#256: Matt D'Souza on the Upcoming Bitcoin Halving, Miner Sell Pressure, and Why it's Important

Matt D'Souza is the CEO of Blockware Solutions, a blockchain infrastructure company specializing in Bitcoin mining hardware procurement, mining rig colocation, as well as professional Mining & Staking Pool operations. In this conversation, Anthony and Matt discuss Blockware's recent analysis of miner selling pressure, how profitable various miners are around the world, what to expect during the Bitcoin halving, and how hash rate should fluctuate over the next few months. =============================== UNSTOPPABLE DOMAINS-----Make your crypto currency payments simple and build censorship resistant websites. Visit unstoppabledomains.com and purchase your blockchain domains today! ~If you enjoyed this episode and want to stay updated on everything Bitcoin, tech, and finance. Check out my newsletter by visiting pomp.substack.com and join 35,000+ other investors currently subscribed to my daily investor letter.

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 Off the Chain, simply the best podcast in crypto. Let's kick this thing off. Matt D'Souza is the CEO of Blockware Solutions, a blockchain infrastructure company specializing in Bitcoin mining hardware procurement, mining rig co-location, as well as professional mining and staking pool operations. In this conversation, we discussed Blockware's recent analysis of miner selling pressure, how profitable various miners are around the world, what to expect during the Bitcoin halving, and how hash rate should fluctuate over the next few months. I really enjoyed this conversation, and Matt was super informative. But before we get into this episode, I want to

• 0:41Anthony Pompliano?

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• 1:23Anthony Pompliano?

  a cool name and a cool URL, but they got an awesome product as well. So head on over to unstoppabledomains.com. Alright, now let's get into this episode with Matt.

• 1:32Speaker 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.

• 1:57Anthony Pompliano?

  Alright guys, bang, bang. I've got Matt here with me. I feel like we are deep into the quarantine, got the quarantine beards, no haircuts, just ready to rock and roll. Matt, I appreciate you jumping on and recording this on short notice.

• 2:15Speaker 02

  Yeah, absolutely. Thanks for having me, Pom.

• 2:19Anthony Pompliano?

  For sure. Let's just jump right in. Let's go over your background and then we can get into the recent report you guys cranked out.

• 2:27Speaker 02

  Yeah, so I, you know, I started getting involved in the digital currency space in 2015. With one of my partners, I launched a digital currency hedge fund in 2017 called BlockShine Opportunity Fund. We still manage that, more liquid assets. And then in late 2017, my brother's college roommate saw an opportunity on the mining side. There was, there's an arbitrage for mining rigs between the US and China. And together, we launched Blockware Solutions. We've now become one of the largest distributors of ASICs to the US market. Over the past year, we've sold about 30,000 ASICs to the US market. We place miners in co-location facilities. We do research. We've got a Bitcoin pool.

• 3:13Speaker 02

  And now we're really building out our research arm to educate the market in the US. You know, our goal is to have, bring as much hash to the US because we need this decentralized network. We can't have 65% of the hash in China. So in January, with another partner, Mike Stolzner, we launched a Bitcoin fund called Blockware Mining. And we're mining Bitcoin in Kentucky. Got about, we'll have about 180 pet of hash by the end of the week. We've got 500 of those S17 pluses coming online. And what we're doing is we're offering a turnkey solution to US miners so that they can get up and hash it immediately. They have a great site with exceptional technologists managing the site.

• 3:54Speaker 02

  So with that, we, we deeply understand the Bitcoin network. We've got a large, we've, you know, we've, we've visited sites in Chengdu, China, on the Pacific Northwest, upstate New York. And that allows us to deeply understand the network. What electricity rates are at all around the world? Um, who's mining? And what mining rigs are they running? Are they running old gen technology or new gen? And what that does is that allows us to understand the break even prices of all these different miners across the globe. Locker solutions, I mean, we service people in, uh, in China, Russia, Mongolia.

• 4:36Speaker 02

  We have, we have either partners or, or other, uh, you know, service providers all over Europe. Even, even South America, Mexico, North America. So that gives us communicating with all them, uh, gives us a very good yield of what electricity rates are and what type of technology miners are running. And through that, we can estimate and understand what, uh, different miners break even prices are. Now, many analysts have, have said that the, the cost of production for a miner is, is price support. When you read our research report, you'll see that it's not price support for Bitcoin. It actually accelerates sell offs in, in the price of Bitcoin.

• 5:19Speaker 02

  The key, the key, um, expense or variable for miners is their electricity. About 95% of their operational expenditure is electricity. So if you're at a electricity rate of six cents, um, and you're running a hundred machines and someone has an electricity rate of four cents and they're running a hundred machines, you're, you're, you're running at a, a 50% greater break even than the individual at four cents. So when the miners, when the miners at six cents, uh, they start approaching, when Bitcoin starts approaching the break even price, price of a miner at six cents, their margins become compressed.

• 6:02Speaker 02

  Their, their, their, their net profitability decreases and they have to sell more of that Bitcoin. Their, you know, their revenue is coming in as Bitcoin. And as that margin compression happens, they have to sell more Bitcoin. So when now, when a miner goes under their break even price, now they have to pull Bitcoin from their treasury and sell that to fund their electricity. Every month, you have to pay for that electricity. And that's what's creating sell pressure on the network. There's really three participants in, in the Bitcoin network. There's the investment funds, there's the hodlers, and there's the miners. All three, for the most part, are very bullish. Um, most funds, most, most, most hodlers, they're long only.

• 6:44Speaker 02

  Um, but miners, they're truly the most bullish because they're buying mining rigs and they're building out facilities, assets with three to five year life cycles. Um, or if you're a fund, you can risk manage. I mean, you can buy five million, 10 million worth of Bitcoin and be bullish, but tomorrow you can sell out of it, right? Miners are stuck. They're, they are, they are the ultimate call option. So they, uh, you know, they're, they're mining their Bitcoin and they have to fund their electricity bill.

• 7:16Speaker 02

  Every day, there's about 1,800 Bitcoin released. Every month, it's 54,000 Bitcoin. When Bitcoin was at 10,000, that was a half a billion of new, of new Bitcoin released onto the market every month to miners that is potential sell pressure. Now, they're not selling at all, but when Bitcoin starts to sell off and these inefficient miners have to sell their Bitcoin to, to, to, um, to support their electricity bill, that exacerbates sell, sell, sell off some Bitcoin. So, you know, we saw that BitMax, the BitMax blow up where Bitcoin, um, you know, it, it, it wick down from, you know, about 7,800 all the way to maybe 3,800.

• 8:01Speaker 02

  There was only strong hands left, right? Anyone else who was holding the Bitcoin, that's a lot of strong hands. But we've had difficulty rallying. I mean, I think overall, the overarching theme is the US equity market and the global macro. But overall, yes, a lot of holders blew out. But we still had the sell pressure from miners. And I think that's creating price drag right now. Because these miners still have to fund electricity. They have to do some type of treasury management. So they're selling their Bitcoin every day to have cash so that they can fund their electricity bill. Now, these things are, this is how, this is just how the Bitcoin network works. And it's healthy.

• 8:46Speaker 02

  It's a self-correcting mechanism. As these inefficient miners blow out, you know, we modeled the network in eight layers. Layer one being miners with 2.5 cent electricity or lower. Layer two being 3 cents, 4 cents, 5, 5.5, 6 cents, 6.5, and then 7 cents or above. So that's the layers. Then we broke that down further into who's running old gen versus who's running next gen. Now, this is what's really interesting. We've had this hardware upgrade cycle in 2019. It made relays all these 7 nanometer chips.

• 9:29Speaker 02

  So miners who are running at 7 cents and bought the new technology, since the machines are so efficient, their breakeven price is lower than a miner at 3 cents running the old gen. So about 45%, about probably 35 to 40% of the network is still old gen. And now, because of the hardware upgrade cycle we had in 2019 and still occurring, about 60, 65% is next gen.

• 9:58Speaker 02

  These miners at seven cents, which is quite high, running next-gen equipment have a lower breakeven price than these miners in China with three cents running old-gen equipment. And that has changed up the game, and that's going to keep more sell pressure on the network for what we believe to be another three to four months. I'll go into our later thesis of what we think's going to happen. It's very bullish, but you know, we're going to go through a cycle of miner capitulation, and that's ultimately going to position us for our next leg up. Because once you get these inefficient miners out of the network who are creating the sell

• 10:41Speaker 02

  pressure, that's how you position to rally next. So, we just got a taste of it. You know, last week, we had one of the largest difficulty adjustments in Bitcoin's history. And we were monitoring the pools. We saw a lot of the Asian pools lose more hash than some of the American pools. So to us, that signal of miners in the East that are running old-gen technology, they're probably the ones that we're shutting off. And that's a really healthy thing for the network. You know, when we go through halving, halving is very bullish, because ultimately, half

• 11:26Speaker 02

  the potential sell pressure gets removed, and these inefficient miners are going to have to shut off. Now, when they shut off, difficulty adjusts. The most, I think, the least, one of the least understood and under-respected attributes of the Bitcoin network is difficulty. I can't believe, I just don't understand how Satoshi did it in 2009 or 2010. And because it's a self-correcting mechanism. You know, right now in the world, we have this monetary policy where central bankers

• 12:09Speaker 02

  can just print and manipulate. In the Bitcoin network, everything is controlled by code. The monetary policy is controlled by code, and when people become inefficient...

• 12:21Speaker 02

  They shut off and difficulty adjusts and the rewards that the people that shut off, the miners that shut off, their Bitcoin starts getting allocated to whoever lasts. And their margins, the miners that last, their margins improve because they're getting more Bitcoin and they're able to secure the network. Um, it's, it's, it's like a gravity. Difficulty is like a gravity. If, if too many miners come online, then Bitcoin is getting distributed to several miners and everyone has miner compression. These inefficient miners at the, at the higher layers, they blow out, difficulty adjusts and Bitcoin starts getting allocated um to the miners that still survive.

• 13:03Speaker 02

  And then their margins normalize and it goes the other way. So, so it's, it's, it's a very interesting mechanism. Um, and, and it's self-correcting. There isn't manipulation. Um, and, and that kind of goes into our later thesis, which we can talk about, uh, which I think is going to be very attractive for people, especially with what's going on in the global macro.

• 13:29Anthony Pompliano?

  Yeah, so one of the things I want to touch on is this whole idea of um, there's tons of miners who are mining, uh, but they don't sell 100% of the Bitcoin uh to pay for electricity. Do you have any sense of the percentages that certain miners are having to sell? Uh, and then how that changes with price fluctuations as well, right? Are there certain kind of in those tiers you described? Some that have to sell 100% to fund operations and then some that are maybe selling only 10%? Uh, and then if you kind of back into the larger miners probably have lower cost power, you can really start to understand how much of the sell pressure on a daily basis is coming from miners? Or is that just too many unknown variables and therefore difficult to uh to come up with right now?

• 14:12Speaker 02

  No, that's a great question. In our report, we we model all that out. We have these large tables in the research report, these Excel tables, and that's exactly what we're doing. We understand how much electricity is being consumed by each layer based on their margins. So if you're running the S17 at at six cents, you might be consuming eighty dollars worth of electricity per month, and you may be making one hundred and twenty in revenue. So you know that you have to sell eighty dollars of your one twenty, which is at least seventy seventy-five percent. No, sixty-six percent, right? So their margins are are thirty-three percent.

• 14:52Speaker 02

  And they have to sell sixty-six percent of their electricity if they're at, for example, six cents. And then if they're at five cents, maybe they only have to sell fifty percent. And if they're at three cents, they only have to sell thirty percent. And that's that's what's key. You know, you brought that up, and that's what's so helpful for the network. When these when these miners who are operating almost at break even and have to sell eighty to one hundred percent of their Bitcoin blow out, and now their Bitcoin is getting allocated to these efficient miners who only have to sell thirty percent, while they're holding more Bitcoin, sell pressure comes off the network. You know, people, a lot of people think that Bitcoin trades a couple billion a day. That's what's important. That's inaccurate.

• 15:38Speaker 02

  A majority of that is fake Asian trading. It's algos. It's it's day trading. That just creates short-term volatility. What moves the price of of an asset is net fiat in and net fiat out. And that's what and and we're interested in the intermediates a long term, right? So I'm interested in what's net money in, net money out. Miners are bringing net money out because they they're getting new Bitcoin and they're selling it to fund electricity. Now, demand and positive sentiment is what brings funds and hodlers to bring new cash in. And we think, and that counterbalances miner sell pressure.

• 16:16Speaker 02

  Now, that miner sell pressure will get reduced when inefficient miners are operating at their break even or below break even, they have to shut off, and now their Bitcoin is going to the miners who only have to sell 10 or 20% of their Bitcoin to fund electricity. And that's how you get these better environments for Bitcoin to rally. We're going to experience that. We just got a taste. We just had that large difficulty adjustment. That was a bunch of old generation equipment getting wiped out. Once we go through the halving, revenue is going to get cut in half. All the old generation equipment, for the most part, is going to shut off.

• 16:58Speaker 02

  You know, markets.

• 17:01Speaker 02

  Most markets are supposed to be one of the most efficient price discounting mechanisms, right? Future discounting mechanisms. I think equity markets, the larger the market, the more efficient, right? Crypto markets are probably one of the less efficient markets out there, but there's still efficiencies. So, we think, we think.

• 17:22Speaker 02

  We think a lot of the S9s are going to shut off, but some of them are going to flow to areas in the world that just have the cheapest power or subsidized power. It's like pouring a bottle of water at the top of a mountain. It's going to go to the lowest point. That's how, that's how gravity and water works. These S9s are going to flow to areas like Venezuela. They're going to flow to areas like Iran, Kazakhstan, where there's subsidized power or near zero power. Or they'll flow to areas where a utility has excess power. And they might get, they'll be smart enough to get involved. We have clients capturing the natural gas, and they're running at 1 cent power. That's going to be a boom in the US.

• 18:07Speaker 02

  Our, the group that we're working with is a steel mill. And some of their jobs are getting repurposed to Bitcoin mining. There's, I mean, I mean, the revolution that's going to happen with. Bitcoin mining is about power. That's the most important component. So those who have the cheapest power in the world are going to start getting involved in this. They already are. And that just makes our network more credible and more secure because you have these, you have Bitcoin. You know, our belief is Bitcoin is a commodity in its infancy and, and when you get a better release of the supply,

• 18:49Speaker 02

  you get less volatility and it becomes more usable, right? And Bitcoin is just, it's, it's 10 years old. It's a, it's a commodity in its infancy. You look at oil, gold, soybeans. All the suppliers are, they're the ones controlling the supply and they kind of influence price. Well, they hedge out 12 months, right? With their futures contracts and their, and their forwards. You know, Cargill, Barrett Gold, Aramco, they all have 20 man trade desks hedging out the product. With Bitcoin mining, it's a Chinese farmer, it's some small farm, or small farm in the US. And, and, and when Bitcoin starts to sell off, they might puke their coin and they're exacerbating

• 19:34Speaker 02

  the prices in Bitcoin. And they're, they're the suppliers. So once this becomes more institutionalized, once we get better products, which is happening right in our face, right? CME has their future. Now we have options. We're witnessing Bitcoin becoming more mature. And when the supply gets released smoother and volatility gets sucked out more, it becomes a better store of value and it becomes a better digital gold. I mean, if oil was just fluctuating like crazy, it is, I mean, most people don't realize commodities are some of the most volatile assets. So you want to point to Bitcoin and talk about volatility.

• 20:14Speaker 02

  I mean, oil was at 150 in 2009, 2010, and now it's at $20. So there you go. It's lost it.

• 20:23Speaker 02

  Eighty-five percent, right? So we think there's a lot of things that are happening right now that just make us very bullish Bitcoin. The commodity thing is a bit of a tangent, but Bitcoin is 10 years old. It's a commodity in its infancy. The difference is no matter what the supply gets released, that's code. But the people that are going to influence the supply will become far, far more diligent about how it's released. We're going to have better exchanges. We're going to have derivative products. They're going to start using better schedules for treasury management. Volatility will get sucked out and it's going to be a more usable digital gold because volatility gets sucked out.

• 21:08Speaker 02

  And now people are going to use it more. It's it. And most importantly, it's all happening right in front of our face. The futures market is very robust with the same options. Yep, go ahead.

• 21:23Anthony Pompliano?

  One of the things I want to ask about is using this thesis of kind of the mining cell pressure. Walk us through what you expect to happen over the next, you know, call 45 days before the halving. What happens at the moment of the halving? And then maybe what happens in the three months after the halving and then kind of 18 months out. So going into the halving, at the halving, three months after, and then 18 months after that.

• 21:48Speaker 02

  Yeah, so we initially put this report out to some to our investors and clients in January. So we were kind of expecting the sell-off. And we think that Bitcoin is probably in a trading range and it'll continue to stay in quite compressed margins for miners going into halving. Now, once we go through halving, the miners' revenue is going to get slashed in half. This is when we're going to experience what I call, I think it's going to be a healthy cleanse of the network.

• 22:22Speaker 02

  We're probably going to experience difficulty adjustments. If Bitcoin is still at 8,000 or lower going into halving, we're probably going to, this is when we're going to get extreme miner capitulation. Probably 30, potentially 40% of the network shutting off. Anyone with power above 2 cents, running old generation equipment is going to blow out. Miners with mid-generation equipment like T2Ts, the Inosolicon machines, those are going to blow out if you're at 4 cents or higher. And individuals running the newest equipment at 7.5 cents, 7 cents, high sixes, they're going to have to shut off.

• 23:04Speaker 02

  So I basically just listed off about 40% of the network. That's in the report. We really lay all that out. Now, what is that? It's not a light switch. People can't just turn off their machines and they're not going to just turn off their machines. There's friction. You know, people want to hope. People are in, people have utility contracts where they have to consume a certain amount of power. Otherwise, they, they lose their long-term contract. They might be in hosting facilities where if they default on their payments, then they're, they lose their mining rigs. So if you just bought thousands of dollars worth of mining rigs, you're going to keep paying your bill for two or three months until you blow out. People are in facilities and they have to pay, you know, their lease payments.

• 23:49Speaker 02

  They built out all this infrastructure, so they're still mining the rigs. And, and once they're, they start defaulting on rent, which might take two or three months, then the facility kicks them out. So we think, once halving hits, we're going to experience this massive difficulty adjustment because inefficient miners are going to shut off. And we think it could take maybe May through potentially July of friction, of people shutting off, people wiping out, throwing in the towel, and completely shutting off. And, and that's when we're going to actually get.

• 24:28Speaker 02

  Difficulty kicks in and margins are going to get better. The efficient miner should not fear halving, they should welcome it. Their margins, we've analyzed it and we believe that margins of miners at six cents and lower running the most efficient equipment, their margins are going to be about the same pre-halving and post-halving after all these miners shut off. And it's because they're going to get the Bitcoin that, so those miners who were run, who shut off, about forty percent of them, once they shut off, that Bitcoin's got to go somewhere. It's going to go to the people that last. Mining is about survivability. You just need to survive. If you survive, difficulty will adjust in the future and it's going to, it's going to

• 25:13Speaker 02

  improve your margins because the people that are inefficient, their Bitcoin is going to go to you. So what that does is all these inefficient miners wipe out.

• 25:26Speaker 02

  Then who are operating where eighty percent of their mined Bitcoin needed to get sold to fund electricity, they're gone.

• 25:36Speaker 02

  There's where fifty, only fifty percent or only thirty percent of their Bitcoin needs to get sold. Now you've removed, not only does halving remove fifty percent of the potential cell pressure, but now, now it's like, now the strongest hands are accumulating Bitcoin and they have the best margins.

• 25:58Speaker 02

  Pretty.

• 26:00Speaker 02

  A lot of cell pressure is going to get removed from the network and that's how we position to have the next leg up. So it's, it's, it's going to be exceptional, an exceptional improvement on the supply side. And we think that's going to, it'll take maybe May through, through July or early August for all that to kind of shuffle out. And it, we're really excited because we layer in the global macro into all this. We think, you know, with, with what's going on in the US, if, if we have this continued shutdown, if we have a lot of jobs lost, you know, the Fed, the Fed, I think they, I forgot the exact number, it was either two or six trillion.

• 26:42Speaker 02

  And people look at that and they think it's the end because the number is so big. It's not about the number. The Fed, they, they operate in cycles.

• 26:52Speaker 02

  The, you know. It's market cycles, it's economic cycles. When you're printing, it's cycles. It's a process. You don't just inject six trillion and everything's fixed. It's gonna be a process of many more injections.

• 27:09Speaker 02

  And people aren't just gonna, it's not gonna be business as normal once we get back. Once we eradicate this disease, people are gonna be very cautious. Companies are gonna be very cautious with spending. And we think it's gonna take, you know, a longer recovery. So with that, this is what's interesting.

• 27:31Speaker 02

  Many market participants are not gonna like that system of the Fed being able to just inject money whenever, whenever they'd like to.

• 27:41Speaker 02

  So when you get, when you get a scenario like that, you get market participants that start to look at other options. And we believe they're gonna look at Bitcoin as this parallel financial system where our, I think a lot of people are gonna go, our present system is broken. You could print as much as you want, buying all types of assets. But this Bitcoin, what is this technology? It's dictated by code.

• 28:14Speaker 02

  The inflation rate is fixed and then it halves. No one could, no one can mess with that. And when you get, when you get speculators, when you get a disruptive technology like Bitcoin that's in its infancy, and now you layer in a bunch of speculators who start to imagine and envision the possibilities of this actually coming to fruition? I mean, that's what 2020 is doing. 2018, excuse me, 2008 spawned Bitcoin. Bitcoin was invented by Satoshi because of 2008. 2020, I believe, is gonna allow speculators to imagine and envision the possibilities of Bitcoin actually getting adopted.

• 28:56Speaker 02

  Bitcoin doesn't have to, Bitcoin doesn't have to get adopted for there to be a bull market. Speculators just need a secondary market with liquidity. So the ability to speculate and they need to, they need to envision the possibilities and imagine the possibilities. And I think that's what's going to happen. I think, I think, I think the supply side is going to be extremely well positioned for Bitcoin and rally because of extreme miner capitulation that's going to occur from halving. And I think that's going to play out between, you know, May through August. And, and all this cell pressure will get removed from the network because the miners are going to blow out.

• 29:38Speaker 02

  And, and then I believe the fundamental story is just improving every day due to, you know, what's going on with the global macro, the, the, the, the printing. And, and I believe that's going to improve the fundamental story. It's gonna, it's gonna allow people to say, look at this parallel financial system.

• 30:00Speaker 02

  We prefer that over, over Donald Trump pressuring Jerome Powell to, to, to, to print. And, and when you get speculators, when you get a technology in its infancy that's disruptive like Bitcoin, you get speculators starting to imagine and envision the possibilities of this technology coming to fruition. And you get a secondary market with liquidity. That's how you get parabolic bull markets. And I think that's what's all doing right now.

• 30:31Anthony Pompliano?

  All right. So Matt, one of the questions I have for you is obviously the oil prices have been dropping very quickly over the last couple of weeks. And we're reaching a point now where we're going on multiple weeks of that oil price being below, where most oil producers, especially in the United States, are not profitable. Do you see a world where the folks who have this oil realize, hey, rather than just selling the barrels of oil, I can actually use that to generate power and I should be mining crypto at a much more profitable manner? Or even maybe some of the other excess power producers kind of going in as well and starting to realize this? Or do you think that we're still far away from what I'll call traditional industry or traditional energy producers kind of crossing the chasm into Bitcoin mining?

• 31:19Speaker 02

  It's, you know, that's a great question and it's, it's a

• 31:24Speaker 02

  very specific to the US. There is a group, I mean, there, I, I want to keep everyone's stuff confidential, but there's a leader that we've done business with. We respect them, he's really intelligent and they're building this out in, in several states. They're capturing the flare gas.

• 31:43Speaker 02

  They're, I, I'd say that the leader's in it. And, and there's access right now, so they're going to these different oil drillers. And they're working with them, they're capturing the flare gas, they're using these natural gas generators and, and the power is very cheap. I have another client.

• 32:01Speaker 02

  We just had a call with them last week. It's two, two individuals out west and, and they are doing the same thing to a smaller scale, but they're going to ramp up because they've identified the opportunity and they're going to capture it. They are going, they're in, they're in Texas and they're capturing the, the flare gas. They're connecting it with a natural gas generator and, and they're burning that and they have one cent electricity.

• 32:30Speaker 02

  It's, this is going to change mining, it brings in, it creates cost efficiencies for these oil, you know, the, the, the oil drillers don't have anything to do with the, they, they don't have anything to do with the natural gas. So you either burn it or, you know, it doesn't, it doesn't store well. So that's why they're utilizing it. It's, it's, it's basically a byproduct that's being leveraged.

• 32:57Speaker 02

  So yeah, we see an opportunity there. I'm not as proficient as explaining it because I'm not doing it, but I, I, I have clients that are and they're making exceptional money doing it, one cent electricity and mining Bitcoin. So there's going to be synergies where you could, where you could bring Bitcoin mining to these fields, put down a container, have the natural gas.

• 33:22Speaker 02

  Generators, capture the flur gas, burn it, or whatever mechanism it is. I'm guessing the national gas generator does that. And they're achieving once in electricity and that's funding the mining rigs. And that's, you know, it's, it's being very efficient. So, and we have a lot of that in the US. The US has the, the most energy abundant country in the world. I mean, we, you, you look at Texas, there's wind power, there's solar, there's natural gas, oil. They, they have it all. So we're going to leverage it and, and, and it makes me very, uh, very bullish for Bitcoin.

• 34:03Speaker 02

  Yeah. So in the US, I mean, there's, people I think don't realize there's so much energy abundancy in the US.

• 34:11Speaker 02

  In Kentucky, we're using hydro. Uh, there's, there's a lot of hydro in upstate New York, Pacific Northwest. You have, Texas has wind, solar, oil, natural gas, just about everything. So that's why, I mean, Bitmain, I don't know if people know this, Bitmain is mining in Texas. So the Chinese are coming here. You have, you have all this stability in the US with regulation.

• 34:40Speaker 02

  The municipalities just don't shut you down overnight. You don't have to negotiate with the politicians. It's very, uh, you know, if you're gonna, if you're gonna allocate millions of dollars to a mining operation. You know, as, as a hedge fund manager, you want to sure you can have a grasp of your risk. You don't want to deploy something in China or Russia and overnight someone shuts down your mind, right? In the US, you have that stability and most importantly, you have redundancy. The grid, when was the last time we had a blackout in the US? People are deploying stuff in Venezuela, Iran. I think 20% of the day they have blackouts. In the US, the bandwidth, the internet connectivity, these miners need to be connected at a hundred percent up times, right?

• 35:22Speaker 02

  So in the US, we have a hundred percent up times. In other countries, uh, the internet might be down for 15, 20% during the year. So.

• 35:33Speaker 02

  You couple in all these, all these variables, the, the abundancy of energy, what these miners are doing with the natural gas, the exceptional internet connectivity, the, the regulation and stability. It's just a far healthier environment to be Bitcoin mining. And the numbers show it, and that's why the acceleration, the growing market is North America. And it's exceptional for our, for the Bitcoin network. Cause you want this decentralization. We want more hash in the U.S. We don't want all the ASIC manufacturers in China and 65% of the hash in China. And, and the majority of the pools in China, right? So we want this decentralized network.

• 36:16Speaker 02

  It's a significant value add and it's what, you know, it's part of the, you know, the, the fundamentals of, of Bitcoin. So it's, we're excited. We're glad that we're seeing the acceleration in North America as well.

• 36:31Anthony Pompliano?

  What, if anything, are you seeing on the central bank side or kind of the nation state side? Are you seeing any interest there from countries or governments themselves?

• 36:44Speaker 02

  Um, not, not yet. I think, I think I've seen articles about like Belarus thinking about getting involved.

• 36:54Speaker 02

  I think,

• 36:56Speaker 02

  I think the, it doesn't move the needle for them yet. You know, a country is so large where for them to take on making 50 million a year or something like that. I think, I think it doesn't move the needle for them yet.

• 37:13Speaker 02

  But, but in, in five or 10 years, if this truly gets commoditized, you gotta think that utility companies are going to be the big players, potentially nation states. Anyone, right? It's, it's a market, it's an efficiency. Whoever's got the cheap power, the subsidized power, the free power. The economics are best for them. So whether they partner with someone who's a service provider who brings the mining rigs and run the operation. You know, there's some of that going on. I know, I know utilities who are starting to, to work with different advisory services who can, who can build this out. Or so, so there is efficiencies like that getting created.

• 37:55Speaker 02

  And as Bitcoin, as Bitcoin continues to mature.

• 38:01Speaker 02

  People are going to feel more comfortable with it. When fidelity is getting involved, you get better custody, right? When you get better markets that you can rely on. You know, we have miners who are publicly traded. And they want to use an American mining pool who gets like a SOC report. So that this publicly traded mining company is more comfortable with where they're getting their rewards from. So there's a lot of things that could really improve this industry and bring more participants in. And when you remove that type of friction, the investment dollars come in too. Fund managers are more comfortable allocating capital. That's going to be on both sides, right? You get a... Here's the thing.

• 38:46Speaker 02

  The economy has gotten a bit rough. But we're seeing, and there's been disruption everywhere. I haven't seen a ton of disruption in the mining space. We're still selling mining rigs. There's, I mean, think about how bullish that is. You have miners in 40, 50 plus countries that are buying infrastructure dedicated just for Bitcoin. There's been billions of dollars allocated towards mining Bitcoin, securing the network, the infrastructure. That's network effects, that's value. I mean, it's not just about Bitcoin. It's not just about the coin. It's about this network of miners all around the world.

• 39:32Speaker 02

  They're spending money on infrastructure. They have conviction, they're going to support the network. That's valuable. If you want to shut down the Bitcoin network, you got to go... If Donald Trump said, "I'm shutting down the Bitcoin network." Well, he's got to go to China, he's got to go to Venezuela, he's got to go to Berlin. He's got to shut down every single little miner. Otherwise, the network keeps settling blocks, right? So that's the value of decentralization right there. There's miners all around the world in different sovereign countries. That is very, very powerful.

• 40:09Speaker 02

  So, you know, we're, people, people always talk about network effects. I think the biggest network effect in Bitcoin is the miners and the billions of dollars they're spending towards facilities, power contracts, mining equipment, um, firmwares. Uh, there's, there's data centers that are traditional data centers that are bringing miners into their, in their, uh, facilities. That's network effects. That is a healthy network. Um, yeah.

• 40:41Anthony Pompliano?

  Got it. Makes a ton of sense. Uh, before we finish up, I always ask people, what's, uh, what's your favorite book?

• 40:49Speaker 02

  My favorite book, um, probably reminiscence of a stock operator.

• 40:56Anthony Pompliano?

  Why?

• 40:57Speaker 02

  That's, that was when I, um, you know, when I started getting into equities, uh, my partner who he's, so when I, I started getting mentored in the equity markets around fourteen or fifteen, and that was the first book he referred to me, uh, to learn about equities. And that's really what has kicked off my, uh, you know, my, my career in, in the financial services, you know, running money, uh, thinking about human psychology, um, and really thinking about how markets affect each other, how people affect markets, right? When I, when I discussed what I think, um, the fundamentals of, of what's going on with QE, this, that's, that's a human psychology trade. It's, it's, it's a bunch of speculators who are going to get involved.

• 41:40Speaker 02

  Imagine this disruptive technology, uh, getting adopted and then human psychology just takes over. That's how you get these bull markets. Um, you layer in that, that, that's, that liquid secondary market and that's how these things happen. It have, it's, it's happened time after time in history. It repeats itself. Um, technology in its infancy, that, that's disruptive. Secondary liquid market. Speculators being able to imagine the possibilities of it coming to fruition. Parabolic bull market.

• 42:15Anthony Pompliano?

  For sure. Before I let you ask me one question to finish up, I asked everyone about aliens believer, non-believer?

• 42:23Speaker 02

  Ah, yeah, I am a believer. Um, I don't, I don't know, you know, I can't prove it, but I think, yeah, I think it's out there. The world's bigger than us, right?

• 42:35Speaker 02

  Maybe they deployed coronavirus on us. I don't know. But yeah, I'm a believer.

• 42:41Anthony Pompliano?

  You, you never know, you never know. What one question you have for me to, to finish up here?

• 42:48Speaker 02

  Um.

• 42:51Speaker 02

  What are you most excited about in the Bitcoin space?

• 42:56Anthony Pompliano?

  Time. I think that's the most important thing is, uh, it, it always goes back to the Bill Gates quote for me. Um, we overestimate what we can do in one year and underestimate what we can do in 10. And if you went back to 2009, 2010 and told people this is where Bitcoin would be today, I think they would have told you that you're crazy. Um, but if you ask people, you know, even this year, what are we going to do in the next 12 months? I think that they'll be overly optimistic. Um, and so for me, it's, uh, just the passing of time, uh, gives builders the ability to build. It gives, um, investors the ability to kind of be converted into holders, uh, and it gives time for all the infrastructure and market liquidity to be, to be built out. And then also the education to happen, uh, which I think is all really important for, uh, for the ecosystem.

• 43:40Anthony Pompliano?

  Um, and so it's one of these things where if you can remain optimistic, um, and kind of upbeat, uh, even through these long bear markets and, uh, kind of downward, uh, cycles, then over long periods of time, it ends up working out really well. Uh, and so I think just time is, uh, and kind of the passage of time is the most exciting thing to me.

• 44:02Speaker 02

  Absolutely. I mean, you're, you're rarely, you're rarely going to find a successful pessimist. You gotta stay optimistic. Um, so I completely agree with you.

• 44:13Anthony Pompliano?

  Absolutely. Well, where can people find, uh, you and, and the company online?

• 44:18Speaker 02

  You can go to blockwarsolutions.com. That's the company that we're really servicing the mining network. If you want to learn more, reach out. We could talk about our other companies as well. We've got a Bitcoin mining pool. We've got an exceptional firmware to get as much edge for the US miners. We've got mining rigs onsite and a co-location facility in the US, so miners can be up and hashing within 48 hours. So blockwarsolutions.com. Reach out to us. I'm also on Twitter, MJD'SUSA2. Reach out to us. Always happy to answer questions and put out the best information we can.

• 45:00Anthony Pompliano?

  Absolutely. Joe's got you hooked up there with the Twitter account. Listen, I really appreciate you doing this, Matt. I think that people are really going to enjoy hearing from you, especially around kind of the halving and a lot of the miner self-pressure, etc. So we'll have to do this again, maybe post-halving at some point later this year, but I really appreciate you taking the time to go over all this with us.

• 45:20Speaker 02

  Absolutely, guys. And I think everyone should stay positive with what's going on with the virus. It's a great opportunity to spend time with our friends and family. I've had the pleasure of being able to have dinner with my family the past seven days, and I think those are the most important things. So let's appreciate all that. Take care, guys. Thank you.

• 45:40Anthony Pompliano?

  Got it, man. Hey, everyone. Pop here. If you liked this episode of Off the Chain and want to help us take crypto to the top of the Apple, Spotify, and other podcast charts, please do us a favor and rate, review, and subscribe. To review, simply go to the Off the Chain homepage, scroll down until you see the five blank stars. Taking 15 seconds to fill those stars in and leave a quick review goes a long way in helping us take the entire crypto ecosystem to the top of the charts. I appreciate you listening and see you next time on Off the Chain.