#409: Mike Colyer on Building North America's Mining Industry

Mike Colyer is the CEO of Foundry, a new DCG subsidiary focused on crypto mining. Foundry was created to meet the institutional demand for improved capital access, market efficiency, and transparency in the bitcoin mining industry. The company currently offers three services for the mining ecosystem: equipment financing and procurement; mining and staking; and consulting and advisory services. In this episode, we discuss Foundry's launch, how they invested $100 million so far, a general mining business overview, the importance of North American hash rate, and Foundry's current product offering. ============================== Smart investors know being early is critical to success in crypto. CoinList is where early adopters invest in, earn, and trade the best new crypto assets before they list on other exchanges. Try CoinList Pro and be first to trade on network launch. Sign up via coinlist.co/pomp and earn $10 in BTC after you trade $100. ============================== Crypto.com is the only all-in-one platform that allows you to BUY / SELL / STORE / EARN / LOAN / INVEST crypto all from one place. Join over 1 million users currently using the Crypto.com app. Download and earn $50 USD using my code ‘pomp2020’, or use the link https://platinum.crypto.com/r/pomp2020 when you sign up for one of their metal cards today. ============================== Pomp writes a daily letter to over 50,000 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://www.pompletter.com

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

• 0:00Anthony Pompliano?

  What's up everyone, this is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Let's kick this thing off. Mike Kohler is the CEO of Foundry, a new DCG subsidiary focused on crypto mining. Foundry was created to meet the institutional demand for improved capital access, market efficiency, and transparency in the Bitcoin mining industry. The company currently offers three services for the mining ecosystem: equipment financing and procurement, mining and staking, and consulting and advisory services. In this episode, we discuss Foundry's launch, how they invested $100 million so far, a general mining business overview, the importance of North American hash rate, and Foundry's current product offering.

• 0:46Anthony Pompliano?

  I really enjoyed this conversation with Mike, and I hope you do as well. Before we get into this episode, though, I want to quickly talk about our sponsors. First up is Coinlist. Smart investors know being early is critical to success in crypto. Coinlist is where early adopters invest in, earn, and trade the best new crypto assets before they list on other exchanges. You can try Coinlist Pro and be first to trade on network launches. You can sign up via coinlist.co/pomp. Again, coinlist.co/pomp. You'll earn $10 after you trade your first $100. That $10 will be paid in Bitcoin.

• 1:26Anthony Pompliano?

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• 1:58Anthony Pompliano?

  Next up is crypto.com. They're an all-in-one platform that allows you to buy, sell, store, earn, loan, or invest crypto all from one place. You can join over 1 million users currently using crypto.com and their mobile app. Again, you can buy, sell, store, earn, loan, or invest crypto all from one place using crypto.com. An all-in-one platform. Not only do they have a great URL, but it's the place where mass adoption is occurring. Go to crypto.com. Lastly, don't forget that I write a daily letter to over 80,000 investors about business, technology, and finance. I break down complex topics into easy-to-understand language while sharing my personal opinion on various aspects of each industry. You can

• 2:41Anthony Pompliano?

  go to pompletter.com. Again, pompletter.com. So, go check out Coinlist if you want to trade crypto assets early. Coinlist.com. Coinlist.co. I'm sorry. Coinlist.co. No "m" at the end. Coinlist.co/pomp. If you want to go check out crypto.com, go do it, and then pompletter.com. All right, let's get into this episode with Mike. I hope you guys enjoy this one.

• 3:10Speaker 01

  Anthony Pompliano is a partner at Morgan Creek Digital. All opinions expressed by Pomp or his guests on this podcast are solely their opinions and do not reflect the opinions of Morgan Creek Digital or Morgan Creek Capital Management. You should not treat any opinion expressed by Pomp as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion. This podcast is for informational purposes only.

• 3:36Anthony Pompliano?

  All right, guys. Bang, bang. I've got Mike here with me. Thank you so much for doing this, sir.

• 3:41Speaker 02

  Yeah, absolutely. Thanks for the invite.

• 3:43Anthony Pompliano?

  For sure. Let's, uh, let's jump right into your background. Kind of tell us, what did you do before you found crypto? And then how did you find Bitcoin and cryptocurrencies?

• 3:52Speaker 02

  Yeah, so if we go all the way back, I was born and raised in Rochester, New York.

• 3:59Speaker 02

  Business and so I grew up in concrete, you know, tearing blocks and learn about work and passion. My dad had a lot of passion for that business. So what was like a small and

• 4:20Speaker 02

  typically work ends and the and I think the other part in my early beginning was my mom is from Iceland. So she came to this country when she was eight, 18 and she left a family of 18. And just recently, I've been thinking about how risky that was. And I think some of the risks I've taken throughout my life probably come from her as an example of that. And then I went to, my dad said, you want to take over the company? And I'm like, no, I want to go to college. And I went and got a civil engineering degree and MBA at the University of Buffalo. And then got on GE's leadership program, where I was a Six Sigma black belt, lean manufacturing. And then essentially

• 5:05Speaker 02

  the last 10 years of my career, I spent as a hired gun in the private equity world. So kind of fixing companies. So that's, you know, my quick, quick background, not your typical crypto background, I guess.

• 5:19Anthony Pompliano?

  What are some of the biggest lessons that you learned as a hired gun? Like when you would go into these broken companies, what are some of the things that were kind of immediate, we got to fix this stuff?

• 5:28Speaker 02

  So one was, you know, setting a clear vision and tapping into the kind of the passion of the of the people. And then I think the other, the other big item was, you know, you got to have the right people in the right seats. So there's a lot of focus around talent, talent, talent. And then, you know, I'm a firm believer that if you get people that are excited about their jobs, they're gonna, they're gonna give it their all. And you give them some freedom and they typically over deliver.

• 5:57Anthony Pompliano?

  I tend to agree with that for sure. How did you first come across cryptocurrencies?

• 6:02Speaker 02

  So the first, so I would say in 2000, I think it was June of 2017. I was in between assignments and my wife asked me to take the summer off. She's like, just stop because I'd just been going, you know, like 20 years, just not, you know, crazy. And so we took the whole family to Italy for a family vacation. I read a great book, Homo Deus by Yuval Harari. I don't know if you've, if you've read that or not, but it's kind of about the future of how mankind and technology come together and evolve. And literally we got home and I read an article about blockchain. I'm like, wait, this is exactly what he's talking about.

• 6:42Speaker 02

  And it reminded me of the start of the internet, you know, so I was in college, like when Netscape came out, like early, early, early days. And, you know, the reality was I, I kind of, I chickened out. I should have moved to Silicon Valley. Instead, I kind of took the safe route and went to work at GE, which was, you know, like the big company at the time. And I just thought, man, this, this doesn't happen. This blockchain technology fixes a lot of problems. And this doesn't happen very often in a lifetime. So I decided to, to explore it further and I basically spent like 15 hours a day going down the rabbit hole.

• 7:19Speaker 02

  I think my wife thought I was going to be like serving her drinks out at the pool. Instead, I just sat at the computer all summer long and, and fell in love with crypto. I started trading it. And after about three weeks, I realized I'm not a really good trader, like too emotional.

• 7:37Speaker 02

  And then I fell in love with the mining space. I thought, wow, you really have to build out the infrastructure first before this thing's really going to scale. And it just made sense to me. Like I just, it just seemed like that's the first thing to go. So I literally poured everything I had into it and went full time, you know, and I have to give a little shout out to my, my buddies in Buffalo because there was a Buffalo blockchain startup group. And I would drive out to Buffalo every Tuesday to meet with these guys and talk about a fish out of water. Like these, these guys are, they're software programmers, traders, investors, they knew tons. And I'm like the old guy in the room with a notepad, like writing down everything they're saying, just trying to keep up and.

• 8:23Speaker 02

  And it was like they're on Twitter and WeChat and WhatsApp and Signal and Telegram. And they're in these chat rooms with thousands of people just saying whatever they wanted. And it was, I was really out of my element, but I've come to appreciate that, that part of it. So.

• 8:38Anthony Pompliano?

  What was the fascination or like, what pulled you into the mining side of it all?

• 8:45Speaker 02

  Like, like I said, I think that it was, you have to build the infrastructure first to, to be able to scale. And I thought, I thought I can do that, right? Like I'm an engineer. I understand how to, to, to be efficient at, at plugging in machines. And I just got, I could get my head wrapped around that concept more than like programming some blockchain application. You know, I, part of it, part of my journey, I thought, you know, at some point this is gonna, this blockchain is going to come back into the traditional world. And since I spent most of my career in the traditional world, I thought if I could learn this new kind of technology, I could help bridge that gap.

• 9:29Speaker 02

  I still think we're years and years away from it, but I think the easiest place for me to make that leap was on the mining front.

• 9:37Anthony Pompliano?

  For sure. And maybe give us an overview where the mining industry is today in terms of kind of how big is this? Who are the players? And then maybe geography wise, is there things going on in North America, in Asia? There's kind of so many rumors, like, how do you see mining as a business in an industry?

• 9:59Speaker 02

  Yeah, and maybe I can tell part of that story is like how I kind of grew up in my journey. So I've, I've been in the space for three years.

• 10:07Speaker 02

  Got a chance to run a small company here in Western New York called Savage. We grew it from like one megawatt to three megawatts, which, you know, in late 17, early 18 seemed like, you know, a monster, a monster location. And then I knew the guys that started Core Scientific and I went down to see what they were doing. And this is like early 2018 and they had built out like six megawatts in six weeks, which just kind of like, I was like, whoa, these guys are moving fast. And they talked me into joining them and helping them kind of grow out that business. And over the next year, it scaled to 100 megawatts.

• 10:47Speaker 02

  And then, and then about a year ago, Barry called and said, hey, we're ready to get into the mining space and would you like to come lead the team? So, you know, mining has, you know, if you go back to the beginning, it was like any PC in the world, you could mine Bitcoin with, right? And then it moved to GPUs and then it got to these very specific computers, ASICs that really only do one thing, but mine Bitcoin. And the scale just keeps growing faster and faster and faster. Right? So, you know, one megawatt was huge four years ago, and then 20 megawatts was big three years ago. And now people are all talking about building 50 and 100 megawatt facilities.

• 11:29Speaker 02

  So it's just, it's moving, the space moves so, so quickly.

• 11:33Anthony Pompliano?

  Yeah. And so talk a little bit about DCG and Foundry, right? So you get this call from Barry, he goes, hey, we're going to get into mining. They're not an average investor or a team. They've obviously made some very, very big plays and been super successful with a lot of things they've done. What was your reaction when you got that phone call? And then kind of what have you guys done so far?

• 11:53Speaker 02

  Yeah, I mean, I, you know, being on the outside, always looking in, it was, it was like, wow, there's a lot of special things happening at DCG. So I was, and they, they really avoided the mining space. And, you know, the mining industry, you were a miner, right? Didn't you mine a little bit in the early days? It's a tough industry and it's like the wild, wild west. And there's a lot of interesting characters and everyone's got a story and you can't tell what's real and what's not real. And, you know, when I sat down with Barry, he basically said, look at, this was my experience early, in the early days, and I just didn't want anything to do with it.

• 12:35Speaker 02

  And then he goes, you know, about a year and a half ago, they tried to buy some machines, you know, not very many. And he goes, it hasn't changed much. And he just couldn't believe that the mining industry still operated that way. And he, he just thought now's the time for it to kind of, let's up the game around mining. And he said, what, he felt like it was the right time to, to, to bring in, you know, bigger capital, you know, to take a

• 13:05Speaker 02

  So my job is really like, let's leverage the DCG balance sheet. Let's leverage its brand. Let's leverage its portfolio companies. And how do we create solutions that can help the mining industry in North America? And he really is like, look, here's a blank sheet of paper. Tell me what this industry needs and where we can add the most value. And it didn't take long before we we kind of came to the conclusion that we're getting ready to go through another cycle. There's new machines that are coming out. It's time for everybody to upgrade their equipment. And they just, there's not enough capital. And what's interesting is, you know, most of these machines are all manufactured in China.

• 13:49Speaker 02

  And the Chinese typically get the first, you know, crack at them. And you need to, you need to make those, you need to make big bets early in the process to get to the head of the line. And we felt like this was the right time to do it. So, you know, back in January, when nobody really wanted to buy machines, we started making very big bets on new equipment. So that we could get to the head of the line and that we could get our hands on the machines. So we, so that's what we're doing. We're, we are helping miners in North America upgrade their facilities. And, you know, we mine ourselves. That's not, you know, it's not our goal is to be the biggest miner.

• 14:34Speaker 02

  That's not what we're setting, we're setting out to do. What are really our goal is to decentralize the hash rate around the world, right? Like, how do we support these decentralized infrastructures? And, and I should note, it's not just proof of work. It's also proof of stake, right? So we're, we've got a whole team doing proof of stake nodes and supporting kind of that new industry that's, that's starting to develop, so.

• 15:00Anthony Pompliano?

  Talk to me a little bit about this cycle that you're talking about, right? So there's kind of the price cycle, but there's also lead times on building out hardware. I think it was like Nvidia and a couple of other folks who had gotten into trying to build cards and GPUs and things like that really got kind of caught in the wrong side of the cycle in 2018, where, you know, 17, they saw this big boom in demand. They came to market with all kinds of hardware. Next thing you know, a lot of that demand had basically dissipated by the time that they actually got everything there. They had a bunch of inventory kind of on their hands and they weren't able to, you know, offload it in the price points and timing that they wanted. So maybe help people understand like where we are today. We're recording this in October of 2020.

• 15:44Anthony Pompliano?

  How do you see where we are now? And the kind of what is the expectation or like, why did you think that 2020 was the year to start something like this?

• 15:53Speaker 02

  The cycles in the mining industry are brutal.

• 15:58Speaker 02

  I don't know how else to say it.

• 16:00Anthony Pompliano?

  Why?

• 16:00Speaker 02

  And I think, I think you have to have different strategies for, you know, each part of the cycle. Liu Zhang had did a nice research paper on this just recently and he kind of talks about like the four cycles of the mining space. And part of it is like, the Bitcoin algorithm is like the most efficient thing on the planet and it's ruthless in terms of its desire to keep driving cost out. So there's this, this race to get lower cost energy. There's a race to build a stronger machine. And we go through these cycles because when new technology comes out that is, you know,

• 16:44Speaker 02

  two or three times better or more efficient than the prior generation, people want to upgrade to that equipment. And what it does is it forces as, as we upgrade, it forces out the weak hands, right? So it forces out the people with high operating costs. It focuses for forces out the people that have older technology. And what happens is the Bitcoin network just gets bigger and stronger and more secure each time this happens. And so we go through these cycles and they're, they tend to be, you know, 18 to 24 month cycles, sometimes, you know, a little bit longer. And it really depends on how fast they can innovate the chips.

• 17:29Speaker 02

  So you have to understand where we are in those cycles and which machines to purchase. And it's interesting because you almost have to bet countercyclical, right? So I don't think it's much different than probably, you know, exploring for natural gas or oil or like there's times to be investing in the space and there's times to be pulling away. And right now, we were very bullish on where this is going. We think that the latest generation of equipment is going to be here for several years. We think it's a great time to invest. And I tell people, because I get this, I get asked this question all the time. I'm like, look at the minute all your online calculators say it's time to mine, it's too late. You you won't be able to get the machines.

• 18:14Speaker 02

  If you can, you're going to overpay for them. It's it's kind of, you've got to be able to make that bet before that happens. Like you want the machines plugged in mining when this thing goes up. So we think it's a great time right now.

• 18:32Anthony Pompliano?

  Absolutely. And then talk a little bit about the process of actually upgrading a facility. So somebody's got a facility, they've got older equipment in there, they're mining, there's revenue coming in the door. You guys go to them and kind of how do you work with them? What is your product suite or service suite look like in terms of how you can actually help that miner upgrade?

• 18:48Speaker 02

  Yeah, absolutely. So we're, so we created a product for you using the equipment as collateral, which was something that really hadn't been done in the space before. And we've deployed, you know, we've deployed $100 million into North American mining this year. And so what we do is we allow miners to to get some leverage on on. You know, they typically don't have a lot of cash sitting around, right? So we allow them to get their new machines, plug them in. And then, you know, we take a monthly, you know, interest and and principal payment. We let the machines pay for themselves, you know, over the course of the next, you know, 12 or 18 months.

• 19:33Speaker 02

  We also provide advisory services. So we help people think through their their business, their.

• 19:41Speaker 02

  You know, how to avoid a lot of the traps that there is in Bitcoin mining. Like you really, you only have to make a couple of missteps and lose all your money. You know, so I would say that if there's anybody that's looking to deploy a lot of money into mining, call us first and we can kind of talk you through it, you know, like why this is either a good idea or a bad idea and we can definitely help, help you find the right people in the market. So like, we don't have any of our own facilities. So we, we've done a lot of due diligence to find out who the best operators are in North America, who, where the best costs are, where you can put your machines and feel good about it. And then we have a very strong working relationship with Micro BT and with Bitmain.

• 20:26Speaker 02

  You know, so we talk to them daily and, um, you know, they're very excited about growing the North American market. They see it as a, as a huge opportunity.

• 20:37Anthony Pompliano?

  Yeah. Can you name any of the people that you have kind of put a thumbs up on in terms of miners in the US or do you want to refrain from that?

• 20:45Speaker 02

  You know, I was, I was thinking about that. I'm sure they would all love me to, to name each one and then I'll probably forget somebody and I'll get in a lot of trouble. Um, so we'll, you know, over the next couple of months, I think we'll be more and more vocal about who, who, um, we're, we're working with. Um, but there's a lot of great operators in North America and they've, you know, they've spent the last three years building out, you know, large scale mining and North America, you know, everyone loves to talk about the Chinese and, and all the stuff they're doing with, with hash rate. I would love, you know, my goal is three years that it's no longer a storyline. Like we don't talk about it anymore because the hash rate is more, you know, evenly spread out throughout the world. And North America's got a ton of advantages.

• 21:27Speaker 02

  I mean, it's, we have a lot of power in this country. And, and in Canada, um, I think the temperatures are right. The infrastructure is there and it's, you know, it's a lot of abandoned power. So we can, there's a lot of people, they, they find these spots, they step in and, and, and a lot of the local communities are figuring this out and they're embracing it. They're like, wow, this is a big deal.

• 21:52Anthony Pompliano?

  You mentioned power. One of the things that everyone loves to talk about who does not like Bitcoin is you idiots are all spending all of the power. You're literally consuming more power than some countries. Stop doing that. This isn't environmentally friendly. I think usually the most popular response from those who support Bitcoin or intrigued by it is, yeah, but most of it's renewable power. Kind of, how do you guys just see power consumption, the sources, the amount, like, just talk me through, you know, how you guys look at that or any frameworks that you use to think about it?

• 22:27Speaker 02

  Yeah, so it's great. And a lot of people like to bring that up. So I think there's about eight gigawatts worth of power right now securing the Bitcoin network. So there's definitely an element, like, if you believe in Bitcoin, the more power that secures it, the better it is for the network and the more valuable the network is. So I think there's, it's incredibly transparent how the, how, how much power is being used, right? Like, everybody in the world knows how much power is being used for the Bitcoin network. How much power is being used to run all of our banks?

• 23:09Speaker 02

  You know, every time I turn around, there's like a new bank being built on a corner. I'm like, why are they building banks right now? It doesn't, this doesn't seem like it makes a lot of sense. Or how much energy does our military use to secure our country and the US dollar, right? Like, you were, you were in the Air Force? I think you were in the Air Force, right? Army. Army, okay, you're an Army guy. But the Air Force spends like $9 billion on fuel, right? We spend $2 billion on electricity to secure the Bitcoin network.

• 23:40Speaker 02

  And I'd say the other piece is where, you know, the, with the Bitcoin algorithm is so ruthless in terms of driving cost out that it's constantly looking for low-cost energy. And what we're finding is there's lots of pockets of this around the world where it actually helps the grid. It helps the power grid. It makes it more efficient. You know, there's, there's Peker plants in New York, the Greenwich guys are the, you know, they're a great team there. Where they're actually, they've got an onsite Bitcoin mining facility and it allows them to be more efficient to power the grid.

• 24:18Speaker 02

  And it's like, wow. Or my other favorite is like New York, you live in New York. I live in New York, right? We have an abundance of hydropower that just it just flows over the dam. And it's like, guys, you could be making money off of that right now. It's just going unused and they and they can't get their heads wrapped around it yet. But we think that's changing very quickly. I mean, I think in the future,

• 24:44Speaker 02

  we we believe very strongly that the the electric companies, the power producers, they're they're going to get engaged in this industry. We're already starting to see it. And I I think nation states at some point are gonna are gonna say, oh, wow, we we got to get a Bitcoin strategy and we've got these natural resources. Let's use it to produce Bitcoin.

• 25:08Anthony Pompliano?

  People I don't think like the fact that it's Iran, but I think Iran created a process to license people to mine within the country and even put some of their national resources, not not natural, but national resources towards doing it. It sounds like you think that maybe some of the more fringe locations will do it first, but actually we should see every nation state eventually do this?

• 25:35Speaker 02

  I I think so. I mean, every nation state has a strategy around oil. They have a strategy around natural gas. They have a strategy around gold. And I think they're gonna have a strategy around Bitcoin. And I think part of that strategy is we can produce it. We have a we have an advantage and we need to take advantage of, you know, use that advantage to produce Bitcoin. I think it's just a matter of time, like where where does this go? It's it's moving so fast that I I think it's inevitable that it's gonna happen. And our goal at Foundry is, you know, when when that nation state is ready to get into the space, you know, we hope that they call us because we've got the experience and the the trust to help them kind of navigate through that.

• 26:21Anthony Pompliano?

  Is there any specific inflection point that you guys are looking at for, say, like the US government or other kind of global superpower that would really push them or accelerate them into doing this?

• 26:34Speaker 02

  I don't know. I think it's it's kind of like, once it starts, it's going to be hard to stop. You know, it's kind of like, you know, some of the companies now that are investing in

• 26:47Speaker 02

  their treasury into crypto, right? It's, I think all of a sudden, it's like, wait, they're doing what? And wait, they're making how much money on this? And why are they doing it? And why aren't we doing it? You know, and I think it's just a matter of time before every country is going to be asking that question.

• 27:03Anthony Pompliano?

  Yeah, you mentioned North America a couple of times in kind of the hash rate distribution. Talk through a little bit of like, where are we from North American hash rate? And kind of how you guys see that being important to kind of continue to increase on a global distribution basis?

• 27:23Speaker 02

  You know, it's really hard to tell exactly the distribution of hash rate around the world. But some studies like the Cambridge study, I think, puts China at over 60%.

• 27:34Speaker 02

  I think there, I think there's a lot more in the US than than they've got in their calculations. But I think we're probably in the 10 to 15% range right now. And I think over the next 24 months, it's probably going to double.

• 27:49Speaker 02

  I think there's, there's going to be more and more capital flowing into North American miners. The facilities have been built out. There's some really big projects that are going to be announced soon for additional capacity.

• 28:02Speaker 02

  And I think, you know, there's a, there's a limit of, there's a limit at the wafer production facility. So TSMC and Samsung, they can only give so many wafers to the ASIC manufacturers. So there's only so many machines available. And I think as long as we continue to buy those machines, we're going to start seeing the hash rate shift from, from China to North America. And look, I don't think North America should dominate either. I think it needs to be evenly spread throughout the world. That's what makes Bitcoin, you know, great.

• 28:37Anthony Pompliano?

  Absolutely. What's the biggest risk that you see to the mining business, whether it's here in North America or elsewhere?

• 28:44Speaker 02

  Biggest risk?

• 28:49Speaker 02

  You know, it's one of the most efficient markets, right? So I was gonna, my first reaction was, oh, if Bitcoin price tanks, you know, oh, no. But as you know, every, you know, was it 2000, it's like 2000 blocks or something like that. Every 14 days, the difficulty readjusts. So it self-regulates. And you think about like the oil industry, you got a bunch of guys sitting in a room deciding how much oil they should pump out or not, and what are we going to do to fix the price? And it doesn't have, the algorithm decides that, you know? And everybody in the world collectively mining kind of decides that. So if Bitcoin price tanked, hash rate's gonna tank, difficulty's gonna tank, and then it'll

• 29:33Speaker 02

  make sense to mine again, right? So, um, so I don't know what the, I don't see any major risks right now. I suppose, I suppose the US government printing more and more money and we head to, you know, economic ruin, that would be detrimental to a lot of folks, but...

• 29:53Anthony Pompliano?

  And in terms of how you guys see kind of the mining cycles and some of those risks, does it feel like there's just much more knowledge in the market? Like, that's what I'm kind of pulling here, or I'm taking away from you, is like, there's just so many more experienced miners and people who have kind of seen multiple cycles now. And so they feel like there's a better understanding of some of the risks or potholes, you know, kind of in the strategies, but also the market cycles and kind of what to do, how to scale, how to build out these facilities, that miners should be in a better position, kind of moving forward through future market cycles?

• 30:28Speaker 02

  Absolutely. I mean, I think the industry is, it's maturing at this incredible pace, and it looks very different today than it did a year ago. I mean, today, there's, you know, we're financing equipment manufacturers. A year ago, every miner in North America was begging for that solution, and it didn't look like anybody would ever step up and do it. So it's, it's changing quickly. I mean, we're even... We're looking at the derivatives market, right? So like miners, I've always said like miners are really good at making a Bitcoin, doing it really efficiently. But most of them are horrible at treasury management. I know I can speak for myself, like I didn't know what to do. I'd mine this Bitcoin and sometimes we'd sell it every day and others was like, no,

• 31:12Speaker 02

  let's hold it and let's try to time the market. And it was just a mess. So we're working with like the Genesis team and we're selling forward or calls on, you know, future production. And it's like, wow, we're, we're actually making, we're making extra money doing this and it's not hurting our operation and it's a better way to manage our cash flow. And it's like, whoa, this is really cool. And our, our goal is how do we train and help other miners take advantage of that stuff so that they can, you know, shore up their operations and, and be more profitable?

• 31:49Anthony Pompliano?

  Yeah. And it's one of these weird businesses too, right? We're like, what other business does your balance sheet expand? Like the actual value of your balance sheet can expand or shrink at a very rapid rate, right?

• 31:59Speaker 02

  Yeah, it's scary. It can be very scary.

• 32:02Anthony Pompliano?

  And so really, is it fair to say that most miners are, one, infrastructure investors, right? Two, they have to drive the cash flow from the mining activity. But then three, also, it's almost like they're traders or that treasury management you're talking about, like there's multiple components to this business and you've got to be pretty good, if not great at all of them to be successful?

• 32:24Speaker 02

  Yeah, I think you, you sum it up very well. Yeah. I mean, I, you know, I think I'm starting to view mining almost like critical infrastructure, you know, so like almost like a utility, right? So I think a lot of miners, I think they come into it with a little bit of a wrong approach of we're gonna, you know, get rich quick and.

• 32:46Speaker 02

  I've yet to meet any of those guys, you know, so I don't think it's a get rich quick kind of business, you know, kind of like a utility is not a get rich quick business. I think mining is over time is going to become a very stable industry, very predictable. It's gonna, you know, kind of produce a dividend for its investors. And I think if you want to get rich quick, just go buy Bitcoin.

• 33:14Anthony Pompliano?

  Yeah. Well, and that's as part of the decision people have to make, right, is do you want to just invest in the asset itself? Or if you go ahead and you invest in mining, the idea is that those machines will generate more Bitcoin over time than you could buy right now with the same dollar amount, right? And that's a calculation that to your point really depends on price, on market cycle, on the technology you buy, the shelf life of that technology, how expensive is the power, what's the source of your power? Like, there's a lot, a lot of inputs here. And if you're sophisticated and you know what you're doing, it's a great business to be in. If you're not, good luck, right?

• 33:48Speaker 02

  Yeah, for sure.

• 33:51Anthony Pompliano?

  What has been some of your biggest takeaways? So you guys have invested $100 million or so into mining. You've partnered up with DCG to do this. What's been kind of your biggest takeaways in 2020? The world's been chaotic and in so many ways, but kind of from a business perspective, what's been the one or two surprises or takeaways that you've had?

• 34:12Speaker 02

  So early in the year, I think for me personally, a couple surprises is the, like, the DCG team is amazing, right? Like, I, they're just a great group of people. I thoroughly enjoy working there. They, they have probably a better, better outlook or look into the, you know, the whole blockchain space than anybody else. So they really understand it and they understand the risks and the rewards. And Barry's been really supportive. He's like, look at Mike, you don't have to hit home run, just get on base. Like, we just need to get on base on, you know, a regular, you know, cadence.

• 34:54Speaker 02

  And and this idea of betting counter cyclical, I think, is is really, really important. So we placed some really big bets early on. The micro BT guys, they basically said, Mike, get your machines installed, help your customers, and you're going to be just fine. And they've been right, you know. So, you know, all the online calculators would tell you that, you know, the payback is 18 months for the new equipment. It was the same thing in May. And yet I've been mining with the equipment for six months and it's worth, the equipment's worth more today than what I bought it at. And I've been mining for six months. You know, it's like, I think this is actually going to hold true for quite some time because we're early in the cycle.

• 35:35Speaker 02

  So I really encourage, you know, people, if you're, I've told a lot of people, like, if you, if you don't think now's a good time to get into the mining space, you should just buy Bitcoin. Like, if you're struggling today with this decision, then this isn't the right space for you.

• 35:53Anthony Pompliano?

  One of the last things I want to do before, before we get into some of the rapid fire stuff is help people understand the unit economics. So, again, a lot of these are variables that will change depending on your location, your operations, all this kind of stuff. But just generally, if somebody buys one miner and they were to plug it in, kind of how do you guys look at, you know, the average cost on the power side? And then like, what does that look like over, let's say, 24 months or something like that in terms of how much they can actually generate if they do it the right way, right? So they come to your advisory services, you guys, you know, kind of walk them through, here's what to do. What does that unit economics look like in kind of the bull case?

• 36:35Speaker 02

  Yeah, so I think, I think most miners want their machines to pay back in less than 12 months, right? And when, when the industry gets really frothy, or when it did the last time, it was like, machines were paying back in, in three months, four months, you know, it was like, you plugged it in and you got all your money back and it was amazing. I think one of the important things to look at is how long do you think the machines are going to last? And I, and how efficient are the machines that you're buying? Because that's going to extend their lifecycle, right? So we're, we, we believe that these current generation machines will last three, probably four years. So you kind of have to look at that overall timeframe. And, and part of this is,

• 37:22Speaker 02

  Look, you could buy Bitcoin at a high price and the market could fall. But while it falls, you're losing money if you just bought the coin. If you're mining, you're still making money through that whole process, right? So the machines are still paying for themselves. So it's a little bit of a hedge for the downside. And then you kind of get all the upside if you get them plugged in before the market really runs. So you gotta buy them. I always tell people you gotta buy them at the right price. You have to pick up a provider that can get them installed when they arrive. And you gotta have a low hosting cost. And that those hosting costs continue to drift down.

• 38:05Speaker 02

  And then, you know, have somebody that you really trust in terms of running the machines for you. Because they've got to be up and running all the time.

• 38:14Anthony Pompliano?

  Yeah, makes sense. What does success look like for Foundry? If you look out 10, 15 years from now, what exactly are you guys doing? And you're like, you know what? We did exactly what we wanted to.

• 38:26Speaker 02

  Yeah, so when I started, Barry said, look at it. I want you to build a business for the next 10 to 20 years, right? Like, everybody looks so short term in this industry. It's this is for the long haul. And I think 10 years from now, I really do think nation states will be in the mining business somehow, some way. And I think we'll be their first phone call to help them through that process. I also think that, you know, we didn't spend much time talking about, but the proof of stake world, I think, is going to be fascinating over the next five to 10 years. It's still early on, but, you know, these teams have been heads down building for the last three years.

• 39:09Speaker 02

  You know, even like today's a big day, Filecoin launched, right? Like, they've been working on this thing for three plus years. And it just went live today. And there's so many other proof of stake protocols out there that are going live that the teams have been working for years on. And I just think that's gonna, it's gonna be really interesting to see how that all plays out.

• 39:31Anthony Pompliano?

  Absolutely. I always ask the same two questions to everyone before I finish up. First is most important book. What you got for me?

• 39:41Speaker 02

  Yeah, so.

• 39:44Speaker 02

  So most important book, I would, you know, I think there's different books at different parts of times in my life that have been like the most important book. I'll tell you, when I was a young kid, I really struggled to read. So like early grade school, that's probably why I became an engineer because I wasn't good at reading and writing and

• 40:06Speaker 02

  so now I love to read, you know, like now I just can't, I can't take enough of it in, but you know, probably the most impactful book for me was a book called A Grace Given. By, by a guy named Kent Gilgus. And it's about a father's journey in losing their, their, his daughter. And in 2007, my four-year-old passed away. She had a bad heart and it was a really, really tough time and, you know, obviously in my life and I got a chance to meet the author and read the book and it was like,

• 40:46Speaker 02

  wow, here's somebody who was having the exact same, you know, crazy thoughts I was having and it really, it really helped me to know that I wasn't alone, you know, in this journey and it really, you know,

• 41:02Speaker 02

  it was, it was just a big impact for me. So highly recommend it. It's, it's, you know, it's a sad book, but it's also a very hopeful book and we've been blessed that we were blessed to have another child. So

• 41:20Speaker 02

  it's been, it's been quite the journey.

• 41:22Anthony Pompliano?

  Yeah, that's, that's, it's always the timing at which you read books is almost as important as the actual book that you read, right? And that's something that

• 41:31Speaker 02

  Absolutely.

• 41:32Anthony Pompliano?

  over all of these episodes has come out over and over and over again. So that's a great recommendation. The second one is a little bit more fun. Aliens, Believer or Non-Believer?

• 41:44Speaker 02

  Yeah, I'm a believer. You know, like the math just seems to be there. I was thinking about this like, we only discovered gravity like 350 years ago. Like there's 500 years ago, people still thought the earth was flat. Like, we know so little about about our own world, let alone the universe, that I just think there's so much more to to be discovered. I mean, even Bitcoin, Bitcoin's only been here for 10 years, you know, like.

• 42:16Anthony Pompliano?

  Very true, very, very true. Do you believe that we're in a simulation? Or are you just sticking with the alien stuff?

• 42:25Speaker 02

  Oh, I was that I wasn't prepared for that question. I love that. You know, those things are always fun to think about, right? Like, somebody came back and Satoshi came from the future and, you know.

• 42:36Anthony Pompliano?

  I don't know if I go that far on that one.

• 42:39Speaker 02

  You know, like, you know, like the machines, I love the fact that we're building, we're building a computer that can never be shut down. And and and the computer is incentivizing us to go do it. And we are totally hook, line, sinker. We are all in and trying to build this thing as fast as we possibly can. You know, transferring value is just one level on what's gonna, what this thing's gonna be able to do. So yeah, it's kind of, it's kind of crazy.

• 43:10Anthony Pompliano?

  I tend to think it is absolutely wild that we found ourselves in this situation, but I'm glad to be alive right now.

• 43:17Speaker 02

  Me too.

• 43:18Anthony Pompliano?

  What what one question you got for me to finish up?

• 43:23Speaker 02

  So I don't know, people have asked you like 400 questions or something. So it's hard to, and this one's probably been asked in the past, but what do you think's the biggest threat to Bitcoin besides?

• 43:36Speaker 02

  Government takeover or, you know, 51% attack or?

• 43:41Anthony Pompliano?

  Self inflicted wound, like somebody introduces code that ends up having a bug in it. I think that's by far like, that's the most likely thing to happen, right? I don't think that it is likely to happen, but the thing that is, uh, has the highest chance of happening is that even more so than governments or any of the other things that people love to kind of talk about.

• 44:04Anthony Pompliano?

  But it's still such a, such a small, uh, you know, chance that that would even happen, um, which also speaks to like, how unlikely it is that a government is able to shut down the Bitcoin network or a 51% attack happens or anything like that. So self inflicted wound definitely is one. And then two is, um, yeah, somewhat tangentially related. Like it just takes time from like a branding and marketing standpoint. Like people, you know, I, I used to joke, I'd walk into, uh, institutions and meet with their investment committees, uh, or their investment teams. Like, oh, this sounds awesome. Where can we learn more? And like, what am I going to be like, well, you can go follow Crypto Panda on Twitter? Like, no, right? Like, and, and by the way, like, that's not a knock against a pseudonymous account, right?

• 44:49Anthony Pompliano?

  Of any, of any of them. Like, actually, that's where most of the best information, right? Or like, oh, you should go to this Telegram channel. They're like, what the hell's Telegram, right? So, so it's like, by the way, that's where the best information is. So I think that like, it's just, it takes time to kind of build out all of the infrastructure and, and kind of sophistication that they're used to, to make them comfortable with, uh, understanding it. And we're getting there, but you know, it just takes time to do this stuff.

• 45:15Speaker 02

  Yeah, people, people ask me all the time, like, can you explain Bitcoin or blockchain? And I'm like, look at you, you can watch Netflix on your phone. Do you have any idea how that technically works? Like, do you know the difference between TCP and IP? And they're like, no, so don't worry about it.

• 45:34Speaker 02

  Just believe.

• 45:36Anthony Pompliano?

  What's the Satoshi line? Like, uh, if you don't, if you don't believe in Bitcoin, I don't have time to explain it to you or something.

• 45:44Anthony Pompliano?

  Crazy. All right, Mike, listen, thank you so much for doing this. Where can, uh, where can people find you and more about Foundry on the internet?

• 45:51Speaker 02

  Foundrydigital.com is I think the best place to get us. Twitter handle for me is @callyourmic. Twitter handle for Foundry is @foundryservices. So yeah, we're, we're looking forward to the next 12 months. I think it's gonna be a great, it's gonna be an exciting ride.

• 46:11Anthony Pompliano?

  I tend to agree. And I don't think anyone believes that you or I have any other opinion than what we have.

• 46:18Speaker 02

  That's right.

• 46:19Anthony Pompliano?

  Sure on the table, let's see what happens.

• 46:22Speaker 02

  That's exactly it. We've placed our bet.

• 46:26Anthony Pompliano?

  Exactly. All right, Mike, listen, thank you so much for doing this. We'll definitely have to do it again in the future.

• 46:30Speaker 02

  Yeah, thanks, Paul. I'll see ya. Bye.