#641 Bitcoin Mining with Mike Colyer

Mike Colyer is the CEO of Foundry. Previously, Mike led business development at Core Scientific, which grew into North America’s largest cryptocurrency hosting company. In this conversation, we discuss bitcoin mining, market cycles, China mining ban, building a mining pool, North America focus, and the importance of low cost power. ======================= Circle is a global financial technology firm that enables businesses of all sizes to harness the power of stablecoins and public blockchains for payments, commerce and financial applications worldwide. Circle is also a principal developer of USD Coin (USDC), the fastest growing, fully reserved and regulated dollar stablecoin in the world. The free Circle Account and suite of platform API services bridge the gap between traditional payments and crypto for trading, DeFi, and NFT marketplaces. Create seamless, user-friendly, mainstream customer experiences with crypto-native infrastructure under the hood with Circle. Learn more at circle.com ======================= LMAX Digital - the market-leading solution for institutional crypto trading & custodial services - offers clients a regulated, transparent and secure trading environment, together with the deepest pool of crypto liquidity. LMAX Digital is also a primary price discovery venue, streaming real-time market data to the industry’s leading analytics platforms. LMAX Digital - secure, liquid, trusted. Learn more at LMAXdigital.com/pomp

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. Mike Collier is the CEO of Foundry. Previously, Mike led business development at Core Scientific, which grew into North America's largest cryptocurrency hosting company. In this conversation, we discuss Bitcoin mining, market cycles, the China mining ban, building a mining pool, North America focus, and the importance of low-cost power. 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 Circle. They're a global financial technology firm that enables businesses of all sizes to harness the power of stablecoins and public

• 0:46Anthony Pompliano?

  blockchains for payments, commerce, and financial applications worldwide. Circle is also a principal developer of USD Coin, USDC, which is the fastest-growing, regulated, fully-reserved-dollar stablecoin in the world, now standing at more than $15 billion market cap, and it's adding nearly $300 million of net new digital dollars in circulation every single week. The free Circle account and suite of platform API services bridges the gap between traditional payments and crypto for trading DeFi and NFT marketplaces. I've had Jeremy Alair on the podcast before, the CEO of Circle. I'm really impressed with what they're building, and also the growth that they're currently experiencing. Go learn more at circle.com. Again, circle.com, the fastest-growing, regulated, fully-reserved-dollar stablecoin

• 1:31Anthony Pompliano?

  in the world. Go to circle.com to learn more. Next up are my friends at LMAX Digital. They're the number one institutional crypto exchange. That's why you probably have never heard of them before. They don't serve retail, they only serve institutions. LMAX Digital offers clients the deepest pool of crypto liquidity on the planet, underscored by 100% uptime track record through volatility spikes. Leveraging LMAX Group's liquidity relationships and ultra-low latency technology, LMAX Digital is the market-leading solution for institutional crypto trading and custodial services. They feature a central limit order book, streaming, spot, Bitcoin Ether, Litecoin, and Bitcoin Cash, and it's all paired with US dollars, Euro Euro and yen. LMAX Digital, they're secure, they're liquid, and they're trusted. If you run

• 2:15Anthony Pompliano?

  an institution, or you're interested in institutional trading, go check out LMAX Digital at LMAXdigital.com/pomp. Again, LMAXdigital.com/pomp. Go check them out today. The number one institutional crypto exchange, LMAXdigital.com/pomp. All right, let's get into this episode with Mike. I hope you guys enjoyed this one.

• 2:37Speaker 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.

• 3:00Anthony Pompliano?

  All right, let's start with, just to remind everyone, what is Foundry and kind of the founding story of this in terms of what you guys are building?

• 3:09Speaker 02

  Yeah, so Foundry is a wholly owned subsidiary of the Digital Currency Group, and we're focused on supporting decentralized infrastructure, so both on the proof of work side and proof of stake side. And we got started about, well, almost two years ago, and we've been building out both sides of that business. We've scaled now to, we're approaching, I think, 50 employees, which we've got an amazing team here at Foundry. And we provide, so we mine ourselves, we provide advisory services, we provide equipment financing, and we've deployed about three, over $300 million now into the North American mining ecosystem. And then we've launched our North American mining

• 3:53Speaker 02

  pool, which supports institutional sized miners, the publicly traded miners, so that they have a clear, transparent pool to To mine in and then we've got an advisory business as well helping miners get into the business. And then on the staking side, we now stake on about 20 different protocols. So we're essentially like the infrastructure team for DCG and the other subsidiary companies.

• 4:22Anthony Pompliano?

  Got it. So when you think about what's changed over the last year or so, since we last talked, there's been a bunch of changes in growth and kind of positive developments with Foundry. And then also, there's been absolute chaos in the mining industry in general. Maybe let's start with kind of the market itself and how you evaluate what's transpired over the last 12 months or so. And then how has that allowed you guys to navigate this? And kind of where are you both from a size standpoint? And then also kind of what you are doing from a service standpoint? Where's most of your attention or energy right now?

• 4:56Speaker 02

  Yeah, you know, the mining space moves incredibly fast. It's like every 30 days, 60 days, it's changing and it's evolving. And which makes it super exciting. I always say that, you know, about four years ago, I pivoted my whole career to go into the mining space. I don't think I could ever go back to the traditional world. It just moves way too slow. So on the mining front, we were fortunate, we bet a little counter cyclical. So, you know, 18 months ago, we were buying all the equipment we could prior to the having. And as we went through that process, we launched our equipment financing

• 5:37Speaker 02

  business to really help support other miners in North America. What we, to be honest with you, what we didn't anticipate was the wafer shortage. So Bitmain and Micro BT, they work with TSMC and Samsung, they're on the latest generation chips. They're competing now with Apple and, you know, the best technology. To get access and there just wasn't as many miners available as we thought. So that kind of constraint the market. And then what we also didn't anticipate was just the last 90 days when China shut down mining, you know, they've always threatened to do it.

• 6:19Speaker 02

  There's always, they've always done it in, in, in certain pieces, but not like wholeheartedly across the board. And that just sent shockwaves through the industry. And now what we're seeing is there's a surplus of equipment, but there's no place to plug them in. And that's like changing the, the dynamic of, of the, of the industry once again. So it's, you gotta be, you gotta move fast in this space.

• 6:47Anthony Pompliano?

  When you think about the China decision, I think everyone agrees. They've always threatened it. They've always alluded to it, but this time it was serious. A hundred percent of miners out of China, 80%. How do you evaluate, you know, who's left and, and who decided to move on? And then also what, where are those people going in general? Is it North America or are they finding a home somewhere else?

• 7:10Speaker 02

  Yeah, so the way I would, so I, one, I think it was a, a big strategic mistake on China's part and, and hopefully someday they're going to regret this.

• 7:20Speaker 02

  I would say probably 80% of the miners had shut their operations down. There's still probably 20% in China. We're, we're starting to see some of them turn back, turn back on their machines, you know, hash rates starting to increase pretty quick. And, and what, the way the Chinese miners describe it now in China is it's kind of like a gray market. So if you're willing to take a little risk, you can still mine, but at any point in time you're going to get, you could get shut down. Most of the time they're like paying off the local authorities or something to let them mine. The bigger miners have now, they're, they're basically focused on decentralizing their,

• 8:01Speaker 02

  their machines around the world and the Chinese are going pretty much anywhere they can to find space to plug in. And I think what they're Finding in North America is the fact that, you know, most of the big guys have, they bought their own equipment, or they've got customers that already bought their equipment. Their build out schedules are booked for literally the next six to nine months. So they're gonna, the Chinese miners are gonna have a hard time plugging their machines in, in North America to any kind of scale. So they're doing a lot of work in, in Eastern Europe, Kazakhstan, even into Russia. And, and really they're going anywhere in the world they can to find cheap power.

• 8:41Anthony Pompliano?

  When you talk about all those miners looking for power, but there not really being enough power, is there something that you're kind of pointing your finger to and saying, this is the solution? Is it pursuing, you know, gas flaring? Is it trying to find more renewables or clean energy? Or is it literally just, no, the power producers have to get the lead time in order to get this stuff up, running and, and kind of ready for the miners? Like what, what solves that kind of, if you will, supply, demand imbalance?

• 9:11Speaker 02

  Time. You know, you can't, it's one of these things where you can't just, you know, we see all these pitch decks, we see all these miners, these announcements, and they're like, hey, we're gonna, we're gonna turn on a hundred megawatt facility. You, you don't turn on a hundred megawatt facility in a week, or a month, or three months. I mean, that's, that's like a six to nine month journey. And that's if you've start, if you've started six months ago, right? So it's hard to get the infrastructure equipment now, there's supply chain delays, it's hard to get plugged into the network, right? Like you just don't walk into someplace and say, hey, I want a hundred megawatts. You know, they have to do all kinds of grid analysis, there's usually regulatory approvals you have to go through. There's a lot that, that takes place.

• 9:56Speaker 02

  So it's gonna take time to get this plugged in.

• 10:00Speaker 02

  What we're seeing is, energy companies are now waking up to the fact that, that...

• 10:07Speaker 02

  This Bitcoin mining is not going away. It's a legitimate industry. And there's this massive base load that's intermittent. And they're, they're starting to think about how do they plug that into their existing infrastructure or their new projects? And kind of marry Bitcoin mining together with, with power production. And I think that's just, for me, that's super fascinating in terms of how that's going to play out over the next four or five years. Um, so I think it's just going to be bigger and bigger players.

• 10:37Anthony Pompliano?

  When you think about, um, the mining pool versus the other services you have, explain the importance of the mining pool, uh, and how that has grown. I, I believe it's now one of the top five mining pools in the world. Uh, it's the largest one in North America. So describe a little bit of what exactly the mining pool is? Why did you guys start focusing there? Um, and then how have you grown it to become so large?

• 10:59Speaker 02

  Yeah. So for the, you know, for Bitcoin miners, they, to solve a block, um, you have to, you have to work with other miners, right? And, and you aggregate your hash power together to go try to solve a block. And the solving of the block is literally based on luck. And, um, and, and what's happened over time is these pools were established where miners would get together in a pool, the pool would solve the block. And then the pool pays the miners based on their hash rate, um, contribution. And, you know, when the ASICs came out, all the hash rate went to China or a big, significant piece of it. The Chinese set up the mining pool layer software.

• 11:44Speaker 02

  Um, or they, they ended up getting the most hash rate. So for the last, you know, six years or so, the Chinese have really dominated that layer of the software stack. And, and it's been frustrating because it, it feels like you're always mining into like this black box, right? You couldn't audit the numbers. You never were sure if, if your payouts were correct. There was just a, you know, there's this lack of trust and we felt that. If the institutional money was coming into the mining space in North America, we were going to see these publicly traded mining companies, they were going to need a trusted pool. And we felt like we could provide that service to them.

• 12:25Speaker 02

  And to pull it off, you have to have very deep pockets, you have to have a lot of, you have to, you have to weather the variability and the luck. So from day to day, how many blocks you actually mine fluctuates quite a bit. And you have to have deep pockets to be able to cover that because the miners, they want guaranteed payouts. They don't want to take on all of that risk. And that's what the pool does. It's almost like an insurance contract for the miners to guarantee their payouts. They don't care whether you mine a block or not, they just want to be paid every single day. And that's what we provide, that service to them. And we do it, you know, we provide FPPS payouts, which means we guarantee the payout for the

• 13:09Speaker 02

  amount of hash rate that they take, give us. So it guarantees, it guarantees their, their, their revenue stream. And, you know, it's, we kind of, right now, it's, it's definitely feels like, it's like our contribution, I guess, to the, to securing the Bitcoin network. Because from a business perspective, it's a horrible business model. Anyone in their right mind would not launch a mining pool, but we felt it was super important for the long-term security of the Bitcoin network.

• 13:43Anthony Pompliano?

  Will you allow non-North American miners to join the pool? Or is this only available for North American miners?

• 13:51Speaker 02

  Yeah, great question. So the one thing we've done is, you know, we, we serve it, right now, we service the institutional sized miners, right? We've really focused on the publicly traded companies, the institutional miners.

• 14:04Speaker 02

  And the one thing what we require is you have the KYC AML into the pool. So if you're HutAid or Bitfarms, you want to know who you're mining with and be able to pass all the compliance aspects from that standpoint. So we are definitely open to any miner for anywhere in the world. They just have to go through the KYC AML process. And today we're focused on the larger miners and we're looking at how to service the rest of the market.

• 14:36Anthony Pompliano?

  Got it. And then when you talk to the individual miners here in North America, what are you hearing from them? Are there specific trends that are sticking out to them or things that they're concerned about or excited about? Like, what are those conversations like right now?

• 14:48Speaker 02

  Yeah, I think Bitcoin's at 50K, right? So mining is a great business and I think they're all happy and excited and they're all trying to figure out how to expand faster, right? So and look at the guy, the players that are in the market, most of the players that are in the market today that you read about, we all lived through crypto winter. And you know, I always say like, the Bitcoin algorithm is ruthless in its drive for the lowest cost. And it goes through these cycles and you have to be prepared for the bull runs and the bear runs. And right now, I think everybody is trying to expand as fast as they possibly can.

• 15:32Speaker 02

  So yeah, it's good times.

• 15:33Anthony Pompliano?

  When you think through those cyclical things, right? Most people who came into the 2017 bull market, they saw this massive price increase. It seemed like everyone was so profitable mining. They started to go out, they went to go buy equipment, they started to overpay for some of the equipment kind of at the top of the bull market. It then took a little while for them to get it. And by the time they got the machines plugged in, Bitcoin had gone from 20,000 to 6,000, $7,000. And then eventually we kind of got to puke out. And there's always this fear of like the mining death spiral, right? Like, of course, mining's over and the game has ended. How do you think about miners that are able to sustain, whether it's a bull or a bear market? Are there some core tenants outside of just low cost of electricity?

• 16:18Anthony Pompliano?

  Or is that literally the most important single thing you focus on? It's just the lowest cost power ends up making you the most resilient business when it comes to mining?

• 16:29Speaker 02

  So absolutely, the lowest cost matters, right? So when you hit that bear market, you want to make sure you've got the lowest cost. So where people make mistakes is in the in the bull market. As you said, they overpay for equipment or they spend too much on their build outs. And I think one of the most important things is cash management, right? So you want to make sure that that you have enough cash to get through the bear market cycle. And I think part of it is understanding that there will be a bear market, right? So the minute you stop believing that there's going to be a bear market is usually when you're going to get crushed. You know, the worst, the worst thing for a miner is having to, you know, they they

• 17:13Speaker 02

  mine all their Bitcoin, they hold it, and then they have to sell it, you know, during the bear market when it's at the lowest price. So, you know, I tend to tell people that, you know, it's probably good to, you know, mine and sell every day is not a bad strategy and to manage your cash, you know, really careful through through that process. And and it is a cycle, so you have to understand the cycles.

• 17:35Anthony Pompliano?

  We've talked to a bunch of people who have either gone out and through private equity style acquisition of energy producers or power producers. We've also talked to people who run power companies or power generation platforms, and they're all looking to incorporate Bitcoin mining. Is that something that is likely to become pervasive? Every energy producer will eventually have some level of Bitcoin mining associated with their business. You know, everyone from, I think we've heard about Saudi Aramco all the way on down to much, much smaller operations. Like, how do you see this playing out?

• 18:13Speaker 02

  I absolutely believe that the energy companies are going to be major players in the next cycle. You know, if you go back four years ago, we would have never guessed that the marathons, the cores, the riots that that, you know, are buying hundreds of thousands of machines, they're raising hundreds of millions of dollars to pump into the market. Like, that scale just seemed out of control. Four years ago, if you if you had $5 million of mining equipment, you were like a mining king. I think the next cycle is gonna be the major hedge funds that invest in infrastructure, the power companies are gonna be making big plays.

• 18:57Speaker 02

  And I think that it, you know, I'm a firm believer that that the cheapest energy source long term is gonna be renewable energy. And battery technology is not ready today to support a lot of the renewable energy projects. And I think Bitcoin mining is gonna be that gap. And I think more and more companies are starting to realize that, man, if you can co-locate a large base load with intermittent demand, that can be a really powerful tool to expand renewable energy projects. And I think that's gonna be a real thing going forward. I also think immersion technology is the next kind of wave for Bitcoin miners.

• 19:40Speaker 02

  And once you, once we get a reliable immersion technology, it's gonna open up a lot of new places where you can put Bitcoin miners.

• 19:51Anthony Pompliano?

  When you start to think about the chip or wafer shortage and some of these like supply chain issues, is that something you believe will ultimately be solved with the existing players? Or does this really open an opportunity for like a US-based foundry to actually be created and solve this more domestically? Like, how do you see what I would say like the intersection of chip and wafer production with like some of the geopolitical things in this pursuit of sometimes efficiency, but now maybe we should be thinking more about resilience than just efficiency in that conversation?

• 20:27Speaker 02

  Yeah, so I like it. I think the last, whatever, 70 years, 80 years, it's all been, it's been about oil. And I think the next...

• 20:40Speaker 02

  A hundred years is going to be about the microprocessor chip. And I think a lot of our geopolitics is going to revolve around who can build the next greatest microprocessing chip.

• 20:56Speaker 02

  You know, right now it's TSMC. They they kind of lead the way. It's it's all in Taiwan, and I think that that's why Taiwan is is going to be a focal point for the US and China and the rest of the world. And I think the US is starting to make the stride. They I think the US realizes that we're behind on that and we've got exposure there. And I think Intel is going to, you know, they're doubling down on North America and and kind of trying to, you know, get back a piece of that pie. But, you know, that's probably four or five years out. Do I think Bitcoin mining is going to play an important part of that? Absolutely. I, you know, one of the interesting things is with Bitcoin miners, you can you can really

• 21:40Speaker 02

  test new technology with those, like the when you're when you're looking at building out new wafers, you can experiment pretty easily with Bitcoin mining without taking a lot of risk. And I think that's what we're going to see is some of that happening over the next four or five years. It's not it's not this year. It's not next year. It's probably like 2023, 2024.

• 22:04Anthony Pompliano?

  When you think about the Bitcoin miners that are publicly traded, they seem to have pretty straightforward business models.

• 22:12Anthony Pompliano?

  And I think that they probably have an advantage and that they've been able to tap some of the capital markets. But I think one of my surprises has been they haven't really kind of gone all in, right? If you look at somebody like a Michael Saylor, he's probably on the other extreme of tapping capital markets, being able to take on a lot of debt, use it to acquire Bitcoin specifically. But do you think that the Bitcoin miners themselves more and more will go public and then the companies in the public market will start to become a little bit more well versed in the use of capital markets? Or is it something where, no, really, they're just businesses, they've got, you know, products, they're selling those products by renting that hash power out and driving revenue and we probably won't see as extreme use of the capital markets as maybe I previously thought?

• 22:55Speaker 02

  I don't know. I think that's going to be an interesting thing to watch here over the next 24 months. And so on one hand,

• 23:06Speaker 02

  you know, they're infrastructure companies at their core, right? Like they're building out infrastructure. Some of them are going to be providing hosting services to others, some mine themselves. I think how they manage their cash and and their debt is going to be super important as we go through this cycle. I think that sometimes what I think gets lost on a lot of folks is the fact that, look, there's only 900 Bitcoin available every day, right? So if everybody executes on their plan, hash rate's going to increase, which just means your share of the market gets smaller. And you need the Bitcoin price to go up to kind

• 23:48Speaker 02

  of keep the margins that you have, right? So we kind of, we're going to go through this cycle. And I think whoever plays the cycle the best is going to be the long term winner.

• 23:59Anthony Pompliano?

  When you think about kind of where the entire industry is going, you sit right now in what I would consider one of the best positions in the mining industry. You guys have the mining pool. You obviously have a lot of advisory work. You guys were very forward thinking in terms of your ability to get your hands on hardware, etc. What does the future of your business look like over the next, you know, call it 24, 36 months?

• 24:23Speaker 02

  Yeah, great question. It's something we think about quite often. The

• 24:29Speaker 02

  yeah, so honestly, the other half of our business is around proof of stake. And we stake on about 20 different protocols. And, you know, it's funny because we have all these debates internally because we've got like, half the team is our Bitcoin maximalists, and the other half of the team are all like, DeFi whiz kids. And there's some, some of these other protocols on the staking side are unbelievable. And I, and I think there's room for both. So I actually think a big part of our business in 2022 is going to be around staking. Um, and we're super excited about that. There's so much happening there.

• 25:08Speaker 02

  On the mining front, um, you know, our goal is we, we, we have the luxury of like, stepping back and figuring out where can we add value to the, to the mining ecosystem? And that's, and that's what we want to do. So if there's, there's places where we think we can add value, we want to step in and try to add that value, um, into the, into the marketplace. A year, uh, you know, over the last 12 months, it was provide equipment financing to miners because they were cash poor. And they had to get to the front of the line to get equipment. We wanted to provide the pool service. You know, there's a few things that we're thinking about for the future.

• 25:47Speaker 02

  But it's going to be interesting to see how it, it kind of all shakes out.

• 25:50Anthony Pompliano?

  Yeah. Uh, Joe, John, uh, Mike, I've got two of my brothers here with me. You guys have any questions?

• 25:56Speaker 03

  Yeah. Uh, my, uh, my first question was going to be around kind of the next 12 to 36 months, but we'll, we'll let that one slide. Um, my, my other question would be, I guess, around as Bitcoin's price, uh, most people expect it to continue to appreciate. How does that work for the economics of your business and kind of the miners you guys work with?

• 26:15Speaker 02

  Yeah. So Joe, it's, um,

• 26:18Speaker 02

  so I lived through the last bull, bull market, um, as a miner. And it was absolutely crazy. It was crazy on the way up and it was crazy on the way down. And I just haven't felt that craziness yet in this market, believe it or not. Um, obviously there's lots of people that want to get into the mining and you can't get equipment and all that. But the, we, we haven't like reached the, the, the peak, I don't think. And so my guess is I, I think over the next six months, it's going to be, there's a chance it's going to just be out of control. And everybody is going to want to be into the mining business and people are going to be paying ridiculous amounts for machines and it's just going to get out of control.

• 27:03Speaker 02

  And then we're going to, you know, we're going to have this down, downward slide into, into the Bitcoin halving, right? Like it's, it shouldn't be lost on anybody that in less than three years, you know, the, the revenue is going to get cut in half for all the miners. So,

• 27:21Speaker 02

  It's gonna be, um, I think it's gonna be a wild ride, you know?

• 27:25Speaker 03

  And as we approach-

• 27:26Speaker 02

  Fasten your seatbelt.

• 27:27Speaker 03

  Yeah, I was gonna say, like, that's a good point. As, as we approached the, the having last time, like, what does that demand look from a mining perspective? Right? Because I'm assuming as the price appreciates, the margins look good and people, uh, the interest comes in and you, you guys obviously can, uh, people want to pay more for machinery and all this kind of stuff. Like, how does that look on the way down?

• 27:47Speaker 02

  Yeah, on the way down, it's a bloodbath usually. Um, at some point, and I, and I don't know how it's gonna play out this time, actually, cuz, you know, it's, it's, it takes a lot more to get the machines plugged in. Um, so the cycle may extend a lot longer than what, what anybody anticipates, which is exciting if you've got machines plugged in, right? If you're mining today, it's, it's gonna be an incredible business over the next, you know, 24 months.

• 28:18Speaker 02

  On the way down, it's, it's absolutely punishing, right? It's, it's really painful. Um, so you just have to manage your cash appropriately.

• 28:30Speaker 03

  Gotcha.

• 28:30Speaker 02

  You know, it's almost, you know, like, those that trade Bitcoin, right? And they're taking leverage out on trading Bitcoin, right? They can make a lot of money on the way up and they can just get absolutely wrecked on the way down. Um, so I think you gotta manage your portfolio appropriately.

• 28:46Speaker 03

  John?

• 28:47Speaker 04

  Yeah, Mike, thanks for doing this. I appreciate it. It's nice to meet you. Um, so I'm curious about, like, larger companies that you guys work with. How should they be looking at it if they're not into mining already with you guys? Uh, what should they be looking at? Is it just kind of like cost profit? Should they be looking at what, uh, what time in the cycle we are in? Like, how do they think about it, uh, from their end? And then how do they work with you?

• 29:07Speaker 02

  Yeah, so, you know, we get this question a lot in terms of, of, um, should we be, you know, we want to get into Bitcoin mining business. And I'd say, well, like, what's your, what's your competitive advantage, um, to be in the business? Like- Why, if you, if you're gonna get into Bitcoin mining and just to, because you think you're gonna get rich, I'd say, well, we'll just buy Bitcoin. It's way easier. Um, just ride the Bitcoin cycle. Um, if you wanna truly get into Bitcoin mining, you gotta treat it as a, as a real business and you have to think long-term, right? It can't be like, hey, I wanna get into the Bitcoin mining business and I wanna make a bunch of money over the next six months. It's not, it doesn't work that way. You really have to think through

• 29:50Speaker 02

  what's your competitive advantage, which means you've got access to low cost of energy, you got access to cheap machines. Um, those, and you've got the, the ability to scale your operation and run it effectively. Um, so if you, if you've got one of those things, um, then you have to be, make sure you time the market properly, right? So you take companies like Core Scientific, uh, Compute North, you know, they, they built right through, um, crypto winter. Right? They had a plan, they had a strategy, even though Bitcoin price came down, they were still expanding, they were still adding capacity.

• 30:29Speaker 02

  Cause they believed the market was gonna come back. Um, those that stopped, they're kinda dead in the, dead in the water when the market came back, right? So you definitely have to think through where you are in the cycle and make sure that you're, um, investing appropriately for that, that part of the cycle. Does that answer your question?

• 30:48Speaker 04

  Yep. Yeah, I appreciate that.

• 30:50Anthony Pompliano?

  Mike, talk to us, Mike, talk to us a little bit about, um, the talent in terms of as you all have built this up. I know that you have been focused on hiring great people. Has that been easy? Where are those folks coming from? Are they crypto native? Are you finding them in other industries? Talk a little bit about kinda the people that make up the business.

• 31:07Speaker 02

  Yeah, you know, Pop, that's, that's my favorite part of. This industry, it's a favorite part of my job is is finding great people and turning them loose and giving them an amazing environment to go change the world, right? That's that's what we're doing. And at Foundry, we we've we've come at it from a couple of different ways. We're based here in Rochester, New York, uh, which is a which is a fantastic place to live. But we've mixed it with like people that have got a lot of experience in the industry, with folks that don't have any experience in the industry, but bring a certain skill set. Um, also with folks that have been super passionate about crypto,

• 31:50Speaker 02

  but but just didn't know how they were gonna um work in the industry full time. And uh, it's been it's been really a ton of fun having folks um here that are super excited about building out the future. I mean, we're literally, I sleep well at night because I know we're building a better system for the future, right? Like, you can get really depressed watching the news all day and all all the bad stuff that's happening in the world and and, you know, the government, as they continue to print more money, it just, I feel good that that we're building a better future. And we've got a team of people that feel the same way, and it's it's super fun. So um, in terms of recruiting, you know, we're going into the college campuses.

• 32:35Speaker 02

  Um, we're we're looking globally now, you know, so it's not just um, we're we're finding people, you know, all over the world that that that wanna participate in in our mission.

• 32:48Anthony Pompliano?

  I gotta ask you

• 32:49Speaker 02

  Yeah.

• 32:50Anthony Pompliano?

  the question that we ask every single person. We're in the Bitcoin bull run, we just crossed over fifty K. What's your price prediction for the end of the year?

• 32:59Speaker 02

  I don't, all all's I know is I I went and I bought a T-shirt off your website that uh, you said you're gonna start selling when it hit fifty. I was like, oh, it hit fifty, I'm gonna go get a T-shirt. So I got one of my T-shirts, um, I think I got the one that said, "Phew." I like that. I like that one. Um, I, you know, I, I get the question a lot from, from like friends and family and everybody and like, I, I think dollar cost averaging is a really good idea.

• 33:30Speaker 02

  And, and the way I always think about it is what, you know, think longer term when you come, when it comes to Bitcoin investing of where do you think Bitcoin is going to be in five years? And when you feel good about that number, whether you buy Bitcoin at, you know, forty eight thousand or fifty thousand, it, it, it won't matter. But man, I, it's hard to know where the price is going to be.

• 33:54Anthony Pompliano?

  So a second part of this, and really the reason why I was excited to ask you that question is when you are advising or talking to miners, is there anything that they change about their business related to price in, on the way up? So on the way down, we know that there's a certain threshold where miners at a certain energy input cost are mining unprofitably. But if they've done the right cash management and they have a long-term view, they can survive, they're resilient, et cetera. But I've never heard anyone talk about on the way up in a bull market. Are there specific things that miners should be thinking about? Is there almost like a, uh, if you were a trader, you would have a plan to get out of a trade?

• 34:38Anthony Pompliano?

  Is there something like that equivalent in the mining industry? Or is it basically mine as much Bitcoin as you possibly can, do great cash management and know that there will be a bear market at some point?

• 34:49Speaker 02

  You know, I think on the, um, I think the thing that I think about the most is not the Bitcoin price, it's the, it's the hash rate of the network. So I think if you're going to be in the mining business, you have to get your head around where you think the hash rate is going to be.

• 35:07Speaker 02

  And

• 35:10Speaker 02

  And and that and then you base your your investment decisions around around that piece of it, right? So, um, you know, hash rate is going to go up 12% on Wednesday, like, it's just a huge jump. Um, and this is where we're seeing more capacity be built out in North America. We're seeing some Chinese miners actually plugging their machines back in in China. Um, but it's kind of like, where's that hash rate going to go? And I think that's how you you um, base your decision in terms of buying more equipment or not. And part of it is like, what's the price of the equipment? And can you actually get it plugged in? Right? So today, you can you can kind of get equipment. Um, but there's a delay. It's not going to

• 35:53Speaker 02

  be here for six months and then or four months. And then you got to make sure you can actually get it plugged in in that time period. So it's it's kind of making sure you've you can time it and you've got enough time left in the cycle to get your money back. I think that's probably what I'd be thinking about.

• 36:10Anthony Pompliano?

  Do you have a prediction for what the hash rate will be by the end of the year?

• 36:15Speaker 02

  I did. And then China shut off all their mining and kind of crushed my prediction in the in the in the right way. It was good for us. But, you know, I I think we're sitting at somewhere around 125 exit hash right now. And, um, you know, if China wouldn't have shut off, I would have bet we'd we would have been at closer to 200 exit hash right now. Um, so by the end of the year, um, I'd say it's going to be around like 220, maybe 225, 230, some somewhere in there. Um, and then, you know, it's going to continue to grow. I mean, people are just investing huge amounts of money in building out facilities.

• 36:58Speaker 02

  And the machines are going to be there. So it's just a matter of time to get them all plugged in.

• 37:04Anthony Pompliano?

  And I mean, that's a pretty serious jump from where we are right now, right? Almost double, give or take. That's all being driven by the work that's being done today, I'm assuming, right? Most of those people have already bought their equipment. They already know where they're going in. And now it's the blocking and tackling of actually getting the hash rate up and running by getting the machines installed at those locations. Or do you think that there's the ability for a player to come into the market? Let's say, you know, we get to middle of September and some really large energy business or some large corporation says, we want to be in that business and they can literally go and get up and running in, you know, call it 100, 120 days.

• 37:48Speaker 02

  It just takes time to build out these mining facilities, you know? They may make those announcements, but actually doing it, you know, like take the core guys. I mean, what are they? They're sitting at like 250 megawatts or something and they've been at it for three years, building, you know, full speed. The Riot guys, they're, they're expanding really fast. It's, it's pretty impressive what they're doing down there. But even so, they're, you know, maybe they add a hundred megawatts or 100, 200 megawatts over the next, you know, six months. You, you can't, if we, if we said, hey, we want 600 megawatts, they, they just physically can't do it. You gotta get transformers, you gotta get wire, you gotta get conduit, you got like,

• 38:32Speaker 02

  there's so much infrastructure pieces that have to go into it that it's, you can only scale so fast.

• 38:40Anthony Pompliano?

  If you were talking to a miner right now, what's your pitch? We'll leave it you with this, for why they should work with you guys. You obviously have, you know, literally come out of nowhere over a two-year period, grown into one of the top five mining pools in the world. But what's the pitch for Foundry in terms of why folks should work with you across the various product or services that you guys offer?

• 39:03Speaker 02

  Yeah, so I think there's a couple of things. One, it's clearly the team. We have an amazing group of really experienced miners that have been there, done that. And so definitely taking advantage of their expertise. And then I think the second part is, we're not going anywhere. I mean, you know, I signed up for this job. Barry said, go build a business for the next 10 to 20 years. You know, so it's not a fly by the night kind of operation, and we're making significant investments for the long term. So we can weather the ups and the downs of the market, and we're going to be here. So we're, you know, our

• 39:43Speaker 02

  focus is building long-term strategic partnerships with folks and help them at the different times in the cycle.

• 39:53Anthony Pompliano?

  Joe, John, any last questions?

• 39:55Speaker 03

  No.

• 39:56Anthony Pompliano?

  Mike, appreciate you doing it.

• 39:58Speaker 02

  Yeah, I'm super, I love what you guys are doing, by the way. I'm glad, I'm glad you got the brothers involved. And I think spreading the message around Bitcoin is just so important, and you guys are the best in the business at it, so.

• 40:11Anthony Pompliano?

  I said to them, I said, listen, if we're going to talk about mining, I know just the guy, let's go get him. And you were kind enough to join us on short notice. I appreciate it very much.

• 40:21Speaker 02

  Yeah, it's exciting. Thanks.

• 40:23Anthony Pompliano?

  All right, we'll talk to you soon.

• 40:24Speaker 02

  All right, I'll see you guys. Bye bye.

• 40:25Speaker 03

  Thanks.