Will Bitcoin Price Skyrocket Or Collapse Post-Halving? | Marathon Digital CEO Fred Thiel

Well, miners can't change the protocol. At the end of the day, it's a consensus mechanism, and you need to have the vast majority of the consensus makers, which are not just the miners but also the node operators. There are a lot of node operators that aren't miners, thousands and thousands of them. If you go back to the period of the block wars in 2017, you had 90-plus percent of the miners wanting something to happen, and it couldn't happen because the node operators wouldn't validate it.

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Well, I think it's a combination of the ETF approval accelerating the normal cycle by about six months. So the uptick in the price of Bitcoin we would have seen in this fall, October, kind of late Q3, early Q4, was pulled forward by about six months. You're seeing a very interesting dynamic. The ETF has attracted capital that previously was invested in mining equity stocks, so stocks in companies like Marathon. Some of that flowed out of those stocks and into the ETFs. And then you also have considerable outflows. GBTC has seen almost 50% outflows of its original Bitcoin balance from when the ETFs launched. And so you're now seeing significant outflows from GBTC, a lot of which has likely flowed back into the other ETFs. You had a lot of people who bought shares in GBTC at a 40% discount when Bitcoin was at $15,000 and $20,000, and now they're obviously monetizing that and then reinvesting some of those proceeds. But essentially, most of the ETF inflows have really been retail dollars at this point. It's still a little hard for institutions to invest in these ETFs. As anybody who maybe banks with BFA or some of these other large banks finds, you have to literally ask permission to almost buy these ETFs through the banks if you're using their brokerage account. So I think we're still early in the adoption cycle from the ETFs. But essentially, what's happened is the normal Bitcoin cycle has moved forward by about six months. So I think we're going to see a kind of bumpy, sideways road here around $70,000. If Bitcoin breaks through $70,000 with strong momentum, then we may see another run-up. But I think at some point here, the market has to consolidate. We've already seen some of that happening on the equity side. I think we're going to start seeing it here on the ETF and the spot market side.

Well, if you think that Bitcoin historically has grown, increased in value anywhere from 20% to 35% a year on average over the period of time, then at $70,000 today going forward to 2030, you're looking at six years. 30% a year appreciation, that's totally doable. We don't look out quite that far. We limit our outlook internally to about 2028. And while we don't publish pricing forecasts, we believe that likely, and this is more really my personal belief, that Bitcoin, if we look at the short term, will end this year somewhere between $50,000 and $100,000. It's hard to tell. Next year, likely getting close to $200,000 potentially at the high end, otherwise most certainly somewhere in the $125,000 to $150,000 range most probably. And then it's a question of does the cycle repeat and you have a bit of a bear market, or are we done with historical cycles? And because of the ETFs and longer holding institutional interest in Bitcoin, do we start seeing less volatility, which also means potentially less price appreciation on a long-term basis, other than that driven by pure supply and demand? Most people think of Bitcoin in comparison to gold or other commodities. The key difference between Bitcoin and gold is that there's a finite supply. There's only 21 million Bitcoin. Arguably, 4 million of that 21 million have been lost, and we still have yet to mine about a million of it. So you're talking about potentially 16 million Bitcoin that could be tradable at any given moment. Most Bitcoin sits off exchanges in cold wallets, hasn't moved in six to nine months. Over half of Bitcoin hasn't moved in five years. All of which says at some price point, that Bitcoin will move, of course. But I believe that with the finite amount, if you start seeing 1% of 401k assets beginning to be allocated to this type of asset class over the next say five to ten years, there's not enough supply to provide that level of investment in Bitcoin without the price going up significantly. So I think all of the longer-term indicators are that price will go up. The question is by how much and how fast, and will there be profit taking and drops along the way? The one thing I think that is certain is while longer-term volatility will decrease, in the short term, because of the amount of Bitcoin that's not on exchanges and the time it takes to get Bitcoin to exchanges from off-chain wallets, we'll see a lot of volatility in the price. Swings of 10% in a day will be normal fodder, I think.

So you have to look at what money it is that is going into Bitcoin that is creating the demand. So you have normal demand that is, if the markets are moving towards a risk-on bias, then you're going to start seeing more capital allocated to higher risk assets, which would obviously benefit Bitcoin. That doesn't necessarily mean that the equity markets are going up at the same time. You can look at the macroeconomic situation today and what you're seeing is one where you have persistent inflation pressures, you have persistent geopolitical pressures, and let's just say exogenous events that are causing some of that inflation to remain very sticky. Geopolitical situation in the Suez area that's creating shipping challenges. You now also have the Port of Baltimore issues, which is another exogenous event that's going to create some form of impact on the inflation side. While you're starting to see unemployment take up, many industries, especially on the services side, still haven't seen the downtick in employment. Manufacturing has seen it. So I think that we're either going to go into a recessionary period, in which case people may decide to put actually more money into assets like Bitcoin, which tend to be anti-inflationary and maintain value. But at the same time, there'll be less risk assets available. So it's going to be very interesting to see how Bitcoin behaves because it acts a little bit like a chameleon or a leopard rather, and that it changes its spots. If you go back to during the period of COVID and all the subsidies, there was a lot of money. People bought a lot of Bitcoin, things like that, stocks, etc. Then we had the drop in Bitcoin, and then all of a sudden Bitcoin started acting like an inflation hedge again. So Bitcoin changes its meme, if you would, and its bias a little bit depending on the types of investors who are buying or selling Bitcoin at any given moment. And I think what we're going to continue to see is Bitcoin have more pressure to move price upwards than to move price downwards in the near term.

Well, I think it clarifies how Bitcoin is reported, which is 9/10 of the battle in this case. Because if a company is going to hold Bitcoin on the balance sheet, they have to have a very clear ability to hold and to report on it, and investors in those companies have to have a very clear ability to understand how the value of that Bitcoin is going to change over time. By the old standard, where you could only impair its value, Bitcoin might have been at $100,000 and that Bitcoin may have been impaired down to $15,000, which was kind of the low point of the most recent drawdowns. And you would have this delta between the real market value of the asset versus the book value. Now there's clarity. You essentially have mark-to-market treatment, which makes it much easier. So essentially, a company will hold Bitcoin on their balance sheet just like they hold cash. Now does that mean they'll hold more of their assets in Bitcoin? I think over time, yes. It's going to take a while, but I think you're starting to see companies begin to evaluate it as a way to store cash. Your alternatives today are to put money into T-bills, you're going to get 5%, 5.5%, something like that. So what's the alternative? And Michael Saylor has for years been the advocate of taking corporate assets and putting them into Bitcoin. And while he has accumulated more Bitcoin than most companies would feel comfortable with, it certainly has worked out quite well for him. So I think it's really something that companies are going to evaluate. But it's not just companies, it's countries also evaluating this. There are sovereigns who want to hold assets in Bitcoin. Why? Because it can't be controlled by another government, and having sovereignty over your assets is very, very important, especially as a commodity producer. So I think you're going to start seeing more countries holding small amounts of Bitcoin on their balance sheet as Bitcoin begins to continue to permeate the institutional investor base. And then you're going to see all sorts of derivative products that are Bitcoin-related products. You'll see options, you'll see funds that short Bitcoin versus go long Bitcoin. You'll see all sorts of different investment instruments that companies will be able to use to get exposure to Bitcoin without actually having to hold Bitcoin in a wallet. So I think the fact that it's now readily available with institutions, you could go to Fidelity and buy and sell Bitcoin spot Bitcoin directly, or you can use ETFs, you can use all sorts of different things that make it easy for corporations to hold it now. With this new reporting, it's easy to report on it.

Well, I think on layer one, it's more about the fact that Bitcoin is the most secure place to store something. And so what you're really going to see is innovation on layer two, where because there's only one Bitcoin block minted every 10 minutes, that level of transaction speed does not work well for Bitcoin to act as a medium of payment, but it does work well as a store of value. And so what you're going to see is more systems like Lightning built on layer twos with Bitcoin that act as that means of payment. You're going to see all sorts of data stored at layer two with the security anchored in the Bitcoin blockchain. You're going to see digital identity products launched, which is likely the next big use of the Bitcoin blockchain, where people will essentially have a digital ID. Think of it as a token that once you have validated your identity with some form of authority, say a bank, government, whatever it might be, they issue a token that is now your ID, your KYC if you would. And whenever you need to do a transaction with somebody and they need to validate your ID, you simply show the token and they can validate that it's real without getting the underlying data. It's part of this concept of zero-knowledge proofs. And when you get to that level, then people can have trust without actually having the underlying knowledge about the person because there will be a token that validates they are who they are and they have done full KYC. Same thing with your health data. You go to a medical professional, you give them access to your health data via token. They can use it, they can read it, they can update, add new data to it, but they can't copy it. And then when they're done using it, they no longer have access to it. And it will absolutely kill ransomware. There's no way for ransomware to operate if it can't re-encrypt the blockchain, which it can't do.

Well, miners can't change the protocol. At the end of the day, it's a consensus mechanism, and you need to have the vast majority of the consensus makers, which are not just the miners but also the node operators. There are a lot of node operators that aren't miners, thousands and thousands of them. If you go back to the period of the block wars in 2017, you had 90-plus percent of the miners wanting something to happen, and it couldn't happen because the node operators wouldn't validate it. So it's a consensus mechanism. You have to have over 50% of the consensus contributors, the node operators, miners, etc., all vote for and signal for something. As an example, when Taproot, which was one of the more recent changes to the Bitcoin core network, was approved, it was approved because miners signaled they were going to accept it and node operators did as well. And eventually you got to 90% and it was approved. So there's a very high hurdle for anybody to change anything programmatically in the Bitcoin blockchain. And then the only way somebody could change data that's recorded on the blockchain is to do a proverbial 51% exploit, which is virtually impossible because of the sheer cost to do it. You would have to accumulate as much compute power and energy to run that as 51% of the existing miners on the Bitcoin blockchain, which would mean you would have to have over 300 exahash of capacity. The minute you add 300 exahash of capacity to the network, total network capacity would go to 900. You would now have to grow to 450, and then every time you're adding, you're only making your number bigger. So it becomes hundreds of billions of dollars to even try to do an exploit. So the long of it is, to change the software protocol, it takes the vast majority of people involved with mining and node operators, which is a very high hurdle. And to try and change...

No. Is that not mathematically possible? No, because it's not for the miners to do. You have to change it in the actual code of Bitcoin. So miners would have to choose to fork Bitcoin to something else and then do that. That's essentially what happened in 2017. You had a fork, you had Bitcoin Cash as it's called, or classic Bitcoin, and then you have current Bitcoin. And while there are still people that mine Bitcoin Cash, it is much, much smaller than Bitcoin. And the Bitcoin that we have today is based on true consensus. So yes, a group of miners could band together and fork Bitcoin, but they would have to get the vast majority of the users of the Bitcoin blockchain to go with them, which they're not going to do very easily if they're changing the hard cap.

Hash rate doesn't necessarily change price. It's the other way around. As the price of Bitcoin goes up and the profitability of mining goes up, miners are incentivized to add more capacity. And when they add more compute, the global hash rate goes up. So think of the hash rate as the sum of all the compute power applied to the Bitcoin blockchain. So miners can't, in theory, hypothetically collude to just lower the hash rate and bump up the price. That would make no sense. If you lower the hash rate, again, hash rate doesn't drive price. Price drives hash rate. It's the other way around. So if the price of Bitcoin drops dramatically, hash rate will drop because a lot of people won't be able to mine Bitcoin profitably. If the price of Bitcoin goes up dramatically, more people will order more miners, they'll build more capacity because there's more profit to be extracted. In that way, Bitcoin operates very much like gold or petroleum markets. If the price of oil drops, oil producers shut down their oil rigs and their production. If it goes up, they turn them back on. It's the same thing with Bitcoin miners. You add capacity when price is high, you shut down capacity when price is low.

Well, essentially your marginal cost to produce will double. So to produce Bitcoin, if today it costs you, I'll use $20,000 as a round number to produce Bitcoin, and that is your cost of energy to produce Bitcoin, then your cost to produce a Bitcoin post-halving would be $40,000 notionally. There are some slight differences. Your operating expense that is non-energy related relative to mining Bitcoin does not double. That cost doesn't double. It just takes twice as much compute to generate the same number of Bitcoin. And so what ends up happening is essentially if you have 10% of the Bitcoin network in your mining fleet, the capacity of the Bitcoin network, then instead of producing 900 Bitcoin a day, you're going to get 450 Bitcoin a day. But the amount of energy you're expending is going to cost you the exact same. So that 450 Bitcoin will cost you what 900 Bitcoin cost to produce before the halving.

It depends on the nature of the energy contracts. If you have energy contracts that are power purchase agreements where you have to take it or pay it, meaning you either consume the energy or you're just going to pay for it anyway, then there is no real incentive to shut down completely because if you were to shut down completely, you're still paying for the energy but you're generating zero revenue. However, you would have an incentive to keep at least operating, seeing as you're paying for the energy and you'll generate some revenue and it'll cover some of your cost. So there's a reason to keep producing even if it's at a loss because it's less of a loss than if you just shut down completely. In the event where you have an ability to sustain that because you have cash on your balance sheet as a miner, then that could go on for a long period of time potentially. In the event you are able to tell the power company, 'I'm not going to take this power, it's yours, and you don't have to pay for it,' then yes, those miners will likely shut down immediately and wait out the drop in the price.

Well, I think you need to look at the supply shock. Right now we have a demand shock because of the ETFs. That's what's been driving price up. As you get, and that's a demand shock to the tune of about 2,000 Bitcoin a day. If you look at the halving, we're going to go from having 900 newly minted Bitcoin a day to 450 a day. So you're taking the total new emissions of Bitcoin, the total supply that is being newly introduced on a daily basis, will go down by 50%. It will go to 450 Bitcoin in a day. When typically 4,000 to 5,000 Bitcoin are trading hands, a decrease of 450 in new supply will likely have some impact on price, though it's hard to determine what it might be. So there's going to be a small supply shock. It's not a big supply shock, it's a small supply shock, but it's still 10% to 15% of typically the liquidity in the marketplace. And again, these halving events will have less impact on the price of Bitcoin over time as liquidity in the market for Bitcoin increases. So if 10,000, 15,000, 20,000 Bitcoin are trading hands a day, then that's very different than if only a couple thousand Bitcoin are changing a day. So it's very likely that what we'll see is there'll be some upwards pricing pressure on Bitcoin post-halving. And again, as I said earlier when we were talking about price predictions, likely we'll end this year above the former all-time high, and then we'll see another run-up likely in 2025 as more adoption happens. But it's really the cycle post the peak, so post the next year peak, that will be different going forward. And that's something we just, it's hard to tell because it's a question of institutional demand for Bitcoin and how that's going to change. Will adoption continue at this current pace, in which case there will continue to be a deficit in available Bitcoin in the marketplace, so there'll be a continued demand shock, so price will go up, there'll be scarcity. In the event all of a sudden there is some major event that causes the price of Bitcoin to drop, you may see a supply glut, in which case you may see price decrement quickly. I think we're in unknown territory, and everybody is, I think many people are betting on the long term that yes, it's going to go up, so I'll keep investing. But people are kind of keeping their fingers crossed that something doesn't dramatically change negatively while they're making these investments. We're very optimistic about longer-term opportunities with Bitcoin and obviously what we're doing and how we're investing, and I think the rest of the industry is on a very similar track.

Well, it's the same commodities that have an impact on inflation in this country. And the reason I couch it that way is if energy prices go up, it affects the consumer. That is inflation, and that effect on the consumer is something the Fed is very focused on. They're fighting two battles: inflation and unemployment. So if you see high pressures on energy costs, which means energy prices are going up, gasoline's going up, natural gas will go up, all those things will go up, it impacts Bitcoin miners. Yes, Bitcoin miners typically have longer-term agreements for energy prices. They're hedging their bets just like any large industrial company hedges its commodity risk. But that being said, you're going to have a Fed that is going to want to accommodate and loosen to keep those inflationary pressures from driving, which will then bring easy money into the market, which will impact the price of Bitcoin, which will drive it above whatever the commodity cost increase is. And that's been kind of the historical norm. But right now we have a glut in natural gas pricing. Natural gas pricing is way below where it was a year ago, primarily driven by the fact that on the one hand we can't export more LNG than we do today, and all that natural gas is backing up in the market here locally. And the US today is producing more oil and natural gas than it has in history. It's one of the largest producers in the world. And until that stops, I think we'll continue to see good pricing on commodities.

We're predominantly renewable. So 56% is solar, wind, etc., and the balance is a mix of natural gas, nuclear, other things. So the natural gas component of our energy mix is obviously impacted by commodity pricing. Solar and wind, the good thing is there's no marginal cost really to producing that electricity, and so those prices remain fairly constant. What we're also doing is we're very focused on moving into what we call energy harvesting. And this is where we're taking true stranded energy in the form of methane gas, landfill, biomass, and other sources of energy, converting that into electricity, and then using Bitcoin mining as a way to generate heat, which we can then sell back into an industrial process or another commercial use case. What that means is essentially as a Bitcoin miner, my cost could potentially go to zero. And when my cost for energy is zero, then I can mine Bitcoin no matter what the price of Bitcoin is, no matter what the global hash rate is.

Well, because there are situations where you can be paid to take biomass, or you can be paid to mitigate methane. You take a methane flare, you mitigate it, you get renewable energy credits for that. Those credits can be sold for quite a lot of money. You then generate electricity with the methane gas or the landfill gas or the biomass. That electricity has essentially cost you nothing because you're getting paid for the renewable energy credits or you're being paid to mitigate or take that biomass and process it. And then if you can sell the heat from the Bitcoin mining operation, Bitcoin miners are great sources of heat. And if you capture the heat and reuse it, by the way, 50% of the energy used by industry today is used for heating things. So there is a natural virtuous cycle between taking biomass and waste essentially from certain process industries, reusing that to create energy, and then feeding the heat back into the industrial process. You are now being paid to take a waste product, process it, you're being paid for the heat you're producing for it, and this is before you've even mined a Bitcoin. And then those two revenue sources can offset potentially your energy cost for mining Bitcoin.

Well, let me say two things, or actually three things. One, there's a floor on what energy costs. Natural gas pricing won't fall below a certain level. Wind, solar won't fall below a certain level. So there's a floor as to how low commercial energy pricing can go. The only way to get your energy cost lower is to generate your own energy, as I just explained a minute ago. And so what will happen is eventually commercial energy will become too expensive for Bitcoin miners to use. Why? Well, for one thing, you're going to see with more batteries at utility scale, more energy storage mechanisms at the edge such as homes with solar and battery systems, the curve on energy demand during the day, the duck curve as we call it, which typically has a lull, there's a glut in the middle of the day and a shortage in the evenings, to simplify it, that will normalize because people will take that energy produced at the middle of the day when there's too much of it because there's lots of solar and lots of wind, and they'll store it and then they'll make it available at night when there's a shortage when the sun's not shining, for example. So as soon as you even out the cost of the amount of electricity that's being pulled by the grid, that evens out the cost. Then Bitcoin miners are going to be incentivized to go look at alternative ways of generating energy because they can't play this role of load balancer on the grid anymore. The other thing that's happening, and the more important delta, is the AI industry has potentially 10 times the demand for energy that Bitcoin ever could have, and it's already growing to the point where it's going to be eclipsing Bitcoin soon. What that means is they are prepared to pay much higher prices for energy. So Bitcoin miners will essentially be squeezed out of markets where AI data centers could potentially operate because they are willing to pay higher prices for energy, they're willing to pay higher prices for infrastructure. A typical AI data center is 8 to 12 times more expensive infrastructure investment than Bitcoin mining. And the only similarity they have is they both consume energy to a great scale. So Bitcoin miners will over time be forced to essentially go into the business of generating their own energy or finding energy that is free essentially, and doing things where Bitcoin mining is just a byproduct of what they're doing. And I think that is the long-term trend for Bitcoin mining. And it also means Bitcoin mining will move from large utility scale sites, which is the typical standard today, down to a long tail of small implementations where it's maybe one megawatt, two megawatt, three megawatt. And that requires systems that are very self-contained, very redundant, very automated. And that's the core of our technology investments. Over the past few weeks, we've announced a number of technologies that essentially will form the basis for the ability to mine fully remote, fully hands-off, small scale, with very high efficiency, anywhere.

Well, I think it's more miners are going to continually chase cheap energy. So if energy becomes too expensive in the US, miners are going to go to Latin America where there's lots of stranded energy, they're going to go to Africa where there's lots of stranded energy. And you don't have these grid balancing components that create big incentives for batteries or other utilities. You have other issues. And so miners will continue to chase large energy sources that are inexpensive internationally. They're going to deal with regime risk and all of the other issues related to operating in those countries. But I think the longer term, if you look over the course of the next two decades, Bitcoin mining will migrate to the long tail. It will move away from utility scale. Bitcoin mining will be built into all sorts of industrial processes such that it's really just a way people are generating heat, and then oh by the way, they're also mining Bitcoin at the same time.

Yes, we've been doing that over the past recent months. We've done two major acquisitions, acquiring hosted providers where we actually had some of our miners running. So we've now transitioned our fleet from 3% owned and operated back in December to now over 54% owned and operated when you think about the actual physical infrastructure in the sites. And we'll continue to do that both for growth purposes and also for vertical integration purposes.

Oh gosh, the US is definitely a leading source. Parts of Texas, if you have the right type of PPA, can be very attractive. There are parts of Africa where you can find very attractive energy costs, and there are parts of Latin America too. So it's available.

Well, if you think about what it is that makes Bitcoin mining efficient, part of it is the amount of energy that the mining rigs, the compute power, consumes to generate one terahash, or think of it as one horsepower of compute power. And if that progression downwards in cost to produce a Bitcoin terahash is to happen, then you have to seek efficiencies in other places, which means getting lower cost energy. You have multiple inputs, if you would. If you have free energy, for example, if you have solar panels in your backyard, you can use old technology to mine Bitcoin because your energy efficiency is not important. But if you're doing it at scale, you want to have the latest and greatest always. And nowadays you have US-based companies developing technology for Bitcoin, it's not just offshore companies. And so I think we're going to continue to see, like any technology industry, continued innovation.

You can find me on Twitter at @FGThiel, or [email protected], my email address, or just MARA.com.

Thank you.