Core Scientific CEO on why miners are selling down their bitcoin reserves

It makes a lot of sense. One, with the state of capital markets and the unavailability really of outside funding that had been abundant for the prior year. At the end of the day, like any other business, bitcoin miners need to pay their bills. We mine and earn or produce bitcoin, but our cost expenses and liabilities are in dollars. We're seeing what will be a long-term trend as our business matures: we're in fact becoming self-financing, self-funding. You'll see mining companies sell sufficient bitcoin to make sure that they maintain strong balance sheets and pay their expenses when due. The second aspect to it is that it is quite sensible in a turbulent market time. You've seen this in many industries that experience turbulence: you go to cash. I think what you're also seeing, no doubt, and it seemed to be beginning to, but when you face turbulent times, you want to make sure that you've built a conservative balance sheet, that you've got resources to ride through those times. So I think you're seeing some of that as well. Certainly that would be the case as it relates to us. You know, we've been through turbulent times in the past at our company. I certainly have a good bit of experience in distressed markets, and it makes sense to build a conservative balance sheet in that kind of an environment.

One of the things that we mentioned was that we felt that we had sufficient assets and capability on our own balance sheet, our own income statement, to fund our growth through 2022, which as we had said was to get to a point where we're operating either for our own account or hosted over 300,000 servers. Going to cash out of insured, if you will, aided us in making sure that we have sufficient liquid capital to handle the build-out for the growth that we had. We had talked about your ability to raise capital will come back, whether it's equity or debt capital, you create liquidity. And so our view was that it made sense for us to create liquidity to provide a call it an insurance policy to get through these tumultuous times.

Well, look, I am certainly not a great predictor. Over the past couple of months on the price of bitcoin, as we've seen liquidations of Three Arrows, Voyageur, Terra Luna, and Celsius, those are extraordinary events. But you and I have talked in the past about, and I've spoken about, a need in all early industries, there seems to be what I've referred to as a consolidation and cleansing phase. We're certainly going through that. That said, there was tremendous pressure put on the price of bitcoin by the liquidations that occurred and by these market events. We've actually been quite pleased at the resilience of bitcoin. If we've worked our way through these big, high-pressure situations as we have, then I think it's fair to say that yes, we'll probably see less pressure on the price of bitcoin, we'll see more optimism, and with less volatility, you probably get more support.

There's the obvious answer: when bitcoin prices are higher, our business is better, because there is tremendous positive operating leverage. If bitcoin were to get back to 35, 40,000, there is no doubt about that. Also clearly the price of energy matters, but what really matters is productivity. There is this interesting aspect of bitcoin and the bitcoin network in what we would refer to as the self-correcting aspect of the bitcoin network, which is to say that as prices fall, global hash rate or the competition for the production of bitcoin decreases, as less efficient miners come off the network. So there's a bit of an offset against that that ties into bitcoin price, energy price, and productivity. So what we're really focused on is productivity per machine. That said, would we love for the price of natural gas to stabilize? Absolutely, because it does have implications and it does impact margins. You know, right at its peak, we were all enjoying 80 plus margins in our business, and those margins are probably down to closer to 50 or so across the industry, as best we can tell at this point in time. That said, at current energy prices, we as a company are profitable at these current levels, cash flow positive at these current levels. As are, I think, pretty much the entire U.S. bitcoin mining community should be generating cash flow at these levels and these bitcoin prices. The other aspect that relates to inflation, by the way, also has to do with infrastructure build, because we're somewhat unique in that we develop and control all of our own infrastructure. It's not just inflation as it relates to energy. There are other materials that we need similarly: the cost of transformers and electrical gear. Those also have implications for the overall profitability of our business. We're glad to see we've seen much more stability in recent days, recent months, for those sorts of inputs, different than energy.

Well, I'm obviously highly biased. We're trying to not only survive but also to build our business. That's the other thing about this sort of a market environment: there are a lot of opportunities that present themselves. Folks like us, and I'm sure some others, are trying to take advantage of the opportunities to build our business at what we would consider to be very compelling value, so that when we come out of this, we're not only strong but we're also bigger, if at all possible. So we view this kind of a market as a challenge, and you need to work through it, but it also presents great opportunities to build.