#24 The Rise of Compute as an Asset Class: How Bitcoin Miners are Reshaping Infrastructure

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Welcome to Drilling into Crypto. I'm your host, Mohammad L. Masri.
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Every week I speak to the leaders that are driving
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the global financial revolution. Drilling into Crypto puts the spotlight
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on the importance of crypto assets on energy markets and
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on global monetary policy.
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Hey, Charlie, thank you for joining Drilling into Crypto. We
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appreciate having you here.
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Well, thanks for having me. Good to be here and
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good do good to see you as well.
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Great, So truly, I think you know, we usually we'd
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just like to give a few moments to our guests
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to introduce themselves, to tell us about their journey into energy, compute,
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bitcoin and the verticals that are relevant to.
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You know, infrastructure in that space.
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So, you know, why don't you give us a rundown
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on what you were doing before a bit fou fu
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and you know how you ventured into the bitcoin space
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and more precisely, how that has evolved over the net
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since since you've joined that arena.
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Yeah. Sure, So I've been with bitfou just over two years.
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I joined the company May twenty twenty four. The company
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went public via dispack in March first of twenty twenty four.
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So I joined a few months after that that IPO.
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I've been doing investor relations for about five six years now,
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so I do head up investor relations and do a
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lot of capital markets work as well with bitfu fu.
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But prior to getting into the investor relations world, I
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spent the majority of my career on Wall Street as
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a cell side equity research analyst covering primarily diversified industrial companies,
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so I really clicked a group of companies in different
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and markets, different spaces, so really nothing to do with
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digital assets or digital mining from a professional standpoint, But however,
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from a personal perspective, you know, I was involved in
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that just on my own, been involved in that probably
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since twenty fifteen, and just was kind of a you know,
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personal interest of mine. And just coincidentally, as I got
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a call from a recruiter working for Bidfoo Foo, they
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were looking to hire their first internal IR person, and
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so I thought, you know, here's an opportunity to take
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something that I you know, personal passionate about and enjoyed
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doing privately, I'm sort of did an assets to bitcoin
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mining and actually work inside a company and be part
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of that infrastructure. So that was exciting to me and
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a big part of why I jumped on, and not
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to mention the fact that you know, Bitfoo Foo, I
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think is kind of a uniquely different position company in
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the bitcoin mining space as well. So that was a
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bit we could talk. We could talk more about that later,
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but that was another one the reasons I am. I
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thought it was kind of interesting opportunity.
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Yeah, on that, On that opportunity, I mean, you joined
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as a VPUs investor relateships at pip TT and.
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If I'm not missed tap the year, you're you're the
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face of big feet when.
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It comes to communicating investors, especially on the captain markets
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front across more Famerica. More precisely, how do you see
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the investors sentiment for bitcoin, your related entity ther bigcoinated
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stock on markets and if you see a difference between
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public and private capital markets and their applicating sentiment towards
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bigcoin today, as mostly the bigcoin mining companies have been
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in that scienceformation or in its tangition, well, even these
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vertically integrate through I infrastructure in the narrative have somewhat chainability.
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Yeah. No, that's a great point, and you're right about
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the narrative changeing over the past few years. I would say,
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if you look at the you know, we're public, publicly
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traded company. We trade a NASDAC under the techer symbol
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f u f U. There are obviously a number of
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other public traded miners out there, the majority of which
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have either already or in the process of pivoting towards
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taking those their power assets that they were using or
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are using for bitcoin mining and transferring and transforming those
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into HPC AI data centers for that purpose. And so
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we're one of the few pure bitcoin mining companies left,
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although again I just want to highlight that we are
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a bit differentiated in that seventy five eighty percent of
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our revenue comes from our cloud mining platform. And what
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the cloud mining platform is just quickly is we take
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our hash rate that we have to mind bitcoin, that
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computing power, and we lease it out to customers, primarily
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institutional customers, for anywhere from anywhere thirty days up to
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three hundred and sixty days. Average duration is sixty nine
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sixty to ninety days, and so it's almost like a
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bitcoin mining as a service kind of a turnkey operation.
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If you want to mind bitcoin, but you don't want
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to buy machines, find hosting centers and deal with the
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maintenance of the machines and everything goes in with being
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a self min owning rigs. This is a great way
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to do it, and it's it's very transparent. It's your
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wallet connecting to the pool as it gets mined. Once
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you with the KYC process, the bitcoin goes from the
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pool to the customer's wallet. It doesn't come through bitfou fuo,
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so it's fully transparent. But that's a differentiator for us.
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And then the reason for that is if we were
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a pure self mining company and we do have self
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mining operations for our own balance sheet, we have over
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eighteen hundred bitcoin on the balance sheet today. But if
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we were pure play one hundred percent self mining only,
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you know, you're really subject to the vault is a
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bitcoin pricing market and difficulty and some other factors. And
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what the cloud mining business allows us to do is
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to lock in a significant portion again seventy seventy five
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to eighty percent of our revenue under contracts. We know
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the revenue, we know that margin, and it's a very
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quick cash collection process. So it's a cash flow positive
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business for us, and so that really smooths out the
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volatility from being a purebitcoin mining company. Obviously we have
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some volatilely built in there because we do have that
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self mining piece, but with that large percentage being cloud mining,
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it really does smooth out that volatility of the revenue
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and the earnings and the ebitas. So I just want
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to get that out of the way. That's why we're different.
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But I think to your question on market, Senate, certainly
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there's been a change with you know, bitcoin coming back
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down from the peak one hundred and twenty six plus
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down to where we are today sixty sixty five to
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sixty six thousand, and we got as low as fifty
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five thousand. Obviously the market sentiment, you know, has has
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gotten a little bit weaker on that for certainly from
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play players that are newer to the market. I think,
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you know, if you go back two three years ago
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before we had these ETFs, you know a lot of
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folks that think didn't really understand what bitcoin was or
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how it worked. And I think that's still an issue today,
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but not maybe not as it was. So you've got
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a lot of folks who've come into the market because
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of the ETFs make it easy for them, but they're
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not necessarily the typical longer term Hoddle strategy bitcoin minors,
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bitcoin investors that we've seen over the past, you know, five, seven,
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ten years, and so it's a different mindset. I think
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those those investors tend to be more in and out
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of the market quickly, and so it's it's the mindset
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is differently changed. But that said, you know, there's still
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certainly a strong group out there that are the traditional
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you know, buy it low Hoddle. It's going to be
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believe in the long term value of the of the
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of the of the coin, of the in the in
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the chain, and that's certainly where we're at. We're continuing
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to build our bitcoin stack, and so I think, you know,
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this is a near term short term sentiment negative sentiment
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environment winning right now. I think longer term we expect
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bitcoin to go higher, and I think is when bitcoin
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does start moving back up again, you'll see that sentiment
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shift right back into being more positive on bitcoin. The
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difference this time is going to be that a lot
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of the large institutional bitcoin mining infrastructure will have pivoted
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out of bitcoin mining. And so what does that do
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for those that remain bitcoin minors, Well, it's it's a
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net positive, right, because there's less competition for for mining
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and its longer term should be more positive as far
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as lowering out the steepening of that of the difficulty
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curve that's been going up and up over the past
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three years. As more hash rates come into the market
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from large, large companies, and hopefully from a hash price standpoint,
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the hash price will improve as well. So I think
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for those that are sticking around long term to be
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bitcoin minors, remain bitcoin minors. The fundamentals over the next
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couple of years, uh, outside of the having event obviously,
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but the fundamentals around that should should actually benefit those
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who kind of stay the course.
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Yeah, that's interesting because mentioned institutions that the institutional infrastructure
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that's pivoting to AI and that at some point will
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be completely out of them. But it seems like the
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industry took a lot of a large postioning of you know,
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their time over the last five six years, uh to
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institutionalize bitcoin infrastructure, and now they're willing to pivot out
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of it. You still see that bitcoin in general has
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been institutionalized and for and how they've got to affect
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bitcoins core.
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Value and useless. Yeah, I mean, I think the you know,
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the the rise of the ETF funds and the broadening
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of the investor base into bitcoin via the ETFs and
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some other vehicles. Different crypto exchanges have come out now,
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so it's much easier to buy bitcoin than it was
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a few years ago, buy it, what or sell it,
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So it has it has become institutionalized. I think it's
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going to remain somewhat institutionalized obviously because now we also
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have regulatory frameworks in at least in part around it,
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and and more regulatory frameworks being being put on, so
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you know, the the rails are being put in place
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for different i think, different networks to interact with bitcoin,
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and so yes, I think the institutional aspect of it
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is certainly here to stay. But that's not you know,
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a not necessarily bad thing, and that makes uh, it
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makes it open to more folks. It makes it easier
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for people that may be hesitanted by bitcoin because that
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you know, they didn't want to go through the complication
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process of you understand or trust a wallet. They can
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buy it on exchange, and it also allows more applications
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to to be used on on on bitcoin. But these
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other digital astic blockchains that are out there as well,
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So I think that it's a it is a positive.
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We do need some more regulatory framework in place to
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really clarify some of that from an institutional standpoint. And
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and you know, there are still folks out there who
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who you know, are concerned that it's a little bit
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still wild west. I mean, you hear these stories about
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hacks and walts being drained and things like that, so
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that still goes on. So it's it's it hasn't become
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completely mainstreamed yet. I think we're a little ways away
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from that. I think at some point it will be.
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But net net, I think in order to get to
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that point, you've got to, you know, you've got to
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remain somewhat institutionalized. That's very different than saying it's not
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going to be decentralized, which obviously a key tenant of
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bitcoin mining rights a decentralized network and that no one
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person is going to control the whole thing, and therefore
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that's the sort of the safety net are underpinning that.
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I think that decentralization aspect, you know, likely likely improves
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as these large institutional miners exit the market. Right, some
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of the larger players mining bitcoin today leave that market,
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and so you would think that that concentration from some
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of those players would would would you know, would obviously
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lesson and if anyone's going to pick up some of
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those those machines, those obviously these miners are going to
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be getting rid of their machines, selling them, selling those
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used machines into into various markets. Could very well be
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that you have individuals picking up or small groups picking
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up some of those machines that are you know, I'm
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talking about S twenty one series machines that are that
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are high level machines that can be profitable today. And
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so maybe that actually, you know, expands out the decentralization
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of the network more than where it is today. Even
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I don't know, We'll have to see how that goes,
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but I think it's it's it's not going to go
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in the other direction of more centralization by having these
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large players lead the market.
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Yeah, that sounds like a reasonable observation because my understanding
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is less hash rate on network, the more hash rate
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leaves the network, the.
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The the better the difficulty eight I mean the difficult
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to eight or the difficulty adjustment algave and plays its
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role when hash the future, which ultimately should be a
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positive to those who wain online because then they have
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higher chances of finding blocks and mining big flam.
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Right.
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So that is another thing that interesting is that all
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all this hashleag should believe in the network scene. How
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does that affect viccine from operations, assuming that none of
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that hash state is reproach chase thing you need to quote?
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Yeah, I mean I think it's it's it's ultimately it's
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a net positive for a midfuu foo.
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Right.
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If you look at our main numbers end of May,
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as May thirty first we put up monthly operational updates,
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we had just over sixteen sixteen point three exit hash
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of capacity under management, three hundred and forty six megawatts
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that's on four continents and fifty five bitcoin. So that
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you know that hash rate and we're continuing to look
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to opportunities to grow that hash rate higher. Again, a
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lot of that hash rate we still lease through contracts
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and third parties. We do own some of that hash rate.
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We actually own probably about three point six eggs hash
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that is owned machines, but the rest of it is
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leased capacity. I think going forward, you know, you could
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see us increase that owned footprint, although probably not to
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one hundred percent, because we like the flexibility of cost
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structure of repositioning ourselves within the market and always having
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you know, latest generation machines and keeping that efficiency curve going.
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But the point is, you know, if you hash rate's
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been going up significantly in the past several years, as
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as or difficulty rate, I should say it has been
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going up significantly as a hash rates been piling on.
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You know, I think we've already seen a slowing in
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that in that ramp on the hash rate into the network,
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and in some cases we've actually seen to pull back
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a good bit. Some of that has been weather related,
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but some of that has been large decisions pivoting out
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of bitcoin into other digital assets, whether it's e theoreum
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or something else, or just exiting bitcoin all the way
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or even in the you know, stopping expanding. Right for
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a number of years, it was you know, ad hash rate,
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ad hash rate, hash rate every quarter for the public companies.
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You wanted to see how much more hash rate they'd
274
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put on. We're not seeing that today. We're seeing them
275
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back off of that, reduce their hash rate. Actually that
276
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go as plays into the difficulty rate as you said,
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you know, the more hash rate that goes in in online,
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the difficulty rate goes up. And conversely, when hash rate
279
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comes out, difficulty comes down. And I think we're certainly
280
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going to see a flat lining of it, at least
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in their terms short term, and I think potentially a
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decline in the in the difficulty rates as this capacity
283
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comes off over the next twelve months or so for
284
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for a lot of these companies. So for those that remain,
285
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like a bit Fu Fu that are going to maintain
286
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and you know, hopefully add to our existing eggs of
287
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hash footprint, We're not going to to pick up all
288
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the slack. So some of that some of that stuff
289
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coming off will be picked up by miners like ourselves,
290
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some other individual miners maybe coming in the market that
291
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weren't doing it before. But it's I don't think it's
292
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going to get all picked up. There's just too much
293
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of it coming off at one time. And so net net,
294
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I think it's a net positive for those those companies
295
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and those individuals that remade bitcoin minors.
296
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Interesting, Uh, most of those companies, I think I'm pointing
297
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bit free Food has bitcoin is not supported just these
298
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companies by building bitcoin infrastructure.
299
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And being ablet g uh mine a commodity, but there
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are a digital commodity maybe if you need just for
301
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a second and you get them to feed that from
302
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your side.
303
00:17:36.000 --> 00:17:40.920
Okay, there we go, Thank you so much.
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So what I was trying to say is that bitcoin minors,
305
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especially publicly listed bitcoin minors, have built an enterprise value
306
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off of bitcoin because of the fact that they were
307
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able to monetize large scale energy in the shortest periods
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of time possible.
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And and and and.
310
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Allowed them to build a distributed energy network as you said,
311
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bitfoof who has three hundred and fifty plus megawats across
312
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several continents, which ultimately means bitfoof who controls or operates
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you know, distributed energy portfolio or distributed power generation portfolio
314
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of assets, which reflects on enterprise value. In my opinion,
315
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like from my observation, a lot of that value is
316
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in the infrastructure versus what you apply on the infrastructure,
317
00:18:31.039 --> 00:18:34.799
because then as technology evolve and you can just switch
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out containers, change the technology, whatever.
319
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The case may be.
320
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And each evolution of technology comes with its own capets.
321
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But most of these publicly bitcoin minors that are now
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pivoting into AI. Have built their whole story, their whole
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asset base, their whole enterprise value off of the ability
324
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of bitcoin's ability to monetize the energy that the energy
325
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envelope that they've secured over the ear years. And from
326
00:19:03.680 --> 00:19:07.039
my perspective, if they're going if you're going to scale
327
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as an infrastructure as a digital infrastructure company, whether you're
328
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doing bitcoin or AI, you're.
329
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Still going to need to secure more energy.
330
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And understanding that AI would take a lot more capital
331
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and a lot more time to deploy and come online
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and secure off take. Would this hash rate going offline?
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Should this hash rate that's going offline still be repurposed
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into new energy infrastructure? And how do you see this
335
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expansion of energy infrastructure affect enterprise value mainly for BITFUFU
336
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and of course the industry.
337
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Yeah, I mean, I think we've got to you know,
338
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you've got to dissect the two hash rate power, which
339
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is the computing power to mine bitcoin, and then the
340
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energy infrastructure, the megawats, gigawats behind that that's powering the
341
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a sc miners that are creating that are doing the hashing, right,
342
00:20:03.880 --> 00:20:08.240
and so I that's the whole investment thesis on on
343
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why some of these companies are pivoting into h PC
344
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A I. They have these data centers on Omega wats
345
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and some cases a gigawat plus, and they're saying, I
346
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have this power capacity in place today, I I can
347
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mind bitcoin with it, or I can do something else
348
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like hpt A I with it. And and they're looking
349
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at their asset base and saying, you know, in their view,
350
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from what their asset base is, they can on a
351
00:20:31.559 --> 00:20:34.000
longer term basis, they believe they can get a higher value,
352
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higher use value for that energy infrastructures in place today
353
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because there is you know, there is significant demand from
354
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HPC A I today. Uh, And it takes a long
355
00:20:44.960 --> 00:20:46.400
time I'm going to build. If I was going to
356
00:20:46.440 --> 00:20:51.400
build a greenfield site for AI HPC today, you know
357
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that that that's a multi year process from start to finish.
358
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I'm probably looking at what four to five years out
359
00:20:57.599 --> 00:21:00.559
before I even get you know, being to use it
360
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once the purchase power agreements go in place, equipment get
361
00:21:03.000 --> 00:21:04.400
some put in place. Some of these are very very
362
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large construction projects, obviously a lot more capital costs. But
363
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if I've already got that infrastructure pad today, I've already
364
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got the power purchase agreements in place. All I really
365
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need to do is repurpose the infrastructure on that data center.
366
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Obviously you can't use the same infrastructure used for bitcoin mining,
367
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and there's obviously a lot more redundancy on HPCAI, right,
368
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double fiber lines and double power lines and things like that.
369
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But that's the function of just going in and doing
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construction work essentially and engineering work to build that site out,
371
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which you know is not cheap. You know, it's hundreds
372
00:21:40.279 --> 00:21:42.799
if not billions of dollars to do relevant to building
373
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a bitcoin mining site. But I think that's been the
374
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draw that I have this power asset, power generation assets,
375
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data center, and if I can secure a contract on
376
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that long term a large company for ten years with
377
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you know, multiple renewals, a long term recurring revenue stream.
378
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Obviously the upfront capital is significant to do that, and
379
00:22:05.680 --> 00:22:07.640
so you know they've all got to do their own
380
00:22:07.680 --> 00:22:10.599
or torontovested capital calculations and how how soon get my
381
00:22:10.640 --> 00:22:13.480
money back? But what the ultimate return is going to be.
382
00:22:14.079 --> 00:22:16.079
But that's been the draw of it in terms of
383
00:22:16.119 --> 00:22:20.319
the hash rate though for the for the bitcoin mining companies, again,
384
00:22:20.359 --> 00:22:22.000
you know, we we do own a site in Oklahoma
385
00:22:22.039 --> 00:22:25.200
it's fifty one megawatts. We own a site and Ethiopia's
386
00:22:25.200 --> 00:22:27.759
eighty megawatts. And we've got a couple of sites in
387
00:22:28.079 --> 00:22:30.599
Arkansas that are a combined thirty three megawatts. So we
388
00:22:30.640 --> 00:22:33.519
own we're ConTroll about one hundred and sixty four megawatts
389
00:22:33.519 --> 00:22:36.240
of capacity. The rest of our capacity is least capacity.
390
00:22:38.119 --> 00:22:41.640
On the owned capacity today, we're not doing HPCI on
391
00:22:42.039 --> 00:22:46.160
it today. Could we do it on some of that
392
00:22:46.799 --> 00:22:50.079
capacity that potentially we could. It's certainly something that we
393
00:22:50.119 --> 00:22:54.480
continue to evaluate. But again, you know, we're we're a
394
00:22:54.559 --> 00:22:57.640
different model bitcoin mining company than a typical bitcoin minor.
395
00:22:57.680 --> 00:23:00.640
We're not just mining bitcoin for our own account. We've
396
00:23:00.640 --> 00:23:03.480
got the cloud mining business which really helps support the
397
00:23:03.519 --> 00:23:07.839
overall business, and so we don't have that volatilitty and
398
00:23:07.880 --> 00:23:10.079
the and the price and profit swings that a lot
399
00:23:10.200 --> 00:23:11.640
that a pure bitcoin minor would have.
400
00:23:12.319 --> 00:23:12.519
Uh.
401
00:23:12.559 --> 00:23:14.079
And again, you know, one of the things I mentioned,
402
00:23:14.160 --> 00:23:15.559
we're trying to get more owned footprint.
403
00:23:16.160 --> 00:23:16.279
Uh.
404
00:23:16.400 --> 00:23:18.440
And so as we get more owned footprint, you know,
405
00:23:18.480 --> 00:23:20.440
one of the one of the things we look at is,
406
00:23:20.440 --> 00:23:24.039
you know, what's the optionality Could this footprint be something
407
00:23:24.079 --> 00:23:27.680
other than bitcoin mining? Could it be HPC AI related infrastructure,
408
00:23:28.039 --> 00:23:29.960
and so that goes into the thought process when we're
409
00:23:29.960 --> 00:23:33.039
looking at potential data centers to acquire to increase that
410
00:23:33.160 --> 00:23:38.400
owned footprint. But today, you know, we're really we're focused
411
00:23:38.440 --> 00:23:41.839
on on bitcoin mining. Again, never say never on the
412
00:23:41.839 --> 00:23:45.160
AI side, but I think I'd like to see the market,
413
00:23:46.119 --> 00:23:49.200
you know, get a little more clarity on kind of
414
00:23:49.200 --> 00:23:51.960
the cost structure and the timing of when stuff gets
415
00:23:52.000 --> 00:23:53.640
built out and what they will return offs. You know,
416
00:23:53.720 --> 00:23:57.880
even GPUs and service. If you don't do it correctly
417
00:23:57.880 --> 00:23:59.279
and get the right people in there and the right
418
00:23:59.400 --> 00:24:02.160
know how, you can lose a lot of money fast.
419
00:24:02.240 --> 00:24:05.119
And that's just not something that we've we've really taken
420
00:24:05.119 --> 00:24:07.599
to doing. Where we've tended to be very very conservative
421
00:24:08.519 --> 00:24:13.200
in capital allocation, which is why, you know, from an
422
00:24:13.200 --> 00:24:16.480
adjust at a perspective, we've been profitable every single year
423
00:24:16.519 --> 00:24:19.480
since twenty twenty, regardless of what the bitcoin minor cycle
424
00:24:19.519 --> 00:24:21.680
has done up down, even in the current market. So
425
00:24:23.480 --> 00:24:25.319
that's you know, and we have ever Assaulid balance sheet.
426
00:24:25.519 --> 00:24:28.359
We're not over lept, we're in net cash position. So
427
00:24:29.039 --> 00:24:31.240
it's a bit more conservative maybe than some other players
428
00:24:31.279 --> 00:24:33.359
in the market. But you know, in a down market
429
00:24:33.480 --> 00:24:37.440
and a bear market. Conservatism is not necessarily a bad thing.
430
00:24:37.920 --> 00:24:39.640
And we do have some other growth initiatives that we
431
00:24:39.720 --> 00:24:42.160
are working on internally, which I can't really discuss, but
432
00:24:44.079 --> 00:24:45.839
I think there's a lot of opportunity for the company
433
00:24:45.880 --> 00:24:50.279
out there. Could it be HPC III, could be, but
434
00:24:50.359 --> 00:24:53.400
there's other opportunities for us as well. So I think
435
00:24:53.400 --> 00:24:58.880
we're going to continue to mine, mine bitcoin and and
436
00:24:59.000 --> 00:25:01.680
try and acquire more at least hash rate as the
437
00:25:01.759 --> 00:25:03.599
pricing has on. That hash rate has come down as
438
00:25:03.640 --> 00:25:05.200
the price of bitcoin has come down, and kind of
439
00:25:05.240 --> 00:25:08.160
lock in some longer term hash rate that when bitcoin
440
00:25:08.200 --> 00:25:10.160
price comes back up, that's going to be very profitable
441
00:25:10.200 --> 00:25:11.000
hash rate for us.
442
00:25:20.799 --> 00:25:24.319
The energy angle really intrigues me because of the fact that.
443
00:25:25.799 --> 00:25:28.079
You know, as as an energy developer, all these energy
444
00:25:28.119 --> 00:25:32.359
developers right now there are that are available are tapping
445
00:25:32.400 --> 00:25:35.880
into this niche, which is bitcoin minors and AI HPC
446
00:25:36.160 --> 00:25:42.000
data center operators that are hungry for power and as
447
00:25:42.079 --> 00:25:45.480
bitful of scales or as you see the market expanding
448
00:25:45.559 --> 00:25:46.720
its energy footprint.
449
00:25:51.240 --> 00:25:53.920
And I go back to enterprise value because it's also.
450
00:25:53.799 --> 00:25:58.480
A very interesting point and how I believe investors are
451
00:25:58.599 --> 00:26:01.160
undervaluating some of the companyanis that are on the market
452
00:26:03.279 --> 00:26:06.759
and not taking into consideration the scale and the potential
453
00:26:08.400 --> 00:26:10.920
and the upside that's available in some of these companies.
454
00:26:11.000 --> 00:26:11.160
More.
455
00:26:11.440 --> 00:26:13.799
You know, most of the narrative around AI is you know,
456
00:26:14.519 --> 00:26:18.519
in my opinion, you know, media driven, pr driven, but
457
00:26:18.759 --> 00:26:21.880
a lot of the practicalities on the ground, as you mentioned,
458
00:26:22.400 --> 00:26:26.519
take years and a lot of capital to bring it
459
00:26:26.599 --> 00:26:30.279
into fruition and to materialize some of these contracts. Right,
460
00:26:31.519 --> 00:26:37.480
what does it take for a bitfool or any corporation
461
00:26:37.680 --> 00:26:41.319
or institution that's entering into the space to secure these
462
00:26:41.400 --> 00:26:43.720
large scale energy contracts and monetize them.
463
00:26:46.680 --> 00:26:50.200
And how do you ensure that all this energy.
464
00:26:50.079 --> 00:26:54.119
Is reflected onto your evaluation because I believe, I strongly
465
00:26:54.160 --> 00:26:56.519
believe that a lot of this capacity that you mentioned
466
00:26:56.559 --> 00:27:00.799
that bitfoof for owns, controls, or leases is not being
467
00:27:00.880 --> 00:27:05.079
taken into consideration on the market. And hash rate has
468
00:27:05.119 --> 00:27:09.759
always been like the key metric to value some of
469
00:27:09.799 --> 00:27:13.160
the bitcoin minors, when actually it's supposed to be a
470
00:27:13.319 --> 00:27:16.960
multiple of things, because you're capturing a value chain from
471
00:27:17.119 --> 00:27:20.319
energy to compute, right, So you have the energy, the
472
00:27:20.440 --> 00:27:23.640
power and the compute and then everything that comes after
473
00:27:23.759 --> 00:27:27.240
that which is downstream like end users, cash flow, etc.
474
00:27:27.559 --> 00:27:30.799
That is derived from the operations, but the components that
475
00:27:30.880 --> 00:27:34.079
are involved, from energy to compute and the entire value chain.
476
00:27:35.079 --> 00:27:37.799
How do you, as an you know, as VP of
477
00:27:38.200 --> 00:27:42.799
investor relations communicating with investors, make sure that the megawatt
478
00:27:42.960 --> 00:27:48.319
underlying this whole operation is reflected into your valuation.
479
00:27:50.720 --> 00:27:53.839
Yeah. I think that's a great question and a great observation.
480
00:27:54.319 --> 00:27:58.920
I would say that because we lease a majority, you know,
481
00:27:59.160 --> 00:28:04.000
seventy plus percent of our capacity is least capacity there's
482
00:28:04.039 --> 00:28:06.480
we don't we don't get a valuation put on that capacity.
483
00:28:06.559 --> 00:28:08.000
And so you could you could look at and say,
484
00:28:08.160 --> 00:28:10.200
you know, there's there's three parts of the company. There's
485
00:28:10.279 --> 00:28:13.279
the there's the balance there's the value of the bitcoin
486
00:28:13.319 --> 00:28:17.440
of the balance sheet. There's the there's the self mining
487
00:28:17.519 --> 00:28:19.920
business where we get the self owned business with the
488
00:28:20.000 --> 00:28:22.519
miners we own and on data state centers that we own.
489
00:28:23.440 --> 00:28:26.359
And then there's the there's the cloud mining business, the
490
00:28:26.480 --> 00:28:29.319
bitcoin mining, the service, the cloud mining leasing business. And
491
00:28:29.400 --> 00:28:31.079
I would argue that if you were to do a
492
00:28:31.119 --> 00:28:33.079
sum of the parts valuation and put a multiple on
493
00:28:33.160 --> 00:28:36.359
the self mining business and a MV on the on
494
00:28:36.440 --> 00:28:41.519
the bitcoin on the balance sheet. You know, the math
495
00:28:41.559 --> 00:28:44.359
would would show you that the cloud mining business, which
496
00:28:44.400 --> 00:28:47.880
again is seventy to eighty percent of our revenue uh
497
00:28:48.359 --> 00:28:51.200
is being assigned zero value. I mean, it's just how
498
00:28:51.200 --> 00:28:53.200
it kind of somehow the math works out. And I
499
00:28:53.240 --> 00:28:55.160
think that's a function of because the majority of that
500
00:28:55.279 --> 00:28:59.519
is least capacity and so we're not getting credit because
501
00:28:59.559 --> 00:29:02.440
we don't own that capacity. But what's missed is the
502
00:29:02.519 --> 00:29:05.000
fact that that is real revenue that generates, and it's
503
00:29:05.039 --> 00:29:08.839
recurring revenue. It's it's a very high recurring revenue, you know,
504
00:29:09.000 --> 00:29:12.960
in excess of seventy eighty percent recurring revenue stream every
505
00:29:13.039 --> 00:29:16.160
single year. But you look at our you know, our
506
00:29:16.200 --> 00:29:21.720
customer retention rate, it's arranged anywhere from you know, seventy
507
00:29:21.799 --> 00:29:23.839
eighty percent up to one hundred percent depending on the quarter.
508
00:29:25.640 --> 00:29:29.319
And so that's you know that that's that's something that
509
00:29:29.359 --> 00:29:31.640
I think a lot of people miss when they're evaluating
510
00:29:32.400 --> 00:29:34.680
what the company is really worth. That and the fact that,
511
00:29:34.759 --> 00:29:36.640
you know, what's the cash flow generation of that business.
512
00:29:36.680 --> 00:29:40.839
It generates positive cash flow for us and generates a
513
00:29:40.960 --> 00:29:44.599
very fast cash collection process. Right the average duration of
514
00:29:44.720 --> 00:29:47.359
a cloud mining contract is somewhere in the sixty sixty
515
00:29:47.400 --> 00:29:49.920
to ninety day range for us, we get a portion
516
00:29:50.039 --> 00:29:53.839
of the contract price upfront and the rest most times
517
00:29:54.079 --> 00:29:56.039
is defer over the life of the contract. But with
518
00:29:56.160 --> 00:29:59.720
an average duration of sixty to ninety days, even with
519
00:29:59.839 --> 00:30:03.400
that that fee being deferred on a lot of the contracts,
520
00:30:03.599 --> 00:30:06.480
the cash collection of that contract, because the contract duration
521
00:30:06.599 --> 00:30:09.640
is so short, is still pretty quick, and so we
522
00:30:09.720 --> 00:30:11.640
can take that cash and read deploy that back into
523
00:30:11.640 --> 00:30:13.599
the business to either buy more or least tash rate,
524
00:30:14.359 --> 00:30:16.160
do some m and A, to acquire a data center,
525
00:30:16.559 --> 00:30:19.599
or buy more ACIK mining machines. And we've got you know,
526
00:30:19.640 --> 00:30:24.319
we've got ample supply to buy bitcoin mining machines. We've
527
00:30:24.359 --> 00:30:28.279
got a partnership with bitmain, the largest manufacturer of A
528
00:30:28.400 --> 00:30:31.319
six in the world, and we've got a two year agreement.
529
00:30:31.480 --> 00:30:33.920
We can buy up to eighty thousand A S series
530
00:30:34.000 --> 00:30:37.519
miners from them at very very attractive financing terms to us.
531
00:30:38.599 --> 00:30:40.559
So that's, you know, that's a good position to be in.
532
00:30:41.200 --> 00:30:44.480
We have We're not we're not constrained on available supply.
533
00:30:44.599 --> 00:30:48.279
Should be STU. We need those machines, and which is
534
00:30:48.559 --> 00:30:51.400
one of the reasons we also started selling machines we
535
00:30:51.519 --> 00:30:53.279
have a you know, buy a machine and host it
536
00:30:53.319 --> 00:30:56.799
with us program as well, So that's it's been introduced
537
00:30:56.799 --> 00:31:00.319
in the past six or eight months or so. Because
538
00:31:00.319 --> 00:31:02.920
we access to that supply, we're able to do that.
539
00:31:04.319 --> 00:31:07.799
But the main point is that the seventy eighty ninety
540
00:31:07.839 --> 00:31:10.759
percent of the business, that is the cloud mining business,
541
00:31:10.880 --> 00:31:14.640
that generates good revenues and good margins and good cash flow.
542
00:31:16.000 --> 00:31:17.920
You know, in my view, I think, is not being
543
00:31:18.000 --> 00:31:21.440
valued by the market at all. That's being valuing value purely.
544
00:31:21.319 --> 00:31:21.599
On what.
545
00:31:23.880 --> 00:31:24.079
Yep.
546
00:31:29.039 --> 00:31:33.319
So, so I'm right to assume that it's somewhat undervalued
547
00:31:33.480 --> 00:31:36.240
because some of the aspects of the business are not
548
00:31:36.319 --> 00:31:39.200
being taken into consideration just because of how the math
549
00:31:39.279 --> 00:31:42.599
works out, as you mentioned. But math is one thing,
550
00:31:42.680 --> 00:31:49.880
and investor perspective, appetite, narrative is another, and that reflects
551
00:31:50.519 --> 00:31:52.960
the marketing. I think a lot more education has has
552
00:31:53.039 --> 00:31:58.680
to be provided on that front. But I understand from
553
00:31:58.720 --> 00:32:03.160
you that it's really important from a valuation perspective to
554
00:32:03.400 --> 00:32:05.759
own the value chain when you're an operator in that
555
00:32:05.880 --> 00:32:10.079
space from energy to compute to and that is where
556
00:32:10.160 --> 00:32:13.680
the core value is. And as we're wrapping up, I
557
00:32:14.119 --> 00:32:17.119
just want to hear from you, the expert in the field.
558
00:32:17.359 --> 00:32:22.519
When to all the investors that may be listening or watching,
559
00:32:24.279 --> 00:32:31.119
what would you as an investor look at right and
560
00:32:31.359 --> 00:32:35.480
very brief, high level, what would you look at before
561
00:32:35.920 --> 00:32:41.400
investing in this space in this sector energy to compute
562
00:32:41.440 --> 00:32:44.559
infrastructure with the likes of bitfufu and the others that
563
00:32:44.640 --> 00:32:45.319
are on the market.
564
00:32:53.759 --> 00:32:55.759
Sorry, I me to myself, I'd say, you know, you
565
00:32:55.839 --> 00:32:57.759
want to look geographically where you're located. I mean, we're
566
00:32:57.759 --> 00:33:02.440
were for continents, we're in Ethiopia, home on, Brazil and
567
00:33:02.680 --> 00:33:06.240
uh and the United States, which is why you know
568
00:33:06.440 --> 00:33:08.880
that that network, of that fleet network that we have,
569
00:33:09.079 --> 00:33:11.920
it's not tied to any one geographic area. Which is
570
00:33:12.000 --> 00:33:14.759
why we can guarantee ninety five percent of time ninety
571
00:33:14.799 --> 00:33:17.359
five percent on the on the bitcoin mining cloud mining business,
572
00:33:17.920 --> 00:33:19.559
because even if we were to have a site go down,
573
00:33:19.640 --> 00:33:21.759
we could allocate some of our self owned hash rate
574
00:33:21.799 --> 00:33:23.599
into the cloud side. We slided over there. We have
575
00:33:23.680 --> 00:33:26.880
that good of move it back and forth. So you know,
576
00:33:26.960 --> 00:33:29.240
what's the stability of the company from a geographic standpoint
577
00:33:29.440 --> 00:33:33.240
where we're sites located. And then I think the other
578
00:33:33.319 --> 00:33:35.680
side is you know what's the what's the what's the
579
00:33:35.759 --> 00:33:39.279
cost basis uh electricity costs, you know, per kill one
580
00:33:39.319 --> 00:33:42.720
hour where all these sites are located, that can vary widely.
581
00:33:43.680 --> 00:33:45.440
So we've been lucky that we've had a very on
582
00:33:45.519 --> 00:33:49.720
our self owned UH self owned miners and our data
583
00:33:49.759 --> 00:33:53.920
center sights where we we actually do physically mine. You know,
584
00:33:54.000 --> 00:33:57.480
our cost basis has been ranged anywhere from you know,
585
00:33:57.599 --> 00:34:00.759
point forces to kill one hour to just just under
586
00:34:00.799 --> 00:34:02.680
five cents of kilo one hour, and we're obviously looking
587
00:34:02.759 --> 00:34:05.839
to bring that number down as well, and there are
588
00:34:06.000 --> 00:34:08.119
opportunities for us to do that as well. So there's
589
00:34:08.119 --> 00:34:10.039
some projects we're looking at that will help bring that down.
590
00:34:10.119 --> 00:34:12.519
But those are some key aspects. And then you know,
591
00:34:12.599 --> 00:34:14.559
long term strategy, what's what's the company want to do?
592
00:34:14.679 --> 00:34:18.840
How does it manage its it's its fleet, infrastructure fleet.
593
00:34:18.920 --> 00:34:21.119
You know, if you look at the average life of
594
00:34:21.119 --> 00:34:23.880
an acic minor is you know, today three to four
595
00:34:24.000 --> 00:34:29.320
years max. Before it becomes either unprofitable or or very
596
00:34:29.440 --> 00:34:32.800
low profit profit making, which means you have to go
597
00:34:32.840 --> 00:34:35.519
to the next generation of miners, which is one of
598
00:34:35.559 --> 00:34:39.320
the reasons that we've we've deployed, you know, an asset
599
00:34:39.360 --> 00:34:41.519
light strategy. Where we lease a majority of our miners
600
00:34:41.840 --> 00:34:44.159
still because when those miners come off a lease, we're
601
00:34:44.159 --> 00:34:45.599
able to we're not stuck with them. We don't have
602
00:34:45.639 --> 00:34:49.519
to we spend several hundred million dollars recapitalizing a fleet.
603
00:34:49.599 --> 00:34:52.360
We simply just the lease ends and we go release
604
00:34:53.000 --> 00:34:55.119
the next generation of machine. Which is why you've seen
605
00:34:55.159 --> 00:34:58.119
our efficiency rate improved from kind of the load of
606
00:34:58.199 --> 00:35:01.840
mid twenties jewels Peter hash down to just over seventeen
607
00:35:01.880 --> 00:35:04.599
Jules Patre ash today at the end of the first quarter.
608
00:35:04.679 --> 00:35:08.880
And and and you know, as we add more and
609
00:35:08.960 --> 00:35:11.840
more efficient machines into that network of particularly on sites
610
00:35:11.840 --> 00:35:14.920
that we own, you know that curve will likely continue
611
00:35:14.920 --> 00:35:16.559
to move move down. I mean some of the new
612
00:35:16.599 --> 00:35:21.039
machines coming out today are you know, subteen double low
613
00:35:21.119 --> 00:35:24.159
double digits, in some cases below ten jewels petear ash,
614
00:35:24.199 --> 00:35:28.320
which is pretty amazing. So that's that's key to look
615
00:35:28.320 --> 00:35:30.639
at what's the efficiency ratio of the fleet that the
616
00:35:30.679 --> 00:35:33.199
company's running, because that plays into the profitability of the
617
00:35:33.320 --> 00:35:35.079
of the company as well. And then I think it's
618
00:35:35.159 --> 00:35:39.119
just you know, where's how's it coming leveraged?
619
00:35:39.199 --> 00:35:39.320
Right?
620
00:35:39.320 --> 00:35:41.719
I Mean, we're fortunately we're in a net cash position,
621
00:35:41.960 --> 00:35:44.400
so we're not an over leveraged company. We're not having
622
00:35:44.440 --> 00:35:47.119
to sell bitcoin at the bottom of the market to
623
00:35:47.199 --> 00:35:51.000
pay debt. In fact, we've you know, we've been accumulating bitcoin.
624
00:35:51.159 --> 00:35:53.519
So you know, a lot of those factors just kind
625
00:35:53.519 --> 00:35:56.360
of a fundamental basic blocking and tackling from a financial
626
00:35:56.400 --> 00:35:59.079
standpoint of what the company is doing operationally house an
627
00:35:59.119 --> 00:36:02.360
up running operation land kind of what the strategy is
628
00:36:02.400 --> 00:36:04.440
going into the next couple of years, and you know,
629
00:36:04.639 --> 00:36:06.800
how how it manages it manages it fleet and what
630
00:36:06.880 --> 00:36:09.360
it wants to do with an infrastructure. You know, those
631
00:36:09.360 --> 00:36:11.599
are all key considerations I think folks you know, should
632
00:36:11.599 --> 00:36:13.320
be should be looking very carefully at.
633
00:36:19.000 --> 00:36:25.599
So to summarize what you said, geography and jurisdiction, that's
634
00:36:26.039 --> 00:36:30.440
one key aspect, power price, market strategy, how the company
635
00:36:30.519 --> 00:36:33.639
manages its fleet and investments, how it enters the market
636
00:36:33.719 --> 00:36:37.360
and exits the market right in terms of its fleet UH,
637
00:36:37.639 --> 00:36:42.599
and and and upgrades its equipment. So you know, geography,
638
00:36:42.880 --> 00:36:49.320
power price, and strategy and lastly efficiency uh in no
639
00:36:49.480 --> 00:36:53.199
specific order, but I think those are very important points
640
00:36:53.519 --> 00:36:57.559
and and and and key considerations for any investor. I
641
00:36:57.719 --> 00:37:01.119
thank you so much, Charlie for taking time and being
642
00:37:01.280 --> 00:37:05.320
very patient with with us as we try to get
643
00:37:05.440 --> 00:37:08.960
this podcast schedule and and this has been a great session,
644
00:37:09.079 --> 00:37:09.920
really insightful.
645
00:37:11.199 --> 00:37:12.960
I believe bitfoofol is doing great things.
646
00:37:14.599 --> 00:37:19.920
Your leadership and on the investment side is is really
647
00:37:21.239 --> 00:37:26.360
as is motivating but also inspiring to see that you know,
648
00:37:26.480 --> 00:37:30.559
there's still an attractive market or a market that's still
649
00:37:30.599 --> 00:37:33.800
attracted to bitcoin and and it's.
650
00:37:34.000 --> 00:37:36.800
And its essence and what it's been built for. You know,
651
00:37:37.119 --> 00:37:37.920
bitcoin has.
652
00:37:38.000 --> 00:37:43.440
Always been for me personally, a solution to a lot
653
00:37:43.519 --> 00:37:48.559
of challenges I faced within the legacy financial systems or
654
00:37:48.679 --> 00:37:53.039
banking systems, and it has literally helped me a lot
655
00:37:53.119 --> 00:37:57.039
in terms of maneuvering, in terms of expanding my knowledge,
656
00:37:57.159 --> 00:38:02.480
expanding my view of finance and my view of infrastructure.
657
00:38:02.840 --> 00:38:06.280
I learned energy because of bitcoin, right, So over the
658
00:38:06.400 --> 00:38:09.480
last ten years working in bitcoin and bitcoin mining, I
659
00:38:09.679 --> 00:38:13.159
learned the way the world works because of bitcoin. So
660
00:38:13.320 --> 00:38:16.599
the avenues that it takes you into and the verticals
661
00:38:16.679 --> 00:38:19.639
that you start to explore because of bitcoin is incredible.
662
00:38:20.079 --> 00:38:24.039
And it's refreshing to see companies like bitfoo, who people
663
00:38:24.239 --> 00:38:27.880
like yourself, professionals in the field that are still active
664
00:38:28.440 --> 00:38:32.000
and not necessarily changing narratives because of where the trends are.
665
00:38:33.000 --> 00:38:35.840
And you know, not saying that everyone pivoting into AI
666
00:38:36.039 --> 00:38:38.800
or just following trends and they're not practical, but I
667
00:38:39.119 --> 00:38:42.880
believe that that's how it starts. So thank you so
668
00:38:43.039 --> 00:38:45.880
much for joining Drilling into Crypto being on our podcast,
669
00:38:46.360 --> 00:38:48.559
and I look forward to more discussions with you.
670
00:38:51.000 --> 00:38:53.079
Well, thanks very much for having me. I enjoyed the conversation.
671
00:38:53.280 --> 00:38:55.440
And you know, I think we're kind of an under
672
00:38:55.440 --> 00:38:59.559
the radar screen stock, and so the more opportunities I
673
00:38:59.599 --> 00:39:00.920
get to get the word out there and tell the
674
00:39:01.000 --> 00:39:04.440
story and help people understand exactly what we do and
675
00:39:04.559 --> 00:39:07.199
how we do it. Always happy to do that and
676
00:39:07.559 --> 00:39:09.639
enjoyed the conversation. Thanks very much, Thanks very much.
677
00:39:10.119 --> 00:39:12.119
On that note, I'm sorry I always come up with
678
00:39:12.599 --> 00:39:15.320
a last minute question. On that note, how do you
679
00:39:15.440 --> 00:39:22.079
see the cloud mining platform benefiting the average investor? Right,
680
00:39:22.199 --> 00:39:25.159
not necessarily the institutional guys, but the retail clients that
681
00:39:25.320 --> 00:39:29.599
may be part of your user base. How do you
682
00:39:29.679 --> 00:39:37.039
see that offering benefiting wealth generation or investment portfolios of
683
00:39:37.440 --> 00:39:39.360
the average investors like myself.
684
00:39:42.559 --> 00:39:44.360
Yeah, I mean the great thing about cloud mining is
685
00:39:44.440 --> 00:39:48.960
it really anyone with practically zero experience and bitcoin bitcoin
686
00:39:49.039 --> 00:39:53.159
mining can be mining bitcoin and in a matter of minutes,
687
00:39:53.199 --> 00:39:55.719
it's a question of going on in the web website
688
00:39:55.800 --> 00:39:58.599
and download the contract and doing the KYC background and
689
00:39:58.679 --> 00:40:01.440
putting your own personal wallet to a pool and paying
690
00:40:01.480 --> 00:40:04.360
for the contract and uh and you're minding bitcoin. So
691
00:40:04.599 --> 00:40:09.559
really it doesn't require a lot of knowledge underneath, underneath
692
00:40:09.559 --> 00:40:11.920
the hood to understand how the how it all works,
693
00:40:11.920 --> 00:40:14.000
although we have obviously a lot of information on there
694
00:40:14.039 --> 00:40:15.920
for people that want to learn and and dig into it,
695
00:40:16.079 --> 00:40:19.519
but you don't have to necessarily. And so someone who's
696
00:40:19.960 --> 00:40:24.400
never mind bitcoin before, you know, all you really need
697
00:40:24.559 --> 00:40:26.280
is is the k y C and a wallet, a
698
00:40:26.320 --> 00:40:29.360
Bitcoin wallet, and uh and you can be mining bitcoin.
699
00:40:29.440 --> 00:40:32.000
And so it really does open it up for you know,
700
00:40:32.239 --> 00:40:35.840
a mass market audience that wants to mine bitcoin and
701
00:40:35.920 --> 00:40:38.719
wants to be involved in that process, you know, and
702
00:40:38.880 --> 00:40:43.719
and and acquire bitcoin and recognize them, you know, the
703
00:40:43.800 --> 00:40:46.119
longer term value of bitcoin, not just where it's trading
704
00:40:46.159 --> 00:40:49.159
today or tomorrow or next week. That kind of short
705
00:40:49.239 --> 00:40:52.079
term view is a you know, a trader's view, and
706
00:40:52.159 --> 00:40:54.159
that's not really the view we take. Where we're long
707
00:40:54.239 --> 00:40:57.719
term believers in Bitcoin, and you know we're using this
708
00:40:57.840 --> 00:41:01.440
downturn to uh TO to acquire more while we think
709
00:41:01.719 --> 00:41:05.920
the coins weak. So that's a beauty of cald cloud
710
00:41:06.000 --> 00:41:08.639
mining is that it's accessible to anybody.
711
00:41:11.440 --> 00:41:16.400
Well, thank you for supporting these sanctivization. Thank you, Charlie,
712
00:41:16.679 --> 00:41:17.599
appreciate your time.
713
00:41:24.360 --> 00:41:27.039
Thanks for drilling into crypto with us. If you enjoyed
714
00:41:27.079 --> 00:41:29.960
this discussion, give us a like on your podcast app
715
00:41:30.239 --> 00:41:32.960
or social media. Join us next time when we will
716
00:41:33.000 --> 00:41:37.039
deliver more perspectives on crypto, asset mining, energy markets, and
717
00:41:37.159 --> 00:41:38.679
the global financial revolution.