#1221 Fred Thiel | BITCOIN: This Country Is Secretly Mining

Fred Thiel is the Chairman & CEO of Marathon Digital Holdings, a digital asset technology company that mines cryptocurrencies with a focus on the blockchain ecosystem and the generation of digital assets. In this conversation we discuss, vertically integrated technology, competition around the world, nuclear power, zero-cost energy, mining facilities, and predictions for miner revenue, hashrate, & bitcoin price in five years. ======================= Pomp writes a daily letter to over 250,000+ 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/

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.

• 0:30Speaker 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.

• 0:54Anthony Pompliano?

  Next up, we have Fred Teal. He's the CEO of Marathon Digital Holdings, one of the largest miners in the world as well. Fred pulls no punches and he is an expert when it comes to Bitcoin mining. Let's bring Fred up here on stage.

• 1:10Speaker 02

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• 1:42Anthony Pompliano?

  All right, Fred, I thought a great place for us to start our conversation here would be around this idea of vertically integrated technology stack. That's something that you all hang your hat on and are very proud to kind of take this very unique approach in the Bitcoin mining space. Explain what a vertically integrated technology stack is and then why you all feel so confident that this is the right strategy for you.

• 2:01Speaker 03

  So if you think about how Apple has developed their whole ecosystem around the iPhone, they own the cloud software, they own a lot of the core apps, they own the operating system in the phone, they own the silicon in the phone, and they own a lot of the distribution medium. If you take that analogy to Bitcoin mining, we have our own pool that we operate, we don't participate in a third-party pool. Why? Well, if we're operating in our own pool, our pool doesn't have to be designed to deal with a lot of third-party miners and dealing with people logging in and security and how do you make sure that a miner connecting to your pool is actually supposed to be there. Plus, as third-party pools, you have to be prepared to take S9s, S19s, hashes from

• 2:45Speaker 03

  all sorts of machines. We have two machines running in our pool, in our fleet today, it's S19J Pros and it's XPs. That's all we have to worry about. So we can optimize the pool to be super efficient. And by efficiency, it's communication latency, things like that. So we can pull out a nanosecond here, a couple milliseconds here, it just makes it more efficient. Then we run our own operating system, our own firmware in our miners more and more today. We're in the process of rolling it out across our whole fleet, but the site we built in UAE is built soup to nuts on our own stack. And so by using our own firmware, it means we can overclock, we can underclock, we can adjust the exact performance of the miner, specific to the environmental conditions,

• 3:30Speaker 03

  the energy pricing, whatever's going on, wherever we happen to be. So we get more efficiency gains there. Plus, because we control the firmware, most miners have bloatware in them. So if you think about it, the average miner has to have all the software it needs in it so it can run standalone. Well, if you're running 200,000 miners connecting to your own pool, you need very little firmware actually in the miner. And so we can strip out a bunch of stuff that again takes up clock cycles, uses more electricity, and allows us to operate that miner more efficiently. We have our own controller boards which allow us to do a number of things on the miner. And in our immersion solution, we've co-developed the immersion technology so we can fine-tune

• 4:14Speaker 03

  the miner and the immersion system together. So now you have this whole system from the operating system in the cloud, to the pool, all the way down to the miner. The firmware in it and the immersion. Plus, we also made an investment last year in a company called Oridine, which is really designing the next generation Bitcoin miner. It's a US firm designed by engineers in Silicon Valley. An amazing product that will be coming to the market this year. And so there, the reason for that was we needed a couple of things. One is Bitmain, while they make a good product, they have 60, 70% market share. It's almost a monopoly. And that's a high risk issue. If the US and China get involved in a trade war, there could be supply issues.

• 4:58Speaker 03

  So we needed to make sure there was a US manufacturer. More importantly, we wanted to be able to adjust the performance of a miner all the way down to the individual ASIC level. Because in times of high energy costs or high temperature, we needed to be able to tweak the miner all the way down at the ASIC level. And we wanted the miner to be configured in a way so we could do industrial scale mining with blades as opposed to using the shoe boxes that everybody else uses. And so we needed to have access to custom designing the miner. So think of us more like Apple and how they address things than how traditional miners do. So that's the nature of the vertical technology stack.

• 5:36Anthony Pompliano?

  What's fascinating to me is you basically are trying to reduce diversification in this technology stack and that you want control, right? You want the centralization. In your geography approach, though, you are seeking diversification and kind of trying to go all around the world. Talk a little bit about that specific strategy.

• 5:54Speaker 03

  Sure. So most miners tend to locate, try and build a large site for economies of scale, right? In one location. Well, that makes you subject to two things. Climatology and regulatory and grid pricing, right? So if you look at all the people that operate in Texas, and we have considerable sites in Texas. Now you're subject to Aricot, you're subject to the climate in Texas. You know, we're going right now into summertime here. And as we're recording this in June, we're having some of the hottest days of the year. So that's impacting performance. So by having geographic diversity in the US, you separate yourself from issues specific to one grid operator. You separate yourself from climate specifically.

• 6:39Speaker 03

  So we're in Texas and North Dakota, opposite ends of the country, right? Different types of climates. Lets us operate very differently. At the same time, by moving offshore, and our partnership in the UAE is the first example of this, we're also creating diversification away from the US, which you never know from a regulatory perspective, may or may not be important at some point in the future. But most importantly for us, it was the ability to partner with a sovereign wealth fund who controls the energy generation, the energy distribution, and the land, and the government regulations, in a way that allows us to have the ideal partner. So that we're sure about our energy costs for the full term of this agreement. We are, you know, we've nailed the energy cost.

• 7:24Speaker 03

  We have the benefit of it being fully offset with REX. It's a combination of natural gas and nuclear energy over the life of the agreement. And they invested enough capital in this, so they have so much skin in the game, so it's really critical for them to make this successful. Now, the benefit of this kind of poster child installation in the UAE is that now we have other countries coming to us. People in Qatar are coming to us saying, "Hey, Marathon, we'd love for you to mine here." Oman, "Hey, Marathon, we want you to come here." Bhutan, "Hey, we want you to come here." Countries in Latin America, countries in Africa, we're looking at geothermal opportunities. So now these opportunities are starting to come to us because we think of it as you're

• 8:09Speaker 03

  a technology company, you just won the perfect reference customer as your partner. And so people want to come to you because they say, "Well, if you can work with these guys and you can do this, then you obviously are serious, you're well capitalized." And so we believe we're very well positioned to continue to grow internationally to the point where we'll have about 50% of our mining capacity outside of the US, 50% in the UAE.

• 8:31Anthony Pompliano?

  So you mentioned nuclear power, and that's something that I think people have always dreamed about, is like, why don't we hook this up to those types of power generation facilities? What are you seeing on that front? Is that something that you think will become the standard? Do you think that it's still a kind of fringe idea? Where are we?

• 8:49Speaker 03

  So it varies by region. You know, in the US and generally speaking, in the developed world, after Three Mile Island, Chernobyl and Fukushima, there's been this kind of fear about nuclear energy. The Ukraine crisis and the energy crisis that came from that got people to kind of revisit that. And we now have things like SMRs, small modular nuclear reactors. The difference between SMRs and the traditional large-scale nuclear reactors is, for one thing, they're not one-offs. You're making the same nuclear reactor over and over and over again. They're of a scale that's similar to what the US Navy operates in submarines or aircraft carriers. These things are super safe.

• 9:31Speaker 03

  Most importantly, they use the spent fuel from traditional nuclear reactors. So now you're actually using up that old fuel. So you don't have to go dig up more uranium to make them operate. And they're very safe because if something happens in one of these things, you're talking about an area of just about a couple of acres around it that are potentially going to be irradiated versus a whole city. And so granted, they also generate less electricity, 30 megawatts, 50 megawatts. But these are perfect for solving the biggest problem we have with the energy grid in the US today, which is lack of transmission lines. You know, you can build solar farms in rural areas all day long. You can build wind farms all day long. What's the problem is you can't get that electricity to where people live.

• 10:16Speaker 03

  Right? Bulk of the population of the US lives east of the Mississippi. Most of the solar generation is west of the Mississippi. Transmission lines are missing. It's going to take hundreds of billions of dollars to build the transmission lines. So you're much better off putting energy generation next to where the consumers are. And California today, they're building lots of solar on houses. You have solar at the community level. You have batteries together with that. Now the grid operators in California can actually borrow electricity from consumers' battery pools when they need it to avoid brownouts. Do that at industrial scale across the country. And now all of a sudden, transmission becomes less of an issue. And it's just the way the internet works. You put all the intelligence at the edge of the network and you leave the network as being kind of just dumb.

• 11:02Speaker 03

  That's exactly what we need to do with power generation. So SMRs are a great solution there, combined with solar and wind and other renewable energy means.

• 11:10Anthony Pompliano?

  So as you guys kind of go around the world, are you pushing into these other geographies? Are you going out and seeking power generation opportunities? Are you going and trying to figure out where you kind of fit in in these geographies? Or are you being pulled? Are you getting phone calls from whether it's governments or private companies? And they're saying, hey, please, please come here. And there's almost like a competition to get where you're going to go open your next site, similar to how Amazon HQ kind of has a competition among cities. How, how is that from a push or a pull standpoint?

• 11:36Speaker 03

  It's definitely more of a pull situation today. You know, after our success with the UAE site, you know, we've gotten calls from Qatar, Oman, Bhutan, Kenya and Africa, Latin America countries there. So it's governments, but it's also private enterprises. You know, there are people who have the concession for energy in a particular location and they want to build out more capacity. They don't have uptake for it. And, you know, you don't want to partner with somebody who's going to potentially have challenges raising capital or executing. And we've proven that we are very good at raising capital. We're mostly one of the best of the publicly traded miners at raising capital. We're also very good at executing in very challenging conditions.

• 12:21Speaker 03

  You know, the UAE site runs where the ambient temperature is over 100 degrees every single day, pretty much. And our pilot site ran there for over 100 days with no human intervention. Right? So when you can operate sites with very little human intervention, it means you can put them in places where there are very few humans. So you can put them in the hinterlands of deserts and places like that. And because the energy we consume doesn't need to be transmitted to a consumer, we can partner with people to build these renewable sites in locations where otherwise it would make no economic sense to do it. And as you look at things like geothermal energy, you can't move that energy, right? You got to get it out of the ground where it's available. And so those are sites that we think are really interesting.

• 13:05Speaker 03

  And we're also looking at things like landfill gas. You know, the methane gas that comes out of landfills is 80 times more damage. To the environment than carbon dioxide. If you can build small enough Bitcoin mining site together with energy generation at the landfill site, you can use that gas to create Bitcoin and you can offset a lot of your energy generating costs because of the renewable energy credits you can generate. And that's part of our tech stack is to be able to build these small, totally automated, self-contained Bitcoin mining sites you can put out in the field somewhere.

• 13:36Anthony Pompliano?

  Talk about one of the other things I think you guys were really focused on was just chasing the non-parasitic load, right? So when you think about this, there's kind of the zero cost energy, you're talking about renewable credits, that there's a bunch of different strategies as to how you kind of get here, but explain maybe the way that you all are approaching this in this pursuit of that zero cost energy and non-parasitic load.

• 13:57Speaker 02

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• 14:26Speaker 03

  Yeah, so if you think about parasitic load is you're sitting on the grid and you're really competing with the consumer and other industries, primarily other industries for energy. And so you have to curtail as a good citizen when the grid operator needs it. If you're sitting behind the meter, especially with a lot of renewable sites, they oftentimes have stranded energy. If you think about solar and wind, it's the top of the energy stack, meaning it's the first to be shut off and the last to be turned on. And if you think about solar, you know, it shines 9:00 a.m. to 3:00 p.m. Well, if you believe in the duck curve of energy, which is kind of when energy is consumed, it looks like the bottom of a duck, the belly is 9:00 to 3:00 p.m. That's when the least amount of energy is used. So solar sites get curtailed.

• 15:11Speaker 03

  And that's why in places like Texas, you have negative energy pricing upwards of 20% of the time sometimes in that middle of the day. So we sit, for example, in West Texas on a large wind farm behind the meter. And when that wind farm isn't selling energy into the grid, we can consume it all. It's non-parasitic. We're not competing with the grid or consumers for that energy. And if the grid needs it, we can give it up. And so. It's a different model than sitting on the grid where you're competing for every electron.

• 15:43Anthony Pompliano?

  As we continue to watch this industry play out, it seems like people are building mining equipment, mining facilities, and they're going and they're seeking out the power. Do you envision a world where people will say, no, this is actually one single kind of facility, and we're actually going to build ground up from scratch, power generation, and the facility? You're talking about kind of being behind the meter and going into some of the existing renewables, but like, could someone build a wind farm specifically for Bitcoin mining and kind of integrate everything from day one? Or are we still a ways away from that?

• 16:15Speaker 03

  The answer is yes, and it's happening today. And it's an area we're very focused on right now.

• 16:20Anthony Pompliano?

  Got it. And when you think about that strategy, do you think that becomes the majority of what people do? Or that's just really difficult to do, and only a couple of companies will be able to? So most people will just go seek out existing power generation?

• 16:32Speaker 03

  So, you know, most Bitcoin mining today, to do it economically, is done at utility scale, you know, 50 megawatts, 100 megawatts, 200 megawatts, because you got to build a building or a field of containers, and you got to have people there to operate it. If you're going to operate in a lot of these self-generating environments, methane flare gas, for example, in oil fields, or landfill gas, or smaller solar farms, they don't generate that much energy on a consistent basis. So you need to be able to operate these things very much as automated facility where there aren't human beings. And so you got to have the technology to do that. So I've got tons of years in the world of IOT and industrial automation. We have built our tech stack specifically for this opportunity.

• 17:17Speaker 03

  Our next-generation immersion technology will have three to four times the compute power density of existing technologies today, fully self-contained, no need for external cooling, and will enable people to really set these things up, one megawatt, two megawatt, three megawatts, and operate them very hands-off. So we totally see this as being one combined kind of unit.

• 17:40Anthony Pompliano?

  When you don't have those humans there on site, how does that change the unit economics? And maybe some of the insulation you have from the cyclicality of Bitcoin? Or does it not matter?

• 17:50Speaker 03

  You know, it doesn't change the cyclicality because at the end of the day, you know, we don't control the price of Bitcoin, we don't control global hash rate. And then we have halvings that happen every four years. So the goal is to lower your marginal cost to produce a Bitcoin as much as possible. And so you do that by finding the cheapest energy, or ideally zero cost energy, and you do it by sucking SG and A out of your model. And so you think about these big sites, you know, a company like a Riot, for example, they have hundreds of employees per site. You know, we're still a company with sub 50 employees today, and yet we're arguably one of the biggest miners in the world. So our whole model is built on optimizing our SG and A, and being as efficient a miner as possible. And so as we've transitioned from being kind

• 18:33Speaker 03

  of this asset light miner who only worked with third parties, to being more of an owned and operated, and moving to what we call a zero cost energy model, we believe that, you know, that'll allow us to be amongst the most low cost energy, or low cost miners in the industry, which means that as the margins compress over time in this industry, you know, it's last man standing kind of gets the last Bitcoin, right?

• 18:59Anthony Pompliano?

  It's, um, I don't do public math, but I think you're about $40 million of market cap per employee, if you kind of use a metric like that. That is an incredible statistic compared to most businesses, even in the tech industry. And so is it something where those are kind of fixed costs, and let's say 50, maybe even 100 employees is kind of, you know, the plateau of what you'll need, and you can scale infinitely? Or is there some linear relationship between the team size and as you bring more hash rate online?

• 19:31Speaker 03

  Now, so the biggest expense is obviously your executive team, your, think of it, your knowledge workers, right? So the engineers, all that people, that scales to a certain level, and you don't need to scale it much bigger. After that, it becomes what we call technicians, right, in the field. So the technicians, who are the people who build the sites, get them provisioned and operating, and then manage and service them. And so if we can have sites where we have minimal Plan downtime because we have really good predictive systems. We have really good management systems and tools for looking at what's going to break when and fixing it, plus building systems that are redundant, then that technician tier can be smaller and smaller and smaller

• 20:13Speaker 03

  as we continue to scale. And that's where you really get the scale. Plus, in some cases, you work with outsourced resources, which could be very low cost. And part of the attraction in the international model is there are opportunities to be at sites where between automation and the lower cost of labor, there's just no other operator that can compete.

• 20:33Anthony Pompliano?

  Fred, my last question for you is if I had to ask you Bitcoin miners revenue, hash rate, and then Bitcoin price, five years from now, is those three things up or down? So Bitcoin miner revenue, hash rate, and price of Bitcoin, where do you see those three metrics five years from now?

• 20:51Speaker 03

  Wow, they all tie so much together. So let's use as the point the halving in 2028, right? So as we come into that halving in 2028, I think what you're going to see is the price of Bitcoin is going to be somewhere in the low six digits. You know, we're going to be 100 to 200,000, somewhere in that range, most probably, conservatively speaking, right? Global hash rate, close to 900, most probably. And then miner revenues, total global revenues will obviously go up because the price of Bitcoin has gone up, but total Bitcoin rewards

• 21:33Speaker 03

  will have halved almost twice by that point, right? So the expectation is you'll see revenues most probably close to what they are today, but the difference is there'll be a lot fewer miners. You're going to have a handful of very large miners that are global in scale, that are quasi energy companies, that may even be highly diversified in what they do, not just doing Bitcoin mining, but doing other data center type operations. You know, some of our colleagues in the industry are chasing HPC opportunities, some are chasing AI opportunities. There are lots of things you could do as a miner. And then you're going to have a bunch of smaller specialist niche operators who, you know, they're particularly good at dealing with Latin American jungles and doing things in waterfalls, you know, things like that.

• 22:17Anthony Pompliano?

  That makes, that makes complete sense. Where can we send people if they want to follow up with you or they want to learn more about what you all are doing?

• 22:24Speaker 03

  So our website is mara.com, M-A-R-A dot com, just like our stock symbol, easy to find. We're publishing more and more data there on a regular basis. You can reach me on Twitter at FGTLTIEL and happy to answer questions and interact with people there.

• 22:42Anthony Pompliano?

  I always enjoyed talking to you. I learned so much. Thank you and we'll definitely do it again in the future.

• 22:47Speaker 03

  Appreciate it. Thank you very much.