#1058 Why Are So Bitcoin Miners Selling?!

In this episode, I'm joined by my brother John Pompliano. We discuss the massive amount of Bitcoin selling that has occurred recently by Bitcoin miners. We dig into the charts and see which mining companies hold the most Bitcoin, which have sold the most Bitcoin, and what exactly all of this means to the broader Bitcoin ecosystem. ======================= Crypto wallets and browser extensions are outdated, limited in features, and don’t meet the needs of today’s Web3 users. Core, the free, non-custodial browser extension built by Ava Labs, is more than just a wallet. Core is packed with features that give Avalanche users a more seamless, and secure, Web3 experience. Did you know you can also bridge Bitcoin natively across the Avalanche Bridge, and take advantage of the thriving DeFi ecosystem on Avalanche? This is just one of the innovative properties that make Core so powerful, giving users an all-in-one operating system that brings together Avalanche apps, Subnets, bridges, and NFTs in one high-performance browser experience. With Core, any crypto user can easily swap assets, display NFTs in a beautiful interface, and store your assets in a Ledger-enabled wallet. Plus you can put real dollars in your Core wallet in just a few clicks. Go to www.core.app to access the full power of Web3 on Avalanche! ======================= Exodus is leading the world out of the traditional financial system by building beautiful and user-friendly blockchain products. With its focus on design and user experience, Exodus has become one of the most popular and loved cryptocurrency apps. It’s supported on both desktop and mobile, allowing you to sync your wallet across multiple devices so you can have access to your funds anywhere. You can instantly exchange around 100 different cryptocurrencies straight from your wallet. Interactive charts let you view an asset’s price history and your portfolio’s performance over time. And maybe the best part, Exodus is integrated with the Trezor hardware wallet - making advanced security easy for everyone. Visit exodus.com/pomp for your free download or search Exodus on the App Store or Playstore. ======================= The Pod Pro Cover by Eight Sleep is the most advanced solution on the market for thermoregulation. It pairs dynamic cooling and heating with biometric tracking. Go to https://www.eightsleep.com/Pomp to check out the Pod Pro Cover and save $150 at checkout. Eight Sleep currently ships within the USA, Canada, and the UK. =======================

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. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Now let's kick this thing off. Today's episode is a conversation between myself and my brother John Pompliano. We talk about Bitcoin miners and why so many of the publicly traded companies are having to sell Bitcoin, what the mining death spiral is, why you shouldn't worry about it, and exactly how some of the nuances of the mining industry end up playing out in bear markets like we're currently experiencing. I really enjoyed this conversation with John, and I hope it's valuable to you. Before we get into this episode, I first want to talk about some of our sponsors. This episode is brought to you by Avalanche. Crypto wallets and browser extensions are outdated, limited in features, and don't meet the needs of today's Web 3

• 0:45Anthony Pompliano?

  users. Core, the free, non-custodial browser extension built by Ava Labs, is more than just a wallet. Core is packed with features that give Avalanche users a more seamless and secure Web 3 experience. Did you know you can also bridge Bitcoin natively across the Avalanche bridge and take advantage of the thriving DeFi ecosystem on Avalanche? This is just one of the many innovative properties that make Core so powerful, giving users an all-in-one operating system that brings together Avalanche apps, subnets, bridges, and NFTs in one high-performance browser experience. With Core, any crypto user can easily swap assets, display NFTs in a beautiful interface, and store your assets in a ledger-enabled wallet. Plus, you can put real dollars in your Core wallet in just a few clicks. Go

• 1:29Anthony Pompliano?

  to core.app to access the full power of Web 3 on Avalanche today. Today's episode is brought to you by Exodus, the world's leading desktop, mobile, and hardware crypto wallet. They offer beautiful, user-friendly blockchain products that sync across all of your devices, making it easier to send, receive, and exchange over 150 or more crypto assets in one place. And with world-class customer service available to you 24/7, Exodus always has your back. But the fun doesn't stop with staking and trading. They recently launched a new NFT marketplace where you can buy and sell your favorite NFTs on the Solana network. By partnering with the popular NFT platform, Magic Eden, they're offering the full Monty on Verified Collections, with more added every single Ready to check it out for yourself? Run, don't walk.

• 2:13Anthony Pompliano?

  Over to exodus.com/pomp for your free download today. Again, if you want the world's leading desktop, mobile and hardware crypto wallet, go to exodus.com/pomp today. This episode is brought to you by Eight Sleep. Eight Sleep is the single best product that I have purchased over the last three years. It completely changed my life. I'm not joking. Pay attention. The Pod Pro cover, which goes over your mattress by Eight Sleep, is the most advanced solution on the market for thermoregulation. It pairs dynamic cooling and heating with biometric tracking. You can go to eightsleep.com/pomp to check out the Pod Pro cover and you save $150 at checkout. They currently ship within the United States, Canada and the UK. And I told you, it changed my life. It helps me sleep deeper, helps me sleep longer.

• 2:57Anthony Pompliano?

  I feel much more refreshed and I have better energy. You want to know how I have relentless energy every single day? Because I sleep on an Eight Sleep. Seriously, go check it out. Eightsleep.com/pomp today.

• 3:09Speaker 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.

• 3:32Anthony Pompliano?

  What do you want to talk about today?

• 3:34Speaker 02

  Let's talk about miners. How they seem to be just selling every Bitcoin in their wallets. Miners are selling at a rapid pace. They sold about 14,000 Bitcoin in a single day, equal to over $300 million. And miners just across the board, public miners especially, have been dumping Bitcoin.

• 3:51Anthony Pompliano?

  Do you know how miners and the pressure they're under when the price goes down? Do you understand how that works?

• 3:57Speaker 02

  A little bit. Could you explain it in one more detail?

• 3:59Anthony Pompliano?

  So if you think of miners, right? The whole name of the game for a miner is to go find the lowest cost power possible, go find machines for as low as possible. Those are their input costs essentially. It raises the cost of the machine, cost of the energy. They then plug them in and they mine Bitcoin. That Bitcoin usually is produced or mined at a cost to them that is lower than the current price. So we'll use an easy example. If Bitcoin was trading at $40,000, miners may mine it at $10,000 cost to them. So they spend $10,000 for every one Bitcoin they mine. Overgeneralized numbers. If Bitcoin is trading at $40,000 and you, it only costs you $10,000, that's pretty good.

• 4:43Anthony Pompliano?

  $30,000 worth of profit for every Bitcoin you mine. Now that is for the absolute best miners in the world. Those with the lowest cost power or access to the best machines at the best price. There are some miners, specifically usually the residential miners, you know, individuals, they may have a higher cost of power. Sometimes, let's call it four times higher. So instead of paying three cents a kilowatt hour, maybe they're paying 12. And so in that situation, it costs you $40,000 to mine one Bitcoin that equals $40,000. Well, the problem becomes if Bitcoin's price drops, now all of a sudden, you're spending $40,000 to mine a Bitcoin that, let's say, now is trading at $30,000. So what do you do? Either you continue to mine Bitcoin at a loss, or you shut off your machine.

• 5:26Anthony Pompliano?

  Now, because it's residential, they don't have a lot of miners, so what do they do? They shut off. Not a big deal to the network. But if the price continues to fall, and now it's trading at 20,000, those miners with the lowest cost power and the best priced machines, they can continue to mine because they have a $10,000 production cost for a Bitcoin that's trading at $20,000. But one of the challenges is that these miners, their expenses are denominated in dollars. So, as an example, let's say that you were able to mine $1 million worth of Bitcoin per month when Bitcoin was at $40,000, and your expenses were $700,000 a month. You had a $300,000 profit and all was good in the world.

• 6:09Anthony Pompliano?

  If now all of a sudden Bitcoin's price goes from 40,000 to 20,000, you went from making a million dollars in revenue to 500,000 in revenue. Well, if you're making $500,000 in revenue and your expenses, which are denominated in dollars, is still 700,000, you now are unprofitable. So what do you do? What many of the miners will do is they will sell Bitcoin that they've been accumulating on their balance sheets to be able to raise cash so that they can pay, one, their expenses... And two is to ensure that regardless of how low Bitcoin's price goes, they won't go bankrupt. They won't go out of business. And so naturally, as the price falls, some portion of miners become forced sellers because they've got to raise cash on the balance sheet.

• 6:51Anthony Pompliano?

  Now, one argument is that this is a positive thing because the miners are being able to protect themselves. Another argument is, no, the miners should actually do everything possible in their power to never sell the Bitcoin. The whole point of mining is if you can mine Bitcoin, even if it's at a profit today and hold it for a really long period of time, it's supposed to go up in value. And so naturally, what you're seeing is miners, as the price fell down in June and went broke $20,000, lots of miners were selling. And they've continued to sell because they need cash.

• 7:21Speaker 02

  Yeah, but when you look at it, the big guys, obviously, are hoping and trying to weather the storm, it seems like, right? Like, they're the ones selling off Bitcoin. They're the ones that have the most machines, have the cheapest power, all that stuff. But when you look at retail, what should the average person do? Should they just turn off their machine? If they're losing money every single day, the machine's on, like, that's the ultimate question, I think.

• 7:41Anthony Pompliano?

  Well, there's some people who are not economic actors in mining. Some people, they just like the idea of mining and they're going to do it regardless. They feel like they're contributing to the network, right? There's some people who say, I don't care if I lose a little bit of money now. I already have a sunk cost of the machine. I already spent money on the machine. The second thing is, I just tapped into the electricity in my house or I'm doing in my garage or something. So, yes, I'm paying, you know, 12, 13, 14 cents a kilowatt hour, but whatever. It's not like I have like a special agreement, you know, or whatever. It's just my electrical cost at my house. And then, oh, I'm going to just mine the Bitcoin. And if I hold it for long enough, then eventually the Bitcoin will be worth more than it is today. And so, yes, I'm losing money in the short term, but I already bought the machine, so like I should just keep mining.

• 8:25Anthony Pompliano?

  And then there are the people who are the economic actors who say, like, why am I mining Bitcoin out of loss? If I'm going to deploy more dollars, then I should just go buy Bitcoin rather than buy more mining equipment.

• 8:37Speaker 02

  How much of this is energy cost versus Bitcoin price?

• 8:41Anthony Pompliano?

  So for those that are unaware, those are two main components. There is one, a third thing that is important here. So you have the energy cost, which is fixed, right? Most people don't go to their power provider and say, hey, Bitcoin was at 40,000. I was paying five cents a kilowatt hour. It dropped to 20. I'm gonna have to have you hook me up with two and a half cents, right? It's just like you pay five, five cents. This is why miners are obsessed with how do you get the lowest cost power? Because one, it optimizes your profitability, but two, it acts as protection when Bitcoin's price turns down. Second thing is obviously Bitcoin's price. But the third thing is the difficulty adjustment. So if you go back to May of 2021, when about 65% of all hash rate was in China, China,

• 9:26Anthony Pompliano?

  specifically one province said, hey, get the hell out of here. We're serious this time. And about 50% of all hash rate on the Bitcoin network left. And so they unplugged their machines and moved them elsewhere. Sometimes they didn't actually go plug them in anywhere else. Other times they moved them and they ended up plugging them in. When we had a 50% drop in the hash rate because of that China ban, what we saw was the difficulty adjustment went down, meaning that if there's 100 people trying to mine, right, then the difficulty adjustment, let's just say, is kind of flat. If all of a sudden there was 150 people trying to mine, the difficulty adjustment would go up because it's trying to make it more difficult for any one miner to win, right? There's more competition. If all of a sudden we went from 100 miners down to 50, the difficulty adjustment would

• 10:11Anthony Pompliano?

  adjust downward because it wants to make it easier for those 50 to go ahead and do it. Now, why would you do that? If it's easier, what does that act? It acts as an incentive. The easier it is to mine, the more people want to mine. So it brings back a ton of miners. If all of a sudden there's tons and tons of miners and it's really difficult, the next incremental miner, it isn't as attractive to them, right? Or it's less attractive than it was before all those miners showed up. So naturally, that difficulty adjustment acts as almost like a regulator, right? Or like a balancer in terms of always ensuring that as miners shut off their machines because the price is going down, the difficulty adjustment moves downward as well to ensure that miners Always want to come onto the network.

• 10:52Anthony Pompliano?

  And so that balancing mechanism is what prevents this idea of like a mining death spiral. Which there is an idea of like, well, if you have miners who all of a sudden flipped to losing money on each Bitcoin. They would shut their machines off. So the network would grow less and less secure. And then they would need to sell their Bitcoin in order to be able to fund, you know, expenses. And that would then push the price further, which would cause more miners to shut down, which would cause them to sell more Bitcoin. And like you would get in this death spiral on the way down. The difficulty adjustment is what helps to prevent that from actually occurring.

• 11:25Speaker 02

  How do you think about, is the ultimate goal just as many miners on the network as possible? Or does the difficulty get too high to where it's like not economically sound for so many retail miners? That like the big boys are playing the whole space and there's no, there's no room for any like retail miners.

• 11:42Anthony Pompliano?

  There's a relationship between price and hash rate, right? Hash rate is the measurement of how much, how many miners, how many computing powers on the network. Some people will say hash rate leads price. Some people say price leads hash rate. Chicken or egg, right? Depending on who you talk to. But I do think that there's a very important part of the Bitcoin network is ultimately secured by the miners. Now, the nodes technically are validating the transactions. And so we want as many miners as possible because that means that the network is more secure. Now, one of the things that has occurred is obviously 65% of the hash rate was in China. Now, all of a sudden about 10% or so is the latest estimation I saw. 10% of all hash rate globally is in Texas.

• 12:24Anthony Pompliano?

  And about 30 to 35% of all hash rate globally is in the United States. Now, 35%, let's call it, is better than 65% in any one country. But I think we have to be careful that we don't over rotate from 65% in China to 65% in the United States either. Like, we actually want a truly decentralized, distributed network. Where folks feel like there is no ability for one country to unilaterally act to shut down miners.

• 12:53Speaker 02

  All right. What are your thoughts on like, obviously a bunch of retail miners have loans, it seems like, to pay for these machines? And then payments are recurring every single month. They still have to pay those. Those are the fixed costs. Like, how should someone think about, okay, I have a loan, but I'm still mining at a loss. I have conviction, but I still don't know when that will happen. Like, what's the timeframe of all that? Like, how should I think about that?

• 13:14Anthony Pompliano?

  Yeah, it's kind of like leverage, right?

• 13:16Speaker 02

  Yeah.

• 13:16Anthony Pompliano?

  It's almost worse than leverage, which is in leverage, you have the ability to liquidate the asset. Like if I, you know, use an easy example, if I borrow $100,000 to buy Bitcoin and I posted $200,000 as collateral, I basically can weather, you know, 30, 40, 50% drawdown before I would get liquidated. But if at any point I'm like, oh shit, I think the Bitcoin price is going down, I can just with the click of a button, sell the Bitcoin, pay off the leverage or the loan, and I still have some Bitcoin left. But there's a 24/7/365 highly liquid market that I can do that immediately, right? If instead, I basically took a loan and I didn't go buy Bitcoin with it,

• 13:59Anthony Pompliano?

  I bought mining equipment and I want to quote-unquote "liquidate" to be able to pay off the loan because the price is dropping, it's not as easy. It's not a 24/7/365 highly liquid market where I can just press a button and ban the miners or sold. And so I think that ends up being one of the difficulties there. Now, if you're a large-scale miner, you've got a big balance sheet, you've got access to capital markets and you're able to kind of, in a sophisticated way, get access to debt to be able to finance this stuff, sure, there's plenty of people who will go do that, right? Debt is a component of businesses in every industry.

• 14:37Speaker 02

  Yeah, I agree. And we've actually seen the cost of miners has dropped, obviously in correlation with price going down, miners getting off the network, they're selling their machines, they don't know what to do with them.

• 14:45Anthony Pompliano?

  I don't know what it is now. It used to be like the S9s. That was when I first started mining. That was the best piece of equipment at the time. Now, pretty much no one uses those. They essentially would price them based on what they thought it would take nine months or so to mine back your money. So they would say like, okay, cool. If you use this machine and you mine for nine months, you'll make $3,200. So then they would sell it for $3,200, right? And then I think at some point it went from nine to maybe 12 months or whatever. But basically it was like, we want to price the equipment so that you can buy it. If you plug it in today and you mine for nine to 12 months, you'll get your money back.

• 15:28Anthony Pompliano?

  And so naturally, if the price of Bitcoin goes down, well, they have to drop the price of the miners, right? It's also a function of if the price of Bitcoin goes down, people are less excited. So there's less demand for mining equipment. If the price goes up, though, it is bananas, right? There was S9s. I'll probably mess up the numbers, but I think it was like $1,200. Maybe it was like the average price. And at one point, people were buying S9s for like $3,000, $4,000 during the 2017 bull market.

• 15:54Speaker 02

  Gotcha. Yeah, bringing up a, bringing up a chart now. Um, all right, whatever. Can you talk about the miner capitulation? Like, I've seen that all over Twitter, obviously.

• 16:06Anthony Pompliano?

  That's what we were talking about, is basically miners saying, yo, it's over. Like, I gotta shut off my machines. I gotta sell my Bitcoin because I have dollar-denominated expenses. And so the whole idea of miner capitulation is basically similar to what we saw on the trading side. Is at some point, there had to be liquidations, right? There had to be people like, damn, it's over. It's done, right? And so naturally, what you get in those situations is, on the miner's side, same thing. You get people shutting down their equipment. You get them selling their assets. And it's either because they're forced sellers, which is the equivalent of being liquidated if you had like leverage or something, or two is psychologically, they think it's over.

• 16:48Anthony Pompliano?

  Now, I don't think we're getting a lot of psychological capitulation, right? I actually think it's the exact opposite. People are like, damn, this is annoying. But like, they have long-term conviction in the asset and in the market. I do think that there's a lot of forced selling. So in June, if you remember, Bitcoin's price drew all the way down to 17,500, significantly below the realized price on chain and a number of other metrics. It was the first time in Bitcoin's history that Bitcoin had dipped below a previous all-time high after a bull run. And so there's a lot of miners, just a lot of pressure. And so what were they doing? And that's where you saw the miners selling, pretty much from, you know, June 1st till today. They're just forced sellers.

• 17:26Speaker 02

  Now that we talked about retail, I want to talk about like, the big boys, right? So they sold a lot of Bitcoin in July versus June. They sold about 23% of their holdings, public miners. Does that worry you at all?

• 17:38Anthony Pompliano?

  That they're selling so much?

• 17:39Speaker 02

  That they're selling 23% of the overall holdings.

• 17:42Anthony Pompliano?

  It's better than selling 50%, right? Again, what they're trying to do is they're trying to play a game of how much do we have to sell? But if you were to go ask them like, hey, wave a magic wand, do you want to sell any Bitcoin? They'd say no. Right? And so, uh, yeah, look at these numbers here. Bitcoin sold in June, the top five Bitcoin sellers in May and June in public miners. Core Scientific, between May and June, has sold 9,900 Bitcoin, right? Just under 10,000. Uh, Bitfarms, uh, Northern Data, Argo, and Clean Spark have sold between, you know, call it 538 and 3,300 Bitcoin. And so, when you look at this, uh, in many cases, uh, the selling in May was much smaller than the selling in June.

• 18:27Anthony Pompliano?

  Why are the percentage in June versus May so high? It's because they were forced sellers, right? Now, forced sellers doesn't mean, uh, that like the business is bad or it's going to go out of business or whatever. It just means that they, uh, are having to sell Bitcoin to make sure that they have a strong enough balance sheet that they can, uh, fulfill their US dollar-denominated, uh, obligations, uh, and they want to make sure that they're going to survive. Because the name of the game in bear markets is to survive. And then the name of the game in mining is to mine as much Bitcoin as possible and never sell it. Right? Those are like the two strategies that you'll see people, uh, kind of talk about who've been around for a while. Uh, when you see miner selling, it just means that they're selling because they have to, not because they want to, from, in most cases.

• 19:07Speaker 02

  Yeah, and then how do you think about the transaction fees that they're receiving? Right? So, having more machines on is good because you're getting more, you're more money, right? But you could be operating at that loss. So like, should they think about plugging in more machines if they really have that much conviction, right? Like, none of this is financial advice, but...

• 19:23Anthony Pompliano?

  Yeah, most miners, I think, um, you know, look, they do, in, inside of a block, you basically get, uh, the mining reward, there's some transaction fees as well. The, uh, the idea is, uh, 2140, uh, all the Bitcoin will be mined, uh, and then the network will be sustainable on transaction fees at that point. There's plenty of people who argue that are critics that say, no, that's not possible, or whatever. Uh, when you begin to look at, uh, what miners are doing, I don't know very many miners who are like, yo, let's go set up more miners because we're going to get more transaction fees. Right? The way they look at it is, uh, that Bitcoin reward, uh, is going to end up being, uh, the, the big... Incentive, if you will. And then on top of the Bitcoin kind of block subsidy,

• 20:05Anthony Pompliano?

  you also see miners who say to themselves, how do I manage my balance sheet? I know what my dollar-denominated obligations are. If I have to mine at a loss, and I got a really, really big balance sheet, and I've got deep conviction in Bitcoin, and I'm basically taking a directional bet that, you know, within 12 months it'll recover, then maybe I go plug them in. But if I don't have a big balance sheet, if I'm not coming at this from a position of strength, maybe I don't go plug in new machines, maybe I don't put in that new order because I need to be able to ensure I'm going to get to the other side. Like, rule number one is survive. Rule number two is get as much Bitcoin as possible. But you don't focus on number two if you're not sure you're going to actually fulfill rule number one of make sure you survive.

• 20:43Speaker 02

  What are your thoughts around the one demand for this, but to the actual execution of it, of the biggest difference is I'm getting paid Bitcoin for doing something, and I'm paying out all my creditors in cash, right? In USD, whatever dollar denomination you want to use. What is the demand for, hey, I'd love to pay what I'm earning through mining in Bitcoin for my creditors, and then how would that execution work of actually getting paid Bitcoin for something? Obviously, it's very volatile.

• 21:12Anthony Pompliano?

  So this is a good, a good question. I think there's a difference. Dollar-denominated expense versus I'm paying in dollars, right? Now, what I mean by that is, I could say, hey, John, you can, you can use my warehouse to mine Bitcoin, right? And your, your payment, your rent payment is going to be $5,000 a month. Cool, thanks, man. And when I say that $5,000 number, that is a dollar-denominated expense, right? I didn't quote it to you in five Bitcoin, I didn't communicate it to you as five rocks or five pesos, or I said $5,000, right?

• 21:52Anthony Pompliano?

  Now, if you say to me, "Hey, man, I appreciate that. I'd love to pay you that $5,000 monthly rent in Bitcoin," I may say, "Yes, I made it not." But the amount you owe me is $5,000, right? And so if Bitcoin is trading at $5,000, that means you owe me one Bitcoin if you want to pay me in Bitcoin. But if all of a sudden Bitcoin goes to $10,000, you still owe me $5,000, right? It's denominated in dollars, now you only owe me half a Bitcoin. But the same thing happens if all of a sudden Bitcoin goes down to $1,000, and now you owe me five Bitcoin. And so the denomination of the expenses in dollars, that's different and separate than whether people are actually paying in Bitcoin or in dollars. My guess is that some of these companies that have, kind of are vendors to the miners,

• 22:37Anthony Pompliano?

  some of them probably do want Bitcoin. Whether it's an energy company, whether it's the landlord, whether it's even the people selling them, the miners, they definitely accept Bitcoin. So like, there are people who will accept Bitcoin. But in most cases, what you're going to find is that the expense itself is actually denominated in dollars, rather than in Bitcoin or something else.

• 22:55Speaker 02

  Do you think we could get to a point where so many miners drop off and so many big companies are dumping Bitcoin, causing those drawdowns, to where that could be a break in the network or anything like that?

• 23:06Anthony Pompliano?

  No, I don't think that's gonna happen.

• 23:07Speaker 02

  You don't worry about the security of the network at all due to miners leaving?

• 23:10Anthony Pompliano?

  No. If you look, we continue to see hash rate explode upwards over, you know, three, six, 12 months. If you look, even if you were to go look at the nodes in the Lightning Network, which, you know, is different, but still a good signal, that continues to hit all-time highs. So like, yes, the price is down, but I actually look at the disconnect between hash rate going up and price going down as a classic, the fundamentals are disconnecting from the price, or right, from the, if you're looking at public markets, you can see a situation where, let's say a company's cash flows were increasing, but the price of the stock was going down. Now, of course, hash rate is not cash flow, right? But it is one of many metrics people look at for the health, the strength, the value of the network.

• 23:54Anthony Pompliano?

  And so if hash rate is going up, but price of the asset is going down, you have to be careful, because what you don't want to happen is like, "Oh, price drew down two weeks ago." And hash rate just hasn't corrected yet, right? But if truly the price has now been going down for eight months and hash rate has not all of a sudden done a 70% drawdown either, right? So you have a strengthening fundamental data point while you have a price decline. That tends to mean that you actually are getting some sort of disconnect. Now, you can't look at it in a vacuum as like that's the only analysis to do. There's many other metrics that you should look at in terms of the health of the network. But I don't worry about all of a sudden a bunch of miners leaving and the network becoming unsecure or anything like that.

• 24:33Speaker 02

  Yeah, I mean, over the last like three years, hash rate has increased exponentially, right? It's gone through the roof. But over the last two months, three months, it's kind of stayed stagnant, almost peaked a little bit in May. That doesn't worry you?

• 24:46Anthony Pompliano?

  Not at all.

• 24:47Speaker 02

  There is becoming that larger and larger disconnect. This is the mining rigs cost that we were talking about earlier. You can obviously see they've drawn down with the price of Bitcoin going down. Every single rig, S9, M20s, S17s, M30s and S19s have all come down in price since reaching that top. But the hash rate is interesting because everyone's fighting for it, right?

• 25:11Anthony Pompliano?

  What do you think?

• 25:13Speaker 02

  I think people will, regardless, there will be miners on the network. So I don't think they're going away and where there's over millions of miners. I think the big boys will continue to be the big players, right? Like retail just cannot move, like you just don't have enough capital to make those like significant moves or plug in, you know, 50,000 machines or something like that. It's interesting to see which ones will survive, which ones will navigate out of those big mining companies, which will navigate the storm, be able to kind of just weather the storm, right? Like that is the name of the game is just getting to the other side in a lot of cases, not every case. But yeah, I think they'll continue to go in. People are, people have been doing this for the last five years mainly, but really the last 10 miners have been chasing cheap power. So where are they going to get it?

• 25:55Speaker 02

  I'm sure we're going to get influxes of people talking about ESG, go solar, go wind, go nuclear. There's a million other ways that people will talk about getting power. I've even seen people talk about mining Bitcoin in space because you can get solar power. You can get it all, all day, right? Or 20 Four hours instead of just eight hours during the day. So there's a bunch of stuff I think people will kind of migrate to as it becomes a little bit more difficult. The thing that worries me a little bit is when we get to 2140. Do the transaction costs, do they really, because that's the problem with Ethereum for the most part is their transaction fees are through the roof. No one wants to use the network a lot of the times, right?

• 26:32Anthony Pompliano?

  It's one of the things that people don't actually pay attention to is if you compare Bitcoin fees to Ethereum fees. On the network on layer one, the Bitcoin fees have been incredibly low compared to the Ethereum fees for a while now. Most people who have been around for a while, remember Bitcoin fees spiked. So Bitcoin has not always been like this. The Bitcoin fees in 2017 bull market were absolutely insane, you know, tens of dollars, 50, 60 dollars, whatever it ended up getting to, I don't remember. But it was insane. And so if you have to wait on block times, right, so transactions could take day, right? And fees spiked, obviously we were like, damn, it's gonna be pretty hard to use this from a scalability standpoint. Now, what Bitcoin did was it pursued a scalability solution, one of those being the Lightning Network.

• 27:18Anthony Pompliano?

  So it provided almost a release valve to the actual layer one, where now tons of transactions can go through on Lightning Network. And so you get, along with other technical improvements and other things, you actually can get kind of higher throughput and lower fees on layer one, but also you're offloading some of the transactions to that layer two. Now Ethereum, right, which is, you know, really just kind of from this specific problem, they're just a couple of years behind. Now they ran into it. And so guess what they have to figure out is like, what is their scalability solution going to be? Now, if you talk to the Bitcoin crowd, they're like, oh, this is going to zero, right? If you talk to the Ethereum crowd, they're like, it's going to the moon, right? And so if you have to find some sort of scalability solution, is it a layer two? Is it this transition from proof of work to proof of stake?

• 28:03Anthony Pompliano?

  Is it some sort of side chain or this or that, like, who knows, right? I don't pay attention to that shit because it's just not something that I'm like intellectually very interested in. But what I can do is because I'm interested in Bitcoin, I can see how the layer two is the release valve. And fees are incredibly low compared to the historical averages, near, you know, all time lows. On the Bitcoin network and a big piece of it is technical improvements and then the layer two.

• 28:26Speaker 02

  Where would you go to learn about mining, to learn about like the mining rigs and the specific details and like how much you need, like where does someone go to start mining, right, on the retail level?

• 28:35Anthony Pompliano?

  So, I don't know about start mining, there's a bunch of services out there, you can go check those out. What I would say is if you just want to learn about the technical components and kind of how it works and all of that, there's actually a website that people, I don't know how many people actually know about this site now, it's been a while since kind of a whole cohort of people came in. But if you go to, I think it's, let me not say it out loud, let me make sure I get it right. Yeah, if you go to lop.net/bitcoin, I just put it here in the chat, you can get, you can go ahead and look there and Jamison Lop has a ton of great resources, everything

• 29:19Anthony Pompliano?

  from setting up a wallet, running a node, the history of Bitcoin network statistics, transaction fee estimates, block explorer visualizations, he's got a whole section on mining, data anchoring, technical resources, security, privacy, economics, even art and music, charities, tax accounting, exchange rate, you know, all that type of stuff. So, I'd go there. It's a great website that also has a ton of different information that I think people would enjoy.

• 29:43Speaker 02

  Yeah, it's good, I'm looking at it now, it's a good, I didn't know that it existed.

• 29:46Anthony Pompliano?

  Yeah, there you go, see?

• 29:47Speaker 02

  Yeah.

• 29:48Anthony Pompliano?

  All right, where can we send people to find you on the internet?

• 29:51Speaker 02

  Could find me on Twitter, that's probably the best place to find me, just go to my Twitter, @JOHNPOMPLIANO, very simple, J O H N P O M P L I A N O.