapter 11 process. You know, it's challenges with managing talent. Challenges with, I would say, retaining top performers. You know, luckily, everyone understood where we were taking this company. And when you have a vision for the business and you're executing on it, people want to be there. People want to be a part of, you know, a huge success story. And we all, we offer that, of course, scientific. You know, we are a huge success story here, having the most successful Chapter 11 process in terms of equity recovery. And then also, we maintain the largest Bitcoin mining company in 2023 from Bitcoin's buying perspective. At a time when we had both hands tied behind our back and everyone thought we were a punching bag.

• 17:51Speaker 02

  Turns out, you know, we came out, we're fighting even harder in 2024. We're still mining more Bitcoins than everyone else.

• 17:57Anthony Pompliano?

  And what are some of the challenges that you all look moving forward in terms of? You have this halving event. There's obviously like always the capital markets, but it almost feels like maybe the last two years were headwinds. And now you guys are starting to get some tailwinds. What are the obstacles left or what are the friction points that you, you know, you guys walk into the office every day and say, hey, we got to solve these things or put ourselves in a good position?

• 18:22Speaker 02

  Yeah, so we, we announced a, a deal with CoreWeave actually on, or on an HPC deal. You know, that's something that we're trying to solve over the course of 2024. So we've identified over 300 megawatts in our existing portfolio that could be converted. So you talk about the next big challenge. You know, that's the next big challenge in, in our, in our company right now. And it's not a challenge as much as it's a massive opportunity. And everyone's really excited about executing on it. And so I would say halving is definitely a challenge from the Bitcoin mining side. I think that presents an opportunity for us to buy a lot of machines post halving. You know, there's going to be a lot of challenge mining companies out there. You know, going back to an earlier point, 2024 is going to be a challenging year for a number of miners who are only marginally profitable.

• 19:06Speaker 02

  And they're going to have to find ways to raise capital. The smaller they are, the more challenges they're going to have in raising capital. And so for us, it's the opportunity to refresh more machines post halving. That's a huge upside for us as a business. And then part two is the opportunity to go execute on over 300 megawatts of conversion of existing facilities into more traditional compute.

• 19:28Anthony Pompliano?

  And when those pieces of hardware are coming to market, it seems like every like two years, maybe you know, three years. Um, I think miners have gotten their heads around, you know, how often they need to uh kind of update the hardware. But now there's companies like uh Auradine and a few others that uh allow for either more granular controls or you know, different types of um clocking and like all these like very intricate things. How much of the focus here is like, we gotta get cheap power. We gotta be good at operating. We gotta have the latest version of the hardware versus there's like a technical component of if we could really optimize our software, we can eke out extra profit. And it's almost like a tech company that's building

• 20:10Anthony Pompliano?

  infrastructure versus it's an infrastructure company that has some technology. How do you view it?

• 20:16Speaker 02

  Yeah, I mean, for us, we had to solve a lot of issues that other folks didn't know they had to solve. And so we built software to manage that. Not only keeping the machines up longer and more efficiently, but also figuring out ways to overclock machines during the night time or underclock machines when mining economics demand that to generate greater profitability. We built all that stuff ourselves. And so when we evaluate new machines, we always come at it from the eye of are we paying for the value that we've already created? I think what's interesting is 2025 is the year of democratizing hash rate. And what I mean by that is there are a number of manufacturers coming to market. They're going to start mass producing at the end of 2024. In 2025, they'll start hitting their stride in terms of being

• 21:01Speaker 02

  able to build a large number of machines. And they're going to change their pricing model from what we've seen in the past. And so what we've seen in the past is ROI pricing, essentially pricing machines on a return on investment from about 12 to 14 months, depending on what your economics are. And that's what we saw in 2021. We saw pricing go up to $80 a Terra hash. Now, going forward, that's going to be much more challenging to raise prices that high when there are a number of manufacturers who are going to price it on a cost plus model, essentially a cost or a cost added to the manufacturing cost. And so

• 21:37Speaker 02

  That's really going to change the outlook in 2025 for capex for mining companies. And also who we're going to be buying from and where the machines are going to be sourced from. And so I think that's a huge, you know, I would call it the the major theme of 2025. Versus how much hash rate is going to be in the network. Because all of that's going to be determined by market economics. The Bitcoin network is self healing and it always has been, and that's never going to go away.

• 22:05Speaker 02

  So that's going to make 2025 a really interesting year.

• 22:08Anthony Pompliano?

  And as we're watching core built, what is like the long term vision here? I see a lot of miners now talk about artificial intelligence. I see, you know, all these different kind of shiny things that people could go do. How do you all think about the business over the next, you know, call it five to 10 years, maybe two to three Bitcoin having cycles?

• 22:28Speaker 02

  Yeah, I mean, right now we're hyper focused on 2028. You know, the good part is we have the most nimble infrastructure in the industry. We built it our facilities like a traditional data center. And so we have a much easier time actually making conversions. We also looked at a lot of our facilities from the perspective of being data centers when they are initially purchased. And so for us, it's about having nimble infrastructure, the ability to execute on the highest opportunity, the highest value of compute we possibly can. And do that over the next three years so that we're prepared for 2028. And so that we can solidify how much, or I should say. We want to solidify that each of our facilities for Bitcoin mining are going to be profitable at the next having.

• 23:12Speaker 02

  Which is something that a lot of folks can't say today. You know, we're seeing a lot of deals get done for for facilities that have very high power prices. So the companies that have over committed on machines can just bring machines online. You know, that's not our game. You know, we're at our core, we are a digital infrastructure company that attacks new and emerging forms of compute. So that's what we're targeting in 2028, have a healthy mix of. HPC Bitcoin mining and whatever other types of compute are going to emerge over the course of the next few years, which we have an outstanding design team, we have an outstanding construction team, we have an outstanding operations team. So from our perspective, we kind of tick all the boxes for the major, the major companies, whether

• 23:56Speaker 02

  it's GPU as a service, whether it's traditional AI companies, all of those companies know that they can rely on us to provide them the best infrastructure they can possibly access.

• 24:06Anthony Pompliano?

  Now, I've seen you comment about picking up cheap hardware from other companies that struggle post having. Is this a industry where even with you focused on 2028, like the big guys get bigger as mining gets harder and the havings occur? And so there's kind of like consolidation that occurs over time?

• 24:29Speaker 02

  Yeah, I would say there's definitely going to be consolidation in terms of hash rate consolidation. Smaller miners are going to have a much harder time refreshing machines going forward. They haven't really started that flywheel of just being able to constantly refresh machines and infrastructure that they've already built. You know, we're at that point today. And so if you take our existing facility, you can essentially think about, all right, if we're operating, you know, about 18.9 xash today, if we convert all of our machines to the newest generation machine, you know, we could almost double that number. And so that's what we're starting to see is really just that exponential growth of hash rate. And that's okay, because as efficiency gets better for each of the machine,

• 25:11Speaker 02

  that means the break even hash price lowers for each new generation of machine, which means you can generate the same amount of gross profit even at a lower hash price on a newer and more efficient machine. And so you're absolutely right. We're going to see a lot of, I would call it hash rate consolidation amongst a few of the top players. But we represent such a small portion of the overall network. All public Bitcoin miners today are only about 20% of the network. So there's still a massive amount of decentralization going on all over the world.

• 25:42Anthony Pompliano?

  One of the data points that I saw online when I was kind of looking at a bunch of the miners that I found really interesting is there was a chart and you all had more hash rate than Marathon. Or I'm sorry, Marathon had more hash rate than you, but you all had more Bitcoin produced in February than them? And it comes down to this idea of miner utilization? And I'm not picking on Marathon or, you know, anything, but just like, explain miner utilization? And like, how that ends up impacting the business? And like, how volatile is that number for each company over time?

• 26:21Speaker 02

  Yeah, so we actually post a good chart in our earnings deck. So it's half rate utilization is the metric that a lot of people have become focused on. So that means for every X of hash we have running, for Core Scientific, we're generating about 10 more Bitcoin per energized X of hash than our competitors. Now, some of our competitors have actually, I would say, gamed their numbers a little bit by not actually telling the market how many machines they have running. So they have a lot of machines on the ground, they hot swap them. For us, we tell the market exactly how many machines we own, and our hash rate utilization still beats out all of our scaled competitors. And so from our perspective, it's a, you know, it's a huge metric that we really hang our hat on

• 27:03Speaker 02

  because we don't have to have as much X hash online as some of our competitors, and we can still mine more Bitcoin than them. Goes down to a really talented operations team, really talented software team. And so that's definitely a metric that is in focus right now. You see it on Twitter constantly, right? I don't know if you've seen it, but I would say the retail crowd has really started to focus on this metric because it's about long-term longevity of our business. Like, if you can actually get better hash rate utilization than a competitor, that means you're generating a better return on your machines.

• 27:34Anthony Pompliano?

  And as we start to watch you guys expand, site selection obviously becomes a pretty important detail. What goes into that?

• 27:43Speaker 02

  You know, right now, we're, we have 372 megawatts of partially developed infrastructure at two of our sites. So that I would say is less of a focus right now, but we are continuously running searches for new sites. Really on the cost, uh, cost of power side, that's probably the biggest focus. And finding areas that can provide lower power costs in exchange for intermittency. So what I mean by that is essentially exchanging uptime for a lower power cost. There's an efficient frontier of where you want to fall on that curve. But you can, you're generally willing to accept lower downtime or lower uptime in certain situations for a lower power cost. And so we're constantly valuing those both domestically and internationally right now.

• 28:27Speaker 02

  Because you know, the next generation of our facilities are going to be more focused on lights out facilities. A lot of people don't talk about those, but essentially run them like, you know, where the data center industry is moving, which is have less people involved, have less people touching them. Because usually you get better, uh, you get better uptime out of your machines. And we can solve a lot of the issues through, through our software stack. So that's what we're focused on in the future. It's building out facilities in very low cost power centers that are essentially lights out. They need people to only go to those facilities, you know, once or twice a week to maybe exchange out some machines. But we already have those processes nailed down centralized repair centers.

• 29:08Speaker 02

  We have an amazing parts inventory or centralized parts inventory warehouse. We have all these systems already in place to manage this. And so for us, you know, that's the future, right? It's smaller sites that are focused on lights out, grabbing better margins. Because if you have lower power costs, you have lower facility level operating costs. You're going to have better margin profile. And we can already manage a large number of facilities. We have seven facilities today, easily blow that number out to 25, 50 facilities. When you have no problem managing it. But that's really where the industry is going to start moving to. It's going to start moving away from some of these mega sites. And start moving towards some of these smaller, more modular sites that provide a lot more optionality.

• 29:52Speaker 02

  But you need to have the right operations team, you need to have the right software stack. Otherwise you're going to really struggle to manage that infrastructure.

• 29:59Anthony Pompliano?

  And as you kind of, um, view Bitcoin's price going up, what would change your guys' mind on not selling the Bitcoin?

• 30:07Speaker 02

  Yeah, so right now we're contractually obligated according to our debt covenants to or certain debt covenants to sell our Bitcoin. Now Bitcoin really begins to perform well and we're able to start paying down some of that debt, you know, that will provide an opportunity for us to be much more opportunistic. I would say, holding Bitcoin on balance sheet will require a, I would say, a more liquid hedging market for Bitcoin and Bitcoin mining more directly. Once that occurs, Bitcoin is going to be a much more viable commodity of hold in your balance sheet or on your balance sheet. Because soon, soon you're going to be running this very similar to a trading desk where you're going to be trading like a traditional commodities company would. And so that's definitely a place where you're actually going to start having cash

• 30:52Speaker 02

  on balance or Bitcoin on balance sheet against some of your hedge positions. But right now, it's like we walked into 2023 expecting to mine between 13,000 and 14,000 Bitcoin. That's a massive amount of Bitcoin exposure to have. And really, I would say, the accounting change that we've seen for if Bitcoin price increases, you can put that on your income statement. You know, some of that is just noise and a lot of investors already recognize that. So I would say our focus, continue to execute on growth, continue to have the right mix of cash on balance sheet versus paying down debt, and continue to grow the company. And so Bitcoin on balance sheet is great for some companies who have who have large titles. And I would

• 31:34Speaker 02

  say we would start holding Bitcoin on balance sheet after we start to clear some of that debt and utilize it for hedging purposes.

• 31:43Anthony Pompliano?

  And what are the things that maybe the average investor who's looking at these mining companies, what are the things that they usually don't ask you or the things that they don't care about that you're like, as a person who thinks about capital allocation, these are the things when I look at a miner that I really, really pay attention to that maybe should be more important?

• 32:04Speaker 02

  Yeah, I mean, we talked about hash rate utilization, but that's kind of coming in vogue now. I would say it's really all in cost of power and what's the flexibility in the power rates? You know, everyone puts their headline number in their decks, what's the, what's the power rate that you're charged? That's not standardized today. I think in the future, companies are going to have to present a standardized metric for presenting price of Bitcoin. And then I, I think the next part is really related to what does your infrastructure look like? Because a lot of people who've built infrastructure in the past haven't been performing proper maintenance on their facilities. It's been a big focus of us is actually ensuring that these facilities can operate for tens of years.

• 32:46Speaker 02

  And so we've been performing significant maintenance over time. So we never incur these major outages. That's a huge risk. You're seeing it today with some of the other large mining companies. Facilities go out and their Bitcoin production is low for sometimes months at a time. Because they can't get the facility operational again. You know, that's a place a lot of investors haven't focused on in the past, but they absolutely need to. Because infrastructure is a high capex item. And so if you're not maintaining that infrastructure, it can present massive risks just a few years down the road after you've completed it.

• 33:19Anthony Pompliano?

  Got it. And then lastly, like you joined during bankruptcy, you're out of the bankruptcy. What's been the biggest surprise as CEO of a company that's kind of gone through this, this wild ride and now has the tailwind rather than the headwind?

• 33:35Speaker 02

  I would say it's the, it's the investor base. You know, people stuck with us through the Chapter 11 process. You know, obviously a lot of people were upset by it, but we came out a stronger company. I think a lot of people recognize that we got the best equity recovery for equity investors in history in terms of percent of the company received. And so I would say we have a lot of loyal fans out there and you know, I'm very thankful for all of them. Because they supported us in our darkest times and now they're supporting us as we've, we've reemerged. And we've continued to absolutely pound the table with all of our competitors and being the biggest mining company. Even as we weren't able to grow through our Chapter 11 process. So I think a lot of people recognize that and they've stayed loyal to us.

• 34:18Speaker 02

  And I think, you know, that's been the biggest surprise for me. A lot of, a lot of friendly notes from a lot of investors out there, which I really appreciate.

• 34:26Anthony Pompliano?

  That's okay. They eventually all come around, right?

• 34:29Speaker 02

  No, they're all friendly. That's what I'm saying.

• 34:31Anthony Pompliano?

  Yeah, yeah, they'll be just fine. Awesome. Where can we send people to find you on the Internet or find out more about Core?

• 34:38Speaker 02

  Yeah, on Twitter underscore Adam underscore Sullivan one, at Core underscore scientific.

• 34:46Speaker 02

  You know, those are probably the two best places to find us on is on Twitter. It's where we're the most active.

• 34:52Anthony Pompliano?

  Awesome. Adam, thank you so much for doing this. And I also appreciate you coming to our recent Bitcoin Investor Day. People really, really enjoyed your comments. And I think that the having specifically has some folks questioning, is this positive or negative? And to hear your enthusiasm is, I think, somewhat calming to them. So I appreciate your insights. I think people really learn a lot from this. We'll definitely do it again in the future.

• 35:14Speaker 02

  Yeah, I'll give a quick pitch for the Bitcoin Investor Day. Amazing conference. The enthusiasm was flowing out of the facility. It's an absolutely amazing event. There's a lot of people there, a lot of really important people there, too. So it was great to be able to just to rub shoulders with some of those folks walking out throughout the conference. So great event.

• 35:35Anthony Pompliano?

  I did not compensate you to say that, but I appreciate it very much. All right, we'll do it again in the future.

• 35:41Speaker 02

  Sounds great. Appreciate it.