The Bitcoin Breakout is Coming | Bitcoin News Now | Fred Thiel | Marathon Digital Holdings | MARA

Great to be here. You're always welcome.

Sure. So we're a large publicly traded Bitcoin miner with operations in North America, UAE, which is United Arab Emirates, and Paraguay. Bulk of our operations today are in North America, Texas, and North Dakota, a little bit in Nebraska. Long-term goal is to be about 50-50 domestic international on our mining operations. We have a little over 22.6 exahash energized, operational and running, making it one of the largest miners out there. Very efficient fleet, typically across our fleet we're at about 24 joules per terahash, which industry averages north of 30 somewhere. It's only relevant as you look at the halving because it impacts our cost to mine.

Gotcha. We also have a part of the business which is focused on technology. So we're the only miner who's vertically integrated on the technology side, everything from the pool software, firmware down to our investments in ASICs and a company called Auradine who is a US-based manufacturer of mining equipment. We're also very involved in developing immersion cooling technology for digital infrastructure, and our whole UAE site is built using some of our early collaborations on that side with partners. Our model is to continue to grow and scale our business. Interestingly, for being one of the largest miners in the world, we have under 60 employees, so we're very lean. We've grown primarily through an asset-light model where we partner with folks, and are now pivoting more towards an owned and operated model. But that's kind of high level.

I am on the road about three weeks a month.

Well, obviously being net income profitable is always a nice thing to be as a miner. Granted, part of that is driven by some one-time benefits from the elimination of debt. We were able to essentially reduce our outstanding debt by over $400 million at a $100 million plus savings, so you have to take that as income. So that obviously impacts our bottom line. And then we have the usual impairment regarding infrastructure and amortization, depreciation of things that counterbalance that a little bit. But regardless, it was a great quarter. Clearly the benefits of our optimization strategy, getting better uptime, better efficiency out of our miners, dropping our cost to mine, all that clearly had an impact in the quarter. So it was really a breakout quarter for us where you could clearly see the profitability potential of the business longer term. So we're very excited about that. We're now essentially fully energized to what our plan was for the year, and so as we look into next year, we're super excited about further growth and continuing to see the benefits of our investments in our joint venture partnerships, as well as now also some of the investments we're making in alternative fuel sources like methane, landfill gas, and other sources like that. So very exciting year ahead.

So we view it as the Bitcoin we hold on the balance sheet is an investment for us. We could be investing in buying miners for that money, but we believe that Bitcoin goes through its cycles, and we acquire that Bitcoin at a somewhat fixed cost, meaning the cost of energy and the cost to mine. And when there is great margin or great profit in that, it's a resource we can use to either spend to cover our operating expenses, which is something we've been doing, and then HODLing the rest. And over time, this HODL is going to continue to grow, and we'll likely start using it for making certain investments. Because depending on where the price of Bitcoin is at any given day, we're constantly evaluating: is it better for us to sell some Bitcoin to fund buying more miners, or is it better to sell some equity, or is it better to take on debt? Those are the three things we're constantly juggling. And generally speaking, the belief has been that it's better to use equity for growth investments and HODL the Bitcoin. But as we see Bitcoin do another run here, potentially could be time for us to monetize a little bit of our Bitcoin and use that for growth expenses as well. So I think you're going to see a balanced approach to using it as a treasury asset. And we'll have to see, if Bitcoin goes on a big run here, then our balance sheet's only going to get stronger. Today, as of the last public announcement, we had somewhere a little over half a billion dollars in cash and Bitcoin on the balance sheet, with $300 million of debt. So very strong balance sheet. Now with the price of Bitcoin where it is today, it's even better. So we feel very confident that we're going to be in a very strong position here as we get into the halving to take advantage of consolidation opportunities, growth opportunities, and other things like that.

So effectively, as the UAE site gets fully energized, which we're in the process of doing right now, that'll be up and running fully by the end of the year. That gets us to the 26 exahash. At that point, if you look at our pool stats today, you'll see we're somewhere between 22.5 and 23.5 petahash on the day, somewhere in there. And there's some additional optimization going on across the fleet today which will give us some additional increases. But with the UAE fully online, our portion of that gets us to 26 exahash by year end. So we're very excited about that. Then as we look at next year, we've spoken previously about the fact we have about 5 exahash of machines on order which will be delivered here towards the end of this year, early next year, and we'll begin deploying those quite quickly in the first half of the year through the halving. And we're not going to stop growing; we're going to keep growing beyond that.

Well, it doesn't change at all. So we use joint ventures as a way to de-risk large international projects. In the UAE, we partnered with the sovereign essentially as a way to ensure that the person providing our power, the person providing the utility grid connection, the person providing the land, all were involved in the transaction. And so by partnering with who we did in UAE, we essentially got all of those things, and so they have a vested interest in the success of the project, which de-risks it substantially. It also allowed us for the first time to do a fully built and designed immersion site in one of the most hostile environments there is. You're talking over 115, 120 degrees ambient Fahrenheit, or 50 degrees Celsius, huge humidity. And the pilot site that we built there last year ran flawlessly for 100 days before an engineer had to open the door to the container to see if anything was the matter, which was great. And that site has fabulous uptime today, well north of 99% in the current environment right now. So we're super pleased with that site, very stable, no machine failures, the immersion technology is working really well. Anybody who's curious can go see the videos on any one of our social channels for the site. As you look at Paraguay here, we're mining off of hydro energy off of a dam. We're partnering with a company that has the local connections, has already done a lot of the groundwork for us. Whereas the partnership in UAE we're a minority partner but providing all the intellectual property and the how-to skills, in this case Paraguay we're the majority partner of the deal. Our model going forward will likely be some combination of international sites: either we partner with the site developer and buy a portion of the site that we're going to own, operate, and build, or we'll just do a JV for the whole site together with them where we can bring capital, our know-how, and expertise, a bit similar to how we did in UAE. So those are the international models that work really well because you de-risk, you have local presence, and it allows you to scale very quickly. Again, we're a small organization. We're able to do these things because we have a lot of very smart people, but we have really good partners that we work with. And when you can partner with people, you can scale quickly; you don't have to do everything yourself. And as you look at most miners, we're probably the most diversified of the miners out there. Most miners are either concentrated to a state or a region. Riot's very strong in Texas, CleanSpark's very strong in Georgia. We're in Texas, we're in North Dakota, we're in UAE, we're now in Paraguay. We're going to continue to grow internationally in different sites. We're doing stuff with methane landfill gas in Utah. We're going to be doing some really exciting stuff with heat recapture, what we call energy harvesting, around leveraging the heat from Bitcoin mining for different applications. Again, all that goes to drive a much lower cost to mine a Bitcoin longer term. And then we're going to do a lot more stuff around climate mitigation and leveraging Bitcoin mining to do some of that. So we're super excited about what we're doing there. And then we also have what we're doing on the technology side. We've built and designed some very strong cooling technology for Bitcoin mining. We're now very focused on taking that to its next generation, which is essentially a dual-phase type of technology, which will allow us to deploy that type of technology for people who are in the AI business, people who are in the telecoms industry, people who are in the mobile data center business. So that's a business line which has the potential to be very exciting outside of Bitcoin mining even.

It's essentially going to be a constant focus on what is the most accretive thing for our shareholders, right? Are we going to use Bitcoin? If we hold $100 million worth of Bitcoin and we think that Bitcoin over the next 20 months, 24 months rather, is going to double in price, then what do we think of spending that Bitcoin? Should we hold it because if we're going to get 100% return on that over 24 months, what do we think if we sell equity instead? What's the weighted average cost of that capital, or what's the weighted average cost of using debt to grow? And then you have to balance it, and you want to make sure you have a balance sheet where you're not over-levered from a debt perspective. One of the reasons we did our debt buyback was specifically to take advantage of the huge discount that we got in buying back that debt, over 20% discount, and the ability to delever the balance sheet. So it's a much stronger position which helps our stock price. While it was dilutive, yes, it takes an overhang off the stock price because come 2026, that's a large amount of capital that would have to be raised all of a sudden to pay off that debt at par. So going forward, we'll use equity, Bitcoin, cash, a combination of all three, maybe some debt, to do things. And it's all going to be based on what do we think is the best use of the asset we're using to fund that growth. If we think that Bitcoin is nearing a peak for a period of time and that we're not going to see north of 25% annual return on our Bitcoin holdings, then maybe we start using some of our Bitcoin. If we think that the equity markets are going to be at a certain level going forward, then we may decide not to use equity and use Bitcoin because we feel the dilution would be too big. So it's a constant analysis we're doing every time we make a decision. But at the end of the day, it's all about shareholder value and growing the value of the enterprise. The thing about this business, as you kind of said earlier, is you have to constantly be growing. Global hash rate has doubled essentially this year. If we hadn't been growing, we would have been going backwards. You can look at Core Scientific, they're stuck in this bankruptcy, they haven't been able to grow, their production numbers are decreasing every month, and it gets harder and harder to catch up if you've been going backwards in this business. So it is a business where you have to keep growing. And it's like many tech businesses. I'm not going to say that we're like Amazon necessarily, but it took Amazon many years before they stopped diluting their shareholders to grow, and today they're this huge massively profitable company.

No. I mean, our latest 13F filings we looked at, we were just over 50% institutional. So we've been hovering around 40%, so 50% is a good healthy number. 60% would be ideal. You've got to realize a lot of the institutional holders tend to be index funds, so it's not that they're specifically managed institutional, it's Russell 2000 Index things like that. Companies, investment funds that invest using the Russell 2000 have to buy whatever's in the index, and we happen to be in the index. But regardless, that tends to be longer-term money than retail. But we have an equity that is very attractive in the capital markets. We have a lot of liquidity, we could trade 20 to 50 million shares in a day. We are an optionable security, people can write options on our security. We have this big pile of Bitcoin, and we have this great beta to Bitcoin price. Bitcoin moves up one or two percent, we move up two or three percent. Bitcoin moves down two or three percent, we move down five or six percent. There's this great beta, and so the traders love it. So there's retail trading that goes on all the time around our stock. You have institutional hedge funds that are in and out of the stock on a regular basis who are trading. So there's added volatility, and the Bitcoin mining stocks are all traded that way. The big four or five people trade Riot, Marathon, CleanSpark, etc., all kind of against each other. So there's a lot of trading going on in the marketplace around our equity in that sense. But being so liquid, it's very attractive for that, and that's why it attracts a lot of shorts. So you tend to find a lot of short interest in the stock because there's good volatility, there's good movement, it's great from a trading perspective. I think that's just the nature of the beast. So over time, we'll see more and more institutional come into it with the ETF. What's interesting with the ETF is you're essentially investing in spot Bitcoin. And while you could say okay, I have three choices: I can invest in an ETF which is spot Bitcoin and then I'm only going to get the volatility of Bitcoin; I could invest in MicroStrategy and I can get a leveraged balance sheet approach to an ETF, and Michael Saylor just announced again that MicroStrategy bought even more Bitcoin at these new high price ranges, and he'll continue to accumulate a lot of Bitcoin because of that. But the benefit you have in investing in a miner is the miner's cost to produce a Bitcoin is essentially relatively fixed, meaning it's energy and global hash rate that drive it. And if Bitcoin price zooms up to $60,000, miners' margins all of a sudden go through the roof. That profitability will be instantly reflected likely in stock price appreciation. And so when that happens, the beta to Bitcoin price becomes huge. And so that's where the miners are a more attractive investment for certain institutional investors, because of that beta. If Bitcoin price goes for a tear, the miners, like risk-on assets generally in a risk-on environment, will tend to go up. Tech stocks typically tend to have their multiples go from low teens to high 30s as the risk profile shifts, and it's not that their business model changed at all, it's simply risk appetite changes and people go more into growth mode. So I think if we go into an environment where the markets are more focused on growth and Bitcoin goes for a tear, I think you're going to see the whole mining sector do very well, and institutions will continue to invest in that because of that. You could double your money in Bitcoin, but you could potentially do better than that with mining stocks.

So in reverse order, I think we're definitely prepared for post-halving. The energy efficiency of our fleet is 24 joules per terahash, where the average is north of 30. So in this business, you want to be in the lowest 25% from a cost perspective. If your cost of mining is in the lowest 25%, you'll always be mining. It's just the way it'll go. If you look at some different scenarios of what could happen here, it's really going to be driven by the price of Bitcoin. If we go into the halving in late April and Bitcoin is somewhere between 40 and 50, which is where a lot of analysts seem to think the number is, then you're talking about a global hash rate going into that that's going to be approaching 550, almost 600 exahash, which is well over double what it was at the beginning of this year. So there are going to be a lot of miners who are going to be questionable in their profitability at that point who don't have very efficient fleets. So that's going to be critical. Now the next question is then how long does it take before Bitcoin goes from 45 to 60? Because when it hits 60, all of a sudden those people are mining profitably again. So some people may just say, 'Damn the torpedoes, I'll take the loss for a while.' Some people have power purchase agreements where they have to either pay for the energy, they can't just unplug miners, they're on the hook for the money anyway. So it comes down to a decision of do I go out of business or do I take a loss? And that's why you have to start looking at people's balance sheets. Again, we're in a position going into the halving here where we have a ton of cash and Bitcoin on the balance sheet. We're in a very strong position. It doesn't cost us much to service our debt at this point; we only pay 1% interest on the balance, there's no amortization. So we're in a very good position. Most of our capex is already paid for. We're ready to go. We can be in harvest mode if that's what the market wants us to do, but we can also be in consolidate and aggressively accumulate mode and drive growth if the opportunities arise. So I think we're very well positioned. I think other miners aren't as well positioned. They either have large capex commitments ahead of them, or they have had difficulty raising money and they're trying to raise money now while they can before the economics of the business make it harder for them to raise money post-halving. So we think it's going to be a very interesting marketplace next year. And as typical for Marathon, we're agile, we're ready to go in whatever direction the marketplace provides opportunities.

Great, thank you. Really appreciate it and appreciate the support of all your viewers and listeners. We love being able to talk with members of the community, and people like you do a great job of spreading the story and helping people understand what mining is all about. So thank you, appreciate it. We'll talk soon.