In this Digital Gold episode, Bitcoin mining expert Penny Ether shares his research-driven approach to analyzing financials, navigating the ‘ASIC hamster wheel,’ and leveraging financial instruments like convertible notes. He breaks down the competitive landscape and macroeconomic factors influencing mining profitability. Looking ahead, Penny offers data-driven predictions on Bitcoin’s price and hashrate by June 2025, providing key insights for investors and operators to stay ahead in the evolving mining industry.
Bitcoin mining is rapidly evolving, offering unprecedented opportunities for those who understand the industry's financial and technical nuances. In this episode of Digital Gold, we sit down with Penny Ether, a meticulous Bitcoin mining expert, trader, and financial analyst, to explore his journey and the strategies behind his success. From deep-diving into companies' financials to analyzing 10-Q reports, Penny explains how his research-driven approach has led to major investment wins in the competitive mining space.
He breaks down the challenges of the ‘ASIC hamster wheel,’ where miners must constantly upgrade hardware to stay profitable, and discusses the competitive landscape shaping the industry. Penny also shares his insights on financial instruments like convertible notes and how macroeconomic factors influence Bitcoin mining profitability. His ability to connect market trends with mining operations offers a unique perspective for both investors and operators looking to stay ahead.
Looking toward the future, Penny provides his predictions on Bitcoin’s price movement and network hashrate by June 2025, backed by data-driven analysis. Whether you're a seasoned miner or new to the space, this episode delivers valuable insights to sharpen your understanding and identify new opportunities in the ever-changing world of Bitcoin mining.
Welcome to the Digital Gold Mining Podcast, where innovation meets opportunity in the world of cryptocurrency mining. I'm your host, John Paul Behrig, entrepreneur, Bitcoin pioneer, and the CEO of Mining Store, where we specialize in modular data center solutions and driving financial access to Bitcoin mining worldwide.
Each week, we bring you expert insights, cutting edge strategies, and real world stories from the forefront of Bitcoin mining. Whether you're a seasoned pro, a curious investor, or someone looking to understand the power of digital gold. This is the podcast for you. Get ready to explore the evolving world of Bitcoin mining from energy innovation to the latest tech Market trends and how to build long term value in a decentralized economy Let's dive in and uncover what it takes to mine successfully in the age of digital gold Hello and welcome to another episode of digital gold which today we're talking to penny ETH He is a Bitcoin mining hobbyist a trader And a full time analyst in the Bitcoin mining space.
I'm excited to bring him on the podcast to get his understanding of the Bitcoin mining space. What he sees for 2025 and how the bull market has affected his predictions and the Bitcoin miners to date. Welcome to the show, Penny. Hi, happy to be here. So what made you look at the Bitcoin mining industry and how did you get here?
That's a pretty interesting question. I guess it started in maybe 2019, 2020, whenever that last run started, I think it was the end of 2020. I was on sabbatical and just full time looking at the market and I noticed that I had Bitcoin at the time. I still do. And I noticed Bitcoin miners were just like surging.
It was insane. There was Mara and Riot, and they would announce purchasing these things called ASICs, and their stock would jump up a ton. And I was curious, what's behind all that? How does Bitcoin mining actually work? At the time, I knew a decent amount about Bitcoin, but I never dug into the whole mining aspect, like the actual economics of how it works.
Hash rate, buying ASICs, the efficiency of those things, and low cost of power and all that. So I dug into it then, and it seemed like a massive bubble, and I didn't see how the business was, it wasn't, didn't seem like a growth business. It has a built in difficulty mechanic, and so, I was just on the sidelines then.
And then if we fast forward to this latest cycle that's happening, it's a lot more complicated, the companies have grown up, there's a lot more of them, it's a lot more interesting, there's a lot more liquidity, it seems like something to, that is worth digging into further, and I started going on Twitter about a year ago.
And I was only seeing everything bullish all the time. People didn't really understand the, quote, ASIC hamster wheel, the highly competitive aspect of it. So that's when I started becoming like vocal about it. And I wanted to see where I was wrong, because I did all this research on my own. There were some other people that would seem aware of it.
I think certainly everyone in the industry is aware of how competitive it is and how, like, network hash rate's always your enemy. And every time there's a newer generation of ASICs, your competitors are going to get them, hash rate's going to go up, so you kind of have to get them yourself. And that didn't seem very well understood.
So, I wanted to see what I was missing. So I went on to Twitter and I was pretty vocal about it and started digging in, looking at how companies like were presenting things and it seemed a little bit misleading and all the assumptions were hash rate wouldn't grow so high and look at our cost per Bitcoin is super low if you only count our energy costs and not if you count everything else.
Stock based comp was through the roof. There were just all sorts of things that were, none of them weren't, none of the things they say are not factual. They're all facts. They just omit a lot of context and it seems like a lot of the investing base. Is unaware of that or maybe they don't care. So that's a kind of a brief overview of how I got to where I am.
I guess just posting about stuff on Twitter and trying to see where I'm wrong and see why I'm right. And that's it. And I really appreciate that overview. Uh, one of the questions that came up was, what is the AIC Hester reel for maybe those who aren't in the industry and follow on. Do you think Asics will still appreciate as much as they have in previous cycles?
Or have the public markets learned, maybe not to FOMO buy like they did in 2020, increasing the price of machines rapidly. So the ASIC hamster wheel, first of all, it's not an official term. It's sort of the name of the game in mining. You take energy, so you have energy, you pay some amount for it, some dollars per kilowatt hour.
You use that energy to run machines, and they have a certain amount of efficiency in them. Where they can convert the electricity into hashes. And then, the Bitcoin network gives you a certain amount of Bitcoin for the number of hashes. That depends on network difficulty. So you have two little steps in between your energy to getting actual Bitcoin.
And those two steps are, you have a machine, you have an ASIC. which has some efficiency with a converts electricity to hashrate. And then you have the network difficulty that converts hashrate into Bitcoin. The way it's set up is, network difficulty, when there's more hashrate everywhere, network difficulty goes up.
So it ensures that there's an equal amount of Bitcoin created. So just because you personally grow your hashrate, if everyone else is doing it, you're gonna end up making the same amount of Bitcoin per unit time as you were before. It's the difficulty mechanic that's like sort of self adjusting. And in the long run, it drives profit margins down to Some equilibrium of course there's volatility in Bitcoin itself the value of Bitcoin it can jump up and there won't be a ton of new Hashrate added like instantly so you can make outsized returns in like those times, but in the long run It's a process that's like seeking in equilibrium where profit margins just get driven lower the ASIC hamster wheel that's the other part of that so you have these machines that convert electricity to hashrate and It's sort of, the efficiency there is based on, you could say, just the overall semiconductor industry.
So, Moore's Law and Cumi's Law, you're going to have more computation per unit time, it's going to be cheaper, you're going to have more computation per energy unit. That's just how it's been going for 20 years, and it's, sometimes it slows down a little, but then the next innovation comes through. So, what you have, that dynamic there is, every time there's newer models of these ASICs, that have higher efficiency.
So you get more hash rate out of the same amount of energy. And also it's cheaper, like per hash rate. Every time that happens, all the, everyone else buys those machines because they're sort of priced based on ROI. Like you can justify buying them. You can say, well, you know, I'll break even on it in two years or three years or whatever.
So everyone upgrades those machines. If you have the same amount of power, you now have more hash rate in that same amount of power. So network hash rate goes up and then. Your existing machines mine less bitcoin. So you either have to buy the newer machines or just watch your earnings decay as Difficulty goes up.
So that's a few of us have called it the ASIC hamster wheel. You can call it a treadmill You can also think of it as like a an arms race So the arms dealers are constantly coming out with better weapons and bigger more powerful weapons and they're cheaper And so if everyone else is gonna buy those things you have to buy them, too So there's a few ways to think about it, but that's kind of how it works.
That's how it's worked since forever. There are periods where like Bitcoin goes up and hashrate doesn't grow as fast, but the general trend is you're going to buy these machines and maybe they'll get two or three years out of them. Maybe in like year four, year five, Bitcoin has a rally and like the machines are making money again, but you'd probably be better off using your.
Power capacity, running newer machines and making more money. And when it comes to these outside return periods, from my perspective, this is a one year period, roughly every four years from what we've seen in the market. Do you agree with that perspective? Do you think Bitcoin mining companies should be allocating capital to machines every year, no matter what the price is, and just be dollar cost averaging into equipment?
Or do you think they should be strategic and try to time these cycles? How do you view the capital deployment strategy of miners, especially the public companies who have access to their ATM offerings to dilute their shareholder base? And if they buy machines at the top, like we saw last cycle. It can truly wreck their value and flip them so that they're underwater and unable to service their debt.
Yeah, there's a lot of facets to that question because it's not just about like having a business that makes the most money. There are some miners that, you know, everyone will say that's their end goal. They, they wanna have the create the most shareholder value. But in this industry, there very clearly is something to be said about short term decisions, which increase the value of your stock.
And then you capture that premium in your stock to ensure that like you're growing in size, like your market cap is going up. So there's a lot of things to consider. I mean, you could say it's like a long term game and you want to have as much capital as possible to weather through the bull markets and the bear markets.
So it's really complicated, but if I were running a mining business and my goal, let's say it was private, and my goal was to just Have a decent return of, I don't know, 10 or 20 percent of everything each year. Sure. You can, the whole cycle thing is another complication. Is it really that predictable? If everybody knows that Bitcoin is going to go on a rally every four years, it seems like the market wouldn't allow for such an inefficiency.
It seems like people would front run it and then they'd get out early if they saw what happened last cycle. So it seems like that should be something that smooths out over time. So. If I were a miner, I would probably look to buy, there's one more facet to this, which is the pricing of the ASICs. You have the older generation ones, which might be super cheap, but they're not as efficient.
But you can see a huge ROI on them if you think there's a bull run or if your cost of electricity is low. So each sort of model of ASIC has different return dynamics. Based on what you're looking to maximize and what your costs are. The public companies tend to just buy the newest one, so they have the most amount of hashrate.
And they can point to growing revenues and growing month over month or year over year hashrate and growing everything and sort of sweeping what the overall costs of that were. Or whether or not those were good investments or not. That's where it doesn't matter to the shareholder base, they just want to see growth and growth and growth.
They want to say, Oh, they're going to grow 10 percent every few months. And Bitcoin's going to go up exponentially and dah, dah, dah. And you do the math and you find you like, Oh, they're going to make unlimited money. So a lot of the public companies sort of play to that misunderstanding, or they play to those aspirations or kind of selling lottery tickets, I guess.
It's a really complicated question. I don't think I answered it well. It depends what your goals as a company are. If you want to raise capital and you want to grow, it seems what's been rewarded is just growing your hash rate no matter what. And then you can justify that by saying, Oh, it's a good cost, or, Oh, we think Bitcoin is going to go up, or if you project out current conditions to four years, we make a lot of money, nevermind what network hash rate is going to do.
So depends on your goals and what you're actually trying to do. And I think you formatted that really well because incentives drive everything. And I want to talk more about stock based comp and GNA of public mining companies versus private mining and the excess that it doesn't have. Versus public, because to your point, there are multitude of public players.
Some of them are, Hey, we grow small, we're strategic. We only deploy capital when it makes sense. We won't go above this energy rate when it comes to our hosting. We won't go above this cost per megawatt app to deploy a megawatt. And I've seen that with many conversations of effect during my time in the mining space.
Depending on which player or which group you're talking to. So my question to you is how do you navigate the mixed or misaligned incentives of stock based comp to potentially just increase stock price, which might be tied just to Bitcoin's price versus underlying profitability. And then inversely increasing the.
Bitcoin per shareholder or per share, which has been this new comment based on micro strategy and this Bitcoin yield idea, how do you view those dynamics? And how can you really view these public companies performing? How do you put them on a level playing field to know which one is the best allocator of capital?
Over the longer period versus just a short term hype, three months scale by a megawatt at whatever cost, can you talk more about how you think of that when you're evaluating public companies in the space? Yeah, sure. I think if you look at some of the parts that gives you some idea, it has become increasingly difficult to compare one minor to another minor because there's probably at least three aspects.
There's this hodl thing that Bitcoin yield, but somehow when a public company owns Bitcoin, it's worth more than one Bitcoin, which I can speak to later. I'm not necessarily super skeptical on that. I don't think that's going to last forever. I think eventually one Bitcoin will be worth one Bitcoin on your, a Bitcoin on your balance sheet is going to be worth one Bitcoin on a per share basis.
Dividing by the number of shares or whatever. So there's HODL. There's just pure play mining. So like you have mining operations. You throw on some fleet to that. And there's some operational and strategic decisions around there. Like how good the company is. When they place orders and what their prices they're locking in.
Are they locking in options for a really long time? Or are they gonna buy them as time goes along at the market price for the ASICs? And there's like, what's the quality of their capacity of their megawatts? Are they paying cheap costs? There's the cost structure of the whole business. On the PurePlay side, I think the cost per kilowatt hour, like everything.
So, cost per kilowatt hour of energies, one component. Cost per kilowatt hour of all the overhead of their staff, and however they run, if they have a bunch of small sites or a few mega sites, all that will show up in the all in cost per and you do it on a kilowatt hour basis. That's like the bones of PurePlay mining business right there.
Then on top of that, you put on the fleet, and you can always get a new fleet and improve your cost per hash rate. So you need the solid bones there. So then you look at what fleet do they have now, and how much money is it going to cost them to upgrade it, and is their timing going to be good or not, which, it is cyclical, but I don't know if I would count on that.
So two aspects so far is the HODL and the pure plain mining, and the third one, which has been like since June, since the core scientific core weave deal, is this whole HPC thing. And that's really interesting because it imputes a higher value on the megawatts. Which I think is very telling of mining itself, but you can get way more money in a way in like a less volatile fashion for a longer duration, hopefully, by just selling your access to energy.
I'm sure you've heard about this whole AI thing, and there's not enough data centers, there's not enough electricity, there's a huge lag time in getting the infrastructure and then getting the transformers and everything else you need to like actually energize a data center. That's beyond even the delays to get permission for the power and the interconnect and all that stuff.
So, having megawatts that can be used for a purpose other than mining is like at a high premium right now. We've only seen a couple deals, but you see the big guys buying their own nuclear plants like for five to ten years in the future from now and all these huge expansions. So, the HPC aspect is these miners went around and infrastructure that has connections to energy.
Usually low cost energy because they need low cost to mine Bitcoin like for a long term to be competitive against everyone else that's mining. But now that energy might have a better, more lucrative use, which is just to upgrade your site to be able to host high end GPUs or whatever future high performance computing is.
And lease that out to someone who's making huge margins on it, then they'll be willing to pay you more on a per kilowatt hour basis or whatever, then what you're likely going to make mining. Especially if you consider that when you're mining, you always have to buy the new ASICs every couple, two to three, four years.
If you just lease out that HPC space, there's no CapEx for you other than like the initial upgrade. So, those are three aspects already. There's HODL, there's pure play mining, and there's HPC. So, it's hard to take a single company and compare it to another if they have, those three different things are different for all of them.
If they have a, no HODL, but they're pure play and they have no HPC. Or, they have a big HODL, and they mainly do mining, but they say they don't want to do HPC, but maybe they actually could get an HPC deal. It just gets really complicated comparing miners apples to apples in that sense. I don't even remember your original question at this point.
No, that was a good explanation of how to view and analyze each one of the miners. So I appreciate that. Let's talk about the cost per kilowatt hour on an overhead basis and how transparent are miners when they're breaking down. Here's our cost per kilowatt of energy. Most people mentioned that. But when it comes to here's our cost per kilowatt hour after SG& A and after stock comp.
Stock comp is hard because it's not a dollar. It's not a notional value. The way it works, I think, is they receive grants and dilution hits the share count immediately. But then every quarter, it's like however much is vested. The dollar amount that those shares were worth at the time of the grant is what is recorded as stock based compensation.
So if you do a big grant and your share price is high, and then like a year later, the stock based comp will look high. Because it's based on the share price when it was granted, and it works the other way around too. So you could have a company that looks like it's a low stock based comp, but actually if you look at the number of shares, it's a huge amount of money.
If the price stays flat, that becomes easy. That would be great. So stock based comp, it's a non cash cost. So you can include it if you want like a big holistic view. That type of analysis gets much more difficult because then you're also going to include amortization and depreciation of like all these other things.
I find that kind of, it's a big burden to do it that way. So I like to just look at cash flow versus enterprise value. So your whole, everything you pay for and all that stuff, it's a little black box and it has an enterprise value. That's what people are paying for it. And then I say, what's the output of that little black box?
You know, how much cash coming is gonna come out of it or is coming out of it? And I look at that. So that's just personally what I like to do. Forgot your question again. That's fine. The question is really stock based comp, which you talked about on a per KT hour basis, but let's talk about SG overhead.
Yeah, the overhead cost. Sure. So what companies in the 10 Q, you see all their costs. You can see which ones are cash. Generally, if you just look in adjusted ebitda, those are the cash costs. You can also look at the cash flow, which will sort of break out everything. The cash flow statement will net out everything.
I mean, it's a pain in the ass to do that, but you can see what their cash costs are. And usually you can bucket the cash costs to like, okay, this was cost of revenue. And the companies are always straightforward about their costs of energy, more or less. Some of them consider there's a lot of aspects to the cost of energy.
There can just be direct cost of energy. But then there's also transmission fees or maintenance or like other things you would consider. You probably are always going to have to pay for these things to continue getting electricity. So even though the utility company didn't charge you for them, does that count as your cost of electricity or not?
And every company is a little bit different in what they put in cost of revenue and what they break out. Or if they break out, here's the direct cost and here's some indirect cost. So those things are all over the map. In terms of SG& A, you see how much they pay in cash. You see how much they pay for other fees, like professional fees or advisor fees or whatever.
You can choose to take things out that are like one offs. Usually they'll take them out of In terms of the denominator, which is like, how many kilowatt hours did they use? There's not many companies that disclose their kilowatt hours. So I think CleanSpark and Wolf and maybe BitFarms. But you can estimate the kilowatt hours.
Because you know how many Bitcoin they mined for some period and you know what their efficiency of their fleet is. So you can crunch the numbers there and estimate kilowatt hours. And so you could say, based on the number of kilowatt hours it should have taken you to mine this amount of Bitcoin, these were your costs and so here's your sort of total all in per kilowatt hour cost.
So that's the way I look at it. the direct some of those things will ideally some of those things won't scale more than linearly to like the number of megawatts. So like you have a direct cap power costs. If you got, if you start using more megawatts, hopefully you're not going to pay more per kilowatt hour.
That's just stay flat and hopefully your SG and a, as you expand your SG and a on a per kilowatt hour basis, hopefully that doesn't just grow linearly. Hopefully that stays flat or starts going down cause you should see some. Economy of scale with these overhead costs, right? If you're always paying a fixed amount in overhead, but you're growing your megawatts that your cost per kilowatt hour on that and should be going down, like it shouldn't be going up at worst.
It should stay flat. So that's what I look into for about eight of the companies. And it's not easy, but it's not impossible. Ready to earn Bitcoin at a 60 percent discount with BitVault, you can get access to the most efficient Bitcoin mining machines for as little as a hundred dollars, no technical expertise needed.
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Invest now at tothemoon. cash. Your journey to the future of money begins here. And do you use AI at all to help you with that? So no AI yet. Just because I've gotten the process down, something that works for myself and it's not too difficult. So learning another whole other thing, I'd have to, it would just take some overhead time and I'm not sure it would be more accurate, but I have a lot of spreadsheets as I've learned how to look at the companies and like what they have in common and what they don't, it's sort of become easier where I've had like a nice workflow.
So like when a 10 Q comes out, I already have the sheet ready. I know which things I have to fill in and then it's going to tell me all the per whatever cost. The other end of that is the monthly operations report every single month for all the companies. So I have this spreadsheet for them. That records all the things that they disclose.
And it does some calculations on things, and when you combine the two things, you can start to get costs on unit bases that make sense, like per hash rate, or per kilowatt hour, or just per bitcoin, whatever you want. And sort of each company has its own, I have their own spreadsheet how to interpret their 10Q.
Because they all have certain, they sort of bucket costs in slightly different ways. I don't think it's something an AI could help with yet. Because it's just, you have to read all the details and know what things are. I don't think AI can do it yet, like, AI could take the 10Q and put it into a big table and give me all the line items and put it in a spreadsheet.
But it's not going to be able to, like, pick out the parts of the 10Q that are applicable to, like, different buckets of cost and things that are cash versus non cash. That's my process as it stands now, is a lot of spreadsheets look and the data sources are the company's monthly ops, the company's 10Qs.
And also the blockchain itself. So you can look at the blockchain. You could say for this month in theory, how many Bitcoin should one exahash per second have gotten? So that's what I use to determine the company's hash rate. I don't care what they tell me their hash rate is. I just look at their number of Bitcoin they mined, and then I back out how many exahash it should have taken for that month to get that many Bitcoin.
That's their hash rate. In my opinion, that's what I'm judging them off of. I love the breakdown of the tools and think you need the data and which is all public to your point. It's there. It's just kind of obfuscated. It's not an easy format in order to be a informed investor and to understand if you're buying value or if you're buying hype.
Do you ever see yourself open sourcing your data or putting it behind a paywall for paying subscribers? So I do consultant work. If people want like all the data I get in my analysis or commentary, like. on whatever they want. I'll do that. I'll take money and I'll do that. In terms of like open sourcing things, I share things from time to time but I've become more protective of it because I'm realizing as this market gets bigger and there's more liquidity and like the ability to sort of know what the future adjusted EBITDAs are going to be or what companies are actually really, if you strip away all the hype and strip away everything and you look under the hood which companies are actually better than others.
I think that's going to be increasingly valuable if the market becomes efficient. For now, making a, a quote, informed investment decision is just as much about, like, being able to pick up on sentiment and what narratives are going to move the market as it is knowing fundamentals. So, I wouldn't say, like, knowing fundamentals is, like, guaranteed money.
I don't think that's the case right now. I think the dominant flows of these stocks are, I, I don't mean it negatively, but mid curve. So, you want to skate to where the puck is going. What are the mid curve? What are they going to go after? What are they going to buy? What hooks are they going to latch on to?
As opposed to just strictly, these don't trade strictly on like EV to EBITDA, like some fixed ratio. And if you know the EBITDA, you can know the share price. Like, that doesn't happen. And compounding that is sort of the actual sell side analysts, like the street analysts that give price targets and that everyone listens to, I guess.
I don't think they go as in depth as I do. They do in certain aspects, but I'm not sure they're like as keen to the whole, quote, ASIC hamster wheel. And I'm not sure their incentives align with pitching that sort of story. A lot of them are. Their banking side are clients of the big companies. They, like, issue the shares, they sell the ATMs, they do the convertible note deals.
There's not much incentive to give, like, a full picture on that end. It's very complicated. I'm sorry to keep making things more and more complicated with each question you ask, but I was thinking of doing, like, a website or putting stuff behind a paywall and, like, having at least monthly updates and commentary on whatever new things come out.
I'm just not sure the demand there might be better just doing one off consulting things. I mean, another option is to like go work somewhere full time and do this. And I guess that was one of my questions. My next question for you is financial incentives for yourself. Are you buying just a stock outright when you're entering a position?
Are you buying options, long dated or short dated? Are you buying physical miners themselves? Do you have your own machines? that you're hosting with someone or your own facility. Can you jump into how you allocate the capital? Are you managing capital for others? If you're willing to talk about that? Oh, I don't manage capital for anyone, but myself.
I provide my opinions and my feedback and my data at a modest price, I guess. So in terms of mining, I don't do any mining. I didn't buy any ASICs or pay to host them. That was a thought of mine a while ago. When a public company buys an ASIC and puts it online there. It imputes like a huge premium on the value of that.
Like suddenly they buy something for 10 and suddenly it's worth 30 based on their share price, just because they plug it in. And they plug it in and they run it at a cost that is sometimes higher than if you just bought it yourself and hosted it. So at one point I'm like, maybe there's an arbitrage there where I go long on my own hash rate that I host and I go short on the mining stock.
Because over time I should outperform them because my costs are actually lower than theirs and I'm not paying a premium like a 3x or 4x or 5x premium on like my own quote shares. So, that was a thought I had, but I thought better of it because that premium for public companies can last forever. Until someone has the same, like, epiphany as me, or the, until the whole market understands it, that premium's not gonna go away.
So, I thought better of that and I didn't do that. In terms of my, like, actual positioning, I like Core Scientific a lot because they're using their megawatts for something that's gonna make more money, and hopefully they continue to grow that side. And their actual mining business is among the, in terms of their costs, it's pretty much the lowest in the industry.
If not like tied, there's a few that are neck and neck with each other. So if they upgrade their fleet, that it's going to look even better if they don't. And they use those megawatts for HBC, then great. They're going to make more money there. A lot of that's baked into the share price already, but I don't think it's fully appreciated.
And I usually generally just go with straight shares. I do someplace like I'll do call spreads where I'm like, okay, I think that by March, this company is going to have an HBC deal or just overall, they're going to appreciate a lot. And so I'm willing to. Place a bet that's gonna pay five to one. I view it sort of as a binary outcome that it happens or it doesn't, and so that's the way I express it is with a call spread.
I'll go straight shares with a few things. Sometimes I'll do like pair plays where I think, well, these two companies are essentially identical or except one is just cheaper than the other. So I'll go long the cheap one and short the expensive one. That's harder and harder to do because there's so many different we discussed this before there's like it's not just pure play versus pure play Generally, another thing is if I see a company like Mara, you can sort of synthesize a Mara You can create it in the aggregate like from money ball.
They have a huddle they have a Mining operations and they have some sort of cash flow You can generate that by buying like say I want equal exposure to the whole FOMO and huddle craze By buying some amount of micro strategy. I want to sort of Replicate their cashflow and future BT like Bitcoin production per share or however, with a good pure play, which might be like iron is looking really good lately because they have really good efficiency.
And then, you know, I just want straight Bitcoin because they, I'm not going to put all my eggs in the basket of micro strategy. I sort of just want straight Bitcoin exposure. So I'll buy some Bitcoin. And if you sort of like line those things up. You can get exposure to, to metrics, the same metrics that, in a cheaper way than buying Mara shares.
And so there might be some ARB there. That's like a longer term ride, and so you have to rebalance it and everything, so. That's sort of more work, but I like the intellectual aspect to it, so I kinda play with that a little. None of my minor positions are like, huge. I'm not like, only invested in minors, it's probably.
Yeah, I don't know. 10 or ignoring core scientific. It's probably like 10 or 15 percent or something. It's not very big. No, not 100 percent miners. You have a bigger portfolio to your point that you're managing. Do you tweet about the other portfolio or like the other positions you're taking in the market?
Or is your account usually fully focused on the mining side in Bitcoin? I try to keep it focused on the mining side. I actually try not to post too much because I don't want to like dilute the value of each tweet because a lot of the tweets are like super in depth and really long. And if so, if I do those, but I also do these little, maybe like shit posts or like, Oh, look at this talk or look at this.
Or then I feel like it's kind of makes it more work for my readers. On occasion, I do tweet about other stocks, I think just not very often. And the other stocks I don't look into nearly as deeply as I do for minors. So. I don't have as much high conviction. Like, I wouldn't say, trust me, I'm the expert on, I don't know, midstream natural gas.
I just think, like, AI, it's gonna need natural gas, so I'll buy midstream. Like, I'm totally mid curving it on, on most of my portfolio, to be honest. I don't go nearly as in depth. But for miners, it's just been a fascinating thing to look at. Because if you know the inputs, you can know the outputs. It's just like, you take power.
You put an ASIC, and then you get some cash flow on top. And it depends where Bitcoin goes or where network hashrate goes. It's like purely deterministic. So, it's been fascinating to like dig into that. And on top of that, it's the whole market aspect of how misunderstood they are and sort of all the narrative things and so it's sort of just like a really fun game, I guess.
And I mean, talking about the tweets, they are so valuable and so dense, which makes you as a content creator, I think, unique that you're not just out there trying to get clicks and you're focused on the value you can bring. And one of those. Uh, tweets I was reading, Penny, was about the grid, I think, debt that they had, and the ability to buy that convert, and they got bought by another miner.
Can you talk a little bit more about that analysis? How that trade, it seemed like it was way overvalued. People were still Oh, oh, the clean spark warrants. The CleanSpark warrants. Yeah, exactly. CleanSpark grid warrants. Yeah. I have it on a spreadsheet somewhere. So I, okay. I don't know if the numbers are up to date.
But that was like an interesting like mechanical thing. Like sometimes there's weird structures of financial instruments that people misunderstand or they don't dig into. So I think what's happening there, I don't know what CleanSpark warrants are at now, but what happened was CleanSpark bought grid and grid had these outstanding warrants.
That the strike price was like way outside, way out the money, but they couldn't, when CleanSpark bought them, they still had to make whole those warrants, so they issued CleanSpark warrants, and the terms of them are just like crazy, it's like, you need 14. 37 warrants, and that gives you the right to. To buy one share of CleanSpark for like 165.
It's just like preposterous, right? Sure, you can buy 14 of these warrants and then if CleanSpark gets to 165, your warrant is now break even or whatever it is, right? It's like, these are just ludicrously out of the money calls. I think people just saw, oh, CleanSpark warrants, oh, warrants are sort of leveraged to the underlying, so I'm going to buy a bunch of warrants for CleanSpark because I like CleanSpark and warrants mean I can make more money.
So I don't know if they were aware that it takes 14 of them to equal one CleanSpark share or if they were aware that the strike price is so high or whatever it is. But for whatever reason, they were dramatically overpriced and You could buy one share of CleanSpark and have a full share for cheaper than buying 14 warrants, which would only get you a share of CleanSpark if the price went above 165.
It's at, what now, like 11 or 12 now. So, it's like, I don't know how that happens. So, obviously you can buy a share and then short 14 of the warrants, and like, if you play it out for many years You'll make money, but there's risks there of the warrant can blow up in price for no reason at all. And your short gets margin called or whatever, or there's also borrow costs there, but I just found it was an interesting situation.
There's no rash, there's zero rational explanation for it other than I'm going to buy the warrants. Cause I think there's other people that don't understand what's going on and they're going to buy them from me later for higher price, but like on a technical fundamental value basis, it's totally irrational to pay.
More for options that are really far out of the money than to just buy a share. So that was what about it's not really like advice or anything. It's just an interesting situation Which I guess to your previous question I do cover other things which are sort of interesting market things as I'm learning how to like do this type of analysis Certain things come up Which I mostly post just to get other opinions to see if I'm wrong or to point it out and just as a curiosity to people.
And to your point, the markets can be irrational longer than you can stay a liquid when it comes to some of these trades on shorting them. Absolutely. Shorting is really hard. Shorting something that has sentiment behind it is That's how I made a lot of money initially in 2021. I was in on the GameStop thing pretty early and like totally mid curving it.
I didn't care that they were not an excellent business. I liked the setup of the huge short interest and I could see the interest in, see the buying pressure building up every single day and the hype that was going on and all that matters to a stock price is the amount of people buying versus selling and those mechanics.
So, that was a very interesting time and that sort of taught me a lesson like not to get caught on the other side of that. Despite how bearish I am about like pure play mining sometimes. And I'm not bearish about it as a business. I'm bearish about the valuations put on top of the businesses, despite how bearish I am, it's, I'll never just go like.
Hugely short, because I know not everyone's going to have the same opinion as me. And what really matters is like the money weighted opinion. I agree with you on that. The market can be definitely irrational more than you can stay afloat. As we mentioned with this grid and clean spark play, this is some pretty insane, very in the weeds financial.
Kind of engineering and opening up the 10 queues. I mean, most people, Penny, they aren't doing this. They're seeing the stock ticker on Robin hood. They're clicking buy because the price is up 5 percent today. And then they're clicking sell because the price is down 10 percent tomorrow. What keeps you going in this business trading these stocks?
Why do you do it? Why do you love it so much? Because You bring a unique aspect to this industry and you bring a unique position and I really appreciate how you are here to dig into the fundamentals and you also understand that the sediment matters and that the market can be irrational. But what keeps you up at night and then what keeps you doing it in a good way?
I think I'm just a really curious person and there's limitless amount of things to dig into when it comes to finance. Like any aspect of finance you can dig into. So I'm always learning new things. Like, I have some question I want answered, and I just try to find the answer. So for miners, it was like, how should they be valued?
How do you like put together all these different aspects of network hash rate goes up, but ASIC quality, ASIC efficiency goes up, and the price of ASICs might go down. So what does that mean? Do they balance each other out? Or is one factor going to be more dominant? When I hear things that seem too good to be true, I want to know what the catch is there.
Like, recently it's been like convertible notes and microstrategy, so now I'm pretty well versed in convertible notes. I know all the terms and I've been digging into like how they're priced. I've actually Try to create like my own pricing model and it like you start to get into like things like barrier options Which I've learned about and it's just like every nook and cranny you go into is just for me.
It's really fun It's just fun doing that stuff and you don't really get spoon fed this anywhere else on Twitter I'm happy to share my findings because I want to be corrected if I'm wrong or what I'm misunderstanding. But also it's sort of like a journal of like, my findings to some extent. But I'd just say that there's an intellectual curiosity that I have innately and it seems to meld really well with Bitcoin miners, because Bitcoin, I think, is a fascinating invention.
I think the equity side and digging into 10Qs is really interesting. So like, I'm not a CPA, but like, now I'm pretty decently versed in accounting. I'm sure there's things I miss. I have a pretty good mental model of all the things, and I'm not scared of 10Qs at all. We'll get other companies 10Qs and see what's going on.
So, it's nice to have the, like a feeling of accomplishment, of like, climbing up the ladder of like knowledge, of financial knowledge, and How, like, financial engineering and, like, quantitative analysis, and, like, every little aspect. Every time I get a new piece of knowledge, like, that's its own reward for me.
And there also are opportunities to make money when certain minors seem definitely mispriced relative to others. Save for some sentiment or some factor or some aspect that I'm comfortable placing a bet on. So, like, Iron looked underpriced relative to everything for a while because they were just gonna have an amazing fleet, and it was gonna grow really quickly, so.
It's kind of easy to go long iron and short something else that has exposure to hash rate as plainly as possible or just go flat out long iron and hope that Bitcoin goes up and hope that all sure I'm going to bet that the market might be a little irrational in how it's applying a premium to hash rate.
I'm just going to bet that will stay equally irrational for the next few months or something like I'm willing to take that risk sometimes. So, sometimes there's money to be had, and like, if I wasn't following these so closely, then, like, in June, when Core Scientific had their HPC deal, like, I crunched all the numbers and saw how much better it is than mining immediately within a few hours, and the next day, even though the stock was up, I don't remember, 20 or 40 percent, I just bought a shit ton of it, I went crazy, because I'm like, this is so much better, it's so much more valuable than mining.
And they have this like dark horse aspect of emerging from bankruptcy. Everything was against them, it didn't look great, it looked too good to be true. So that's where I made a lot of money this year. It's just being ready for when new information comes out, I'm now like more capable of ingesting it in a way that like I can determine what I think the value is of it.
So, that's how it's beneficial to myself, just the pursuit of knowledge and learning new things and like adding things to my tool belt. So like the past few months I'm like Now I'm fully up to speed on like Monte Carlo analysis and Now I know how barrier options are priced. Now I know how, what Asian options are.
I know convertible note, the key terms and what they mean, and capped calls or fully understand all that. So it's just every month or two. It's like I gain a new, like, set of knowledge. So it's been fun. And that's really the journey of, and where you can get paid to learn, like, what you're doing here. It's the best of both worlds.
You mentioned the core trade, which Adam Sullivan there as a CEO has done a great job. Building that company out of bankruptcy, as you mentioned, deploying into HBC AI, reinventing themselves as one of the larger AI posting providers. What was the best trade for you this year that you're willing to share?
And then number two is, did you trade the Wednesday, December 18th, FOMC crash we just had from 108, 000 down to 92, 000 this morning when we're recording this on December 20th? And how do you view those larger macro events affecting all the analysis and the fundamentals that you're doing? Do you trade those?
How do you put them into your calculation? I've been sort of putting macro on the back burner because like analyzing the miners and keeping track of this industry takes so much time already that I'm willing to just be like, well, the price is the price. I'm assuming that like things at that level.
There's some market efficiency there. I'm okay having exposure to it and being a little bit ignorant in terms of FOMC meeting the quote crash or whatever course went down a lot and I bought more today. It's like at around 14 or something, which is where it was before their earnings where they said, Oh, by the way, we have another a hundred megawatts of HPC available and we have 300 megawatts in that we can expand to.
It was just, they rallied off of that announcement. I don't think anything has changed. I don't think that. The future expectations of rate cuts being less or paused is gonna affect the AI demands that, like, makes its way to Cora's bottom line. I don't think it affects it to the extent that it's, like, now, like, 10 or whatever, 15 percent worse than it was before.
Like, I don't think if you play it out for 12 or 15 years, I still think the demand for infrastructure and electrical capacity and, like, Data centers that can host HBC. I think that's still a pretty good picture, but it looks like a sale to me. There was interestingly enough, there was a while where I was doing trades on ZQ on the fed funds futures.
That was like another thing I dug into. And there were some ARBs there that were just totally risk free. It was amazing to see them. I think last year in March, when was the community banking crisis? When did that whole thing go down? I think it was last year in March, but yeah, around there. Something got dislocated with ZQ Futures where you can price these out, like you can know exactly what they're going to settle at because they're based on the effective fed funds rate.
You can know exactly what they'll settle at for you put in whatever you think the increase or decrease is, like 25 whatever. And so if you look at like the month ahead versus two months ahead, you're like, well, if the month ahead went up by this, the two months ahead should move by this. Even if there's a FOMC meeting in between, there's ways to structure it where like you win no matter what.
So I think during March, the market makers or something like blew up. Clearly there was some weird shit going on, but it wasn't enough for me to see it by eye and dig into it and like put on a really good trade and that works out. It hasn't really resurfaced again. I guess I just got really lucky. I only mentioned that cause it was, it's like another little facet that I dug into at one point.
And it's a very interesting contract structure and there's like a few ways to play it sometimes. In terms of macro affecting and as you mentioned, this risk free trades like core scientific, the thesis is their AI play. So the Bitcoin drop to them is shouldn't be as much to appear play minor and to your point, that's why you're.
Backing up the dump truck and then buying more core shares. Yeah, and I'm sort of like playing volatility, I guess, like what you might do if you were long calls. So as it goes up, I'll sell some, and as it goes down, I'll buy some. But I still maintain a core position. This is, you know, in the interim. It's not like I'm like doubling or tripling down on it because it went lower.
I'm just adding some more, and then I'll take it off when it goes back up to, I don't know, 15, And I'll be back with like my core position. Let's talk about taking off a position. It's definitely not risk free though. The risk free is like the Fed funds rate was like, there was zero risk. It was actually really interesting.
Even if there was an emergency rate hike or rate cut, there's zero risk there. It's just all about what they're going to settle at and how one month was priced different, like wasn't priced correctly versus some other month and the month after. Based on the date of the next FOMC meeting, it was pretty crazy.
Oh, I mean, it sounds like that's the best trade. I was saying, like, let's talk about exiting a position. You're entering these core positions. When is it, do you have indicators you use? Are you looking at EV multiples to cash flow? When you're saying, okay, this miner is a little frothy. It's time to step out of my position or to hedge it.
So for core, I have like some price targets that I like and I manage. So I have some calls. I have some. Warrants, which themselves have a delta and I have shares and I just look at my delta exposure and when I think it's a better buy, I'll go a little heavier on leverage, so I might go more heavy on warrants or calls.
I think it's just slightly more efficient use of capital. I'd probably be doing just this, like, just as well if I just went with flat shares in a bigger magnitude. I look at my delta exposure there. For the other miners, I look at how they move relative to each other and Sometimes it's just sentiment based, where I think one will rally, one might not.
I've been trying to trade a lot less, so I'm fine with the volatility, and I'll just hold through it, generally. Sometimes I'll add a little bit when it goes down, and definitely trim when it goes up. Like Bitdeer was one of the ones where back in September, they were getting slammed. And it's like, well, they're actually producing ASICs, which is almost equivalent to having a super low cost of power.
Like, the CapEx of ASICs is either the number one or number two cost of miners. It's very close to the cost of electricity that you pay once you buy them if you consider how you have to always buy new ASICs. So if they're able to get those at cost instead of paying some premium or some margin to the manufacturer, that is a massive competitive advantage.
And they also had a really big power pipeline, and maybe they'll get HPC from that, maybe not. It's sort of like a free option. So I bought a bunch of them in September, and I was like, on a cash flow basis, they're probably overpriced. But like, again, I'm willing to bet that the premiums on all the mining companies won't evaporate overnight.
It won't evaporate by the time it plays out. So, there is some risk there, but I saw a lot of potential there. Now, to be honest, I don't know what's going on. Like, I don't know who's bidding up their stock where it's like up 20 percent in consecutive days and all this stuff. I don't know if it's someone that's extremely bullish on their ASICs, on their ASIC production.
And like, they understand what it means, if the market understands that. Or, if it's their power pipeline, or it's the, I think they had some convertibles with, was it Tether maybe? I don't remember. They got some, some partnerships or something. I don't actually follow them as closely as all the other ones.
So, I've been trimming that, like, it's been rallying and I trim it. And I sort of maintain like the same position size, but I'm taking profits off the top. And if it drops down 20 or 30%, I'll probably buy a little bit more. So, I'm not super strategic. I could probably do much better on trading. If I were, like, more disciplined, and if I traded less, I could probably do well.
I wouldn't take my own advice, I guess. If you're listening to this Don't do what I do. And when you're gaining insight, most of your insight coming from this 10Q and the sentiments in Twitter, or do you also gain insight from meeting the people behind these companies, understanding the operators, listening to the CEO on a podcast?
How do you, I guess, weight those two types of data feeds? Yeah, I listen to most of the earnings calls. Presentations are probably one of the most underrated forms of getting information on companies. I guess this is something that like Professional investors would do anyway. I don't know if retail actually looks at the presentations.
That would probably be the best middle ground. But the thing with presentations is there's the footnotes are where the real information is. They'll present the absolute, the best view of themselves and leave some of the context out into the footnotes. They never lie, they just sort of present information that you could easily misinterpret if you're not careful.
So I think presentations are a big one. That'll show their future plans for things. The calls have some information that's not in the earnings themselves. It has like their, some of the guidance and some of their thought process. And one of the things I look for is like, I don't know how to say it in a nicer way, but like, it, it, how bullshitty they are, I guess?
How much context do they leave out and sort of What are they saying that's like factually true, but it's leaving out like a major thing that I feel is like kind of misrepresents things and that gives me less confidence, although on the flip side, it could give you more confidence that like they're really good at sales, like they're going to make their share price go up because they're good at pitching things.
So it's sort of a, Can you give an example of that? Like, what are things that people would leave out that you would want to be more transparent about? I'll give some examples that were pretty far in the past. When I first came onto the scene, it was CleanSpark talking about their, I don't even remember, it was their cost per coin compared to the industry average.
And they were using some Cantor report that assumed that hash rate would drop till 450x a hash after having, or like 400 or something. I don't remember. The exact number. Then they were comparing themselves using an assumption that hashrate would be even lower. So they were using a different assumption for themselves than they were for some industry report, which was already like sandbagging everything.
And another thing they did was with the whole FASBA, the new accounting rules where Bitcoin is a fair value instead of a, I forget what it is, intangible, whatever, where it only gets marked down for impairment. So, there was one quarter where like, the value of their Bitcoin went up a lot, and so that counts as income.
And so what they did is, they like, considered that as part of their margin, where they said, for every Bitcoin we mined, It only costs us this amount. Taking their costs, and then adding the benefit of their bitcoin going up and being like, look, it's like we have no costs. It was something along those lines where it's like, it's a really nice looking pie chart until like you actually and it looks kinda too good to be true if you're familiar with the numbers, and then you see like oh, you're counting things that are Not at all to do with your operations as like a deduction of your costs and then saying you have a big margin and then You're saying for every Bitcoin you mine you actually make this amount of money It's like no you make this amount of money, but you also got this other huge like lump sum payment That's really the more realistic picture of it, and I don't mean to just pick on CleanSpark I mean so recently I've been pretty critical of Mara because it's almost everything they say is bullshit the CEO himself is talking about a future where This is the part that's not bullshit.
It is the future where I think mining will be more and more competitive and you're gonna need to have a really low cost of power. If you play out how mining works, the competitive nature of it, it just you need a low cost of power is like your only advantage you can have for the long run. And at the same time, if you look at their costs on a per kilowatt hour basis, it's the worst.
I think it might be tied for Riot, but Riot's like Improving quarter after quarter pretty rapidly. And then they also talk about buying a wind farm and comparing it to some study. And the study is not at all applicable to like their situation. It's actually interesting. Cause I looked into the study and I saw how they did it.
And then I repeated the study myself. They happened to choose the absolute one point in time where it had like the highest returns on ASICs. They said, if we bought a bunch of ASICs in January, 2020. And then we ran them out for four years. What would the return on it be based on the fact that our power costs would be this?
And it looked amazing, but that was like one of the best times to buy. That particular ASIC and run it on a forward basis because that was right before this massive rally in Bitcoin and before a ban in mining in China, that like sent hash rate down, it was like, you couldn't ask for better conditions.
And then Mara takes that report and says, look, the ROI on renewable energy is great. You can subsidize it with ASICs. It's like two completely disjoint things. And let's actually talk about that. Cause I'll give you some background. I found that wind farm and had an LOI with the seller three years ago, Penny.
And then the Biden infrastructure act came out and they said, Hey, the deal stopped where we're not interested in selling anymore because we want to do hydrogen here. And I have to find out it's interesting because I got to look at that wind farm and see how it produced power over the years. And it was an older wind farm, but also it degraded massively in the production of energy over three or four years.
And so at some point, the value of that kilowatt hour, even though it's has no fuel costs and it's very low, you still have the maintenance costs and the capex to your point of the actual wind farm asset. But I'd love to hear your perspective on it farther because. I can bring it, I think, an interesting aspect to that deal.
As far as I know, they, maybe they, it's, it's filed away somewhere. I, I looked like I spent like an hour. It could be in the FERC filings because there is, there is FERC filings there. I don't know what a FERC filing is. What's that? FERC filing is Federal Energy Regulatory Commission. So whenever energy assets are sold.
Yeah, it might be in there. So they, basically what they said is, look, it's zero cost of power and we're going to put our older ASICs there. And it's going to be great because they're going to mine with like a super low cost energy. But they didn't provide any, they didn't say how much they paid for it.
They didn't say how many, let's say over the course of a year, what's the average megawatts produced? I don't know what you energy guys like to go off of, but like, obviously it's not operating at peak capacity a hundred percent of the time. So they say it's capable of producing whatever it was, 220 megawatts.
Or I don't remember. But what does it actually produce? Yeah, so it was 100 and 122 megawatts on average, I could get 80 megawatts from that wind farm at 50 percent of the time and the rest would have to be from the, Oh, okay. So it's basically 40 megawatts if you like average it out across a whole year.
You could get 80 megawatts running 50 percent of the time, like 40 megawatts. You can't get 100 percent of the time because the wind's blowing, so you still need an affirming power, which is like, how are you going to run this at a low cost because you're interconnected there at SPP. That's Excel Energy.
Excel Energy's interconnection to you is like four and a half cents. So the grid power is 4. 5. Like that's with demand response. But you don't have to use the grid power. You can turn off all the ASICs when the wind's not blowing. If you want. You can hypothetically, but it would be a pain in the ass to make.
Yeah. What I was getting at, you said you can operate it at 80 megawatts about 50 percent of the time. So what I was saying is if you average that over the whole year, you get about 40 megawatts of wind. Yeah, we can go with that assumption. I think like a price per megawatt there. They probably spent I would say 30 million dollars is a conservative estimate on that asset.
Okay. So I'm just wondering if you can crunch the numbers. I guess my point was the fact that it's renewable. Doesn't mean it's going to have the same ROI as like some study that looked at one point in time. On top of that, as an investor, that's great that you're using renewable energy and it's going to have low costs of power when the wind is blowing.
But like, I can't determine the ROI on this at all, unless you tell me the price and how many megawatts. On average you get from the wind and your OPEX costs. Then I can start to do a little math and see if it's good ROI. As it's pitch is just totally narrative. Bitcoin mining in the future is going to require a low cost energy.
We just bought a source of low cost energy and the study says it's great. So we're awesome. And to your point, they're not looking in the, they don't disclose the full details, which makes it hard for you as an analyst to look at this transaction and say, is this a creative to shareholders? Or is this just a bunch of waving of a hand saying, this is what's happening over here.
But we're doing something different on the other side. Sure. It's definitely a narrative thing. I mean, to be fair, the scale of it compared to their scale of other operations is tiny. So it doesn't really matter if it's a terrible ROI or a great ROI. It's a small impact. This is the type of thing that they consistently do is just push out these new stories that have no material impact to their bottom line.
Like they've been talking about the two phase cooling for a long time, and there's zero revenue from that in the last filing. I don't know if there'll be revenue in the next one. And then they pivoted to the HODL thing, because they want to do what MicroStrategy does, because they just want a big premium on their share price.
I think what it comes down to is their shareholders don't really Care. I don't know. They're very mid curve. I'm not saying it in a negative way. That's just a fact. Oh, great. Shrimp farming. Oh, great. Heating homes, which I think is actually good purpose for mining. But you get some cash back on that. Oh, great.
They hodl like MicroStrategy. Oh, it's 0 percent interest. Oh, this is, it's sort of, they seek to check all the boxes of what you might think makes a miner good. Do they have a big hodl? Yes. Do they have Bitcoin yield? Yes. Do they have renewable energy? Yes. Do they have, is their hashrate growing? Oh, yes. Oh, this is so perfect.
Like, how can anything be better? And they play to that very well. And so it's hard to bet against because when is that not going to work? But about this wind farm thing, it, the scale of it's tiny. It's just what irks me is we were talking about bullshitting. And what irks me is sort of like, oh, look, Mara does everything.
We do renewable now, and this is going to be great. Retirement home for our ASICs. It's perfect to just trust us. It's going to make money or it's great or whatever. So that's what I, it rubs me the wrong way. It rubs you the wrong way because they're not running it as a mining company. That's trying to optimize for those key things you discussed earlier, the cost per kilowatt hour, the cost of structure of the whole business.
Your energy infrastructure plan. They say that's what they're doing. They say that's what they're saying. Like, oh, it's important to optimize for low cost power. And this is going to assist in doing that, but we're not going to show you any of the numbers. And they consistently get a free pass on that because I don't know why.
My only explanation is they're sort of the industry giant. They have the biggest market cap. They're in all the index funds and no one bothers to dig in. They just want exposure to the whole Bitcoin mining thing. So it's like, whatever, even family offices or something, or like institutional investors, they're like, you know what, we will just want exposure and they're the biggest one.
And we like what they're talking about and they seem trustworthy and. That's fine. It's good enough for me. So I think that's sort of the degree of Sophistication in their investment base and it seems like a lot of capital is allocated that way do your point sounds wrong It's just frustrating. Yeah, I guess it's frustrating.
It's because it seems like unjust It doesn't seem like a good deployment a good way to deploy capital It doesn't seem fair to like other miners that are actually like doing things quote unquote More right like more correct actually caring about shareholder value and operational efficiency and whatever and like sort of trying this Not fully jumping into the whole narrative bandwagon not either.
They're like doing things that Theoretically should make them a more appealing stock but they don't necessarily get rewarded for it because something else is soaking up all the capital because it's just it's big and It checks all the boxes. So it's just I don't like it. I mean You don't hate the players, hate the game.
I don't know. It is what it is. I'm not going to, on principle, just naked short the whole thing because I think it's terrible and it's going to blow up at some point. I think it can persist a long time, but I will like buy exposure to many of the same things they offer for cheaper. Like I'll buy HODL cheaper.
I'll get mining production cheaper. I'll get cashflow cheaper. So I can hedge that. I feel comfortable doing that. And we were talking about our biggest player by market cap in this space. We haven't mentioned many of the small caps. We're talking Cathedral, DMG. Maybe DigiHost, Hive, Griffin Digital, Mawson.
The new one that came on the block. Yeah, the Chinese coin, with the Chinese car manufacturer. Kengo, that's now mining Bitcoin and hosting S19XP with Bitmain at some ridiculous price. But their stock's up 300 percent now. It's crazy they posted that news report and no one noticed for many days, the press release.
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Pain in the ass. So doing it for the smaller companies is just like way more work. And I'm sure there's some value out there, like I haven't dug into it. Since a lot of the actual price action is sentiment based and narrative based and like liquidity based and all that, even if I found like a gem, I don't know if I'd be willing to like bet on it because there is a big advantage to having access to capital.
Because the CapEx requirements are huge and if you consistently have a premium on like your net asset value, whatever you want to call it, like the value of your ASICs, the value of your whatever, if you consistently have a premium, you can just keep tapping into that with ATM or convertibles. And that provides an advantage.
The people allocating that capital are the ones taking the risk, but it's sort of like a self fulfilling prophecy in that sense, so. Long story short, I don't cover many of the smaller ones. There's probably some value there. I do own some cathedral, just because the CEO of cathedral is like, totally, he's great.
Like, he understands the ASIC, I think he quoted ASIC hamster wheel. Like, he knows the game really well, and. Just on principle. I want them to find the same thing with bit farms and Ben, you know, he knows the game as well. And there's some of these great CEOs that are just extraordinary. Even I, you know, I, well, I just made a post on bit farms before we started this thing.
I'm eager to see all the responses. Cause you know, I asked you, why don't they get any love? Like their costs on a kilowatt hour basis are among the best. They're like neck and neck with the best. And sure. They've had delays on their hash rate and. Okay, but if you, if everyone's pricing the miners out of getting, I don't know, eight to 10 years of high hash price, what is a few months of delay due to that?
It's like a, it's a drop in the bucket, right? If you're assuming Bitcoin's going to pure play miners, if you take out everything else, you just look at pure play, they're priced as though Bitcoin's going to go up and network hash rate won't follow for many years. Like, that's just a fact of how they're priced.
Maybe some of that is. Bitcoin will go up a ton now. They'll raise a ton of money so that the next cycle is even more compounded. Maybe there's some like path dependency going on there or whatever. Definitely there's some, a lot of optimism on where the path of like, hash price is gonna go. Where Bitcoin's gonna go and where network hash rate is gonna go.
It's definitely a bullish tilt to it if you look at the pricing. And so why should a couple months delay matter that much to BitFarms? But you're right, Ben is like totally, he's up there in terms of like understanding how everything, I mean, they all understand how it works, I think they all are appreciative of the premiums they command at times.
Sorry, I sort of That's a good answer, and I, you can, thanks for running with that. I mean, it seems like some of the comments on this BitFarms is that there's CleanSpark and Irene are arguing no more dilution. Where it seems like BitFarms has a lot of a high diluted share count. I was typing a reply when we took a break.
They say no dilution. Like I don't know where I don't think they said no more dilution. I think what they said is. The capped call structure means that we won't have extra dilution up to the capped price provided we pay back the convertible notes in full, in cash. I don't think they gave guidance of, oh, no more ATM, oh, no more, we're done after this.
I don't think they said that. I'm not sure. The question is, in four years or whatever, they have to pay back the convertible notes in cash in order for there to be no dilution as presented in those charts. So, I mean, did they say they're going to make that amount of money to be able to pay it back? Like, what I think is going to happen is, in a few years, they're going to raise new notes to pay off the old ones.
Sure, it's no dilution. I guess that's technically no dilution. It's just debt instead of dilution. And you're, like, kicking the liability down the road. There's a fine line between what counts as, like, debt and dilution. It's somewhere in between, right? Because the debt you can pay back in cash, or you can dilute, or It's debt.
Debt is debt. They took on debt. If you think they're going to be able to raise the money to pay back that debt without taking on more debt or hitting an ATM or something, then yeah, there's no dilution. But I don't think that's what they said. I could be wrong. I think they just got convertible notes with capped call, and their effective dilution will be, like, at either the strike price or all the way up to the capped call price, depending on where it lands when they, like, settle the note.
I think that's all that's really been stated. I think they've said, we're in a position. We feel really good. And we feel like we have the capital we need for now. And now we're just going to start really pulling in the money. I think they said that I don't think they can assure that they'll pull in enough money to pay back the debt.
And how long can mining companies keep that trance up in a bear market? It's very hard to keep the same, Oh, we're going to dilute you. We need to dilute you. And you see the prices from these bull markets of 2020 to stay. Some of these stocks are not even close to where they were in the bull market. And obviously there's a lot of things that go into them, just the stock pricing market cap and other things that really matter.
But the dance of growth at all costs, no matter the cost, did bite a lot of these public companies in the butt in 2020. How do you see growth in the future for these pubcos? Is it always converts or is it More converts over ATM? Is it selling of assets? Is it merging in acquisitions? Can you talk a little more about the growth strategy and a growth strategy, something you would be supportive of, something you would allocate capital behind, and maybe an ideal growth strategy for a public company?
That's mining. For me, I would be very interested in investing in a miner that was like fully all about just operational efficiency and lowering their costs and let's say they said our plan is to dollar cost average ASICs or our plan is to only run the previous generation of ASICs because there's lower, given our low costs, there's lower risk there and we see a high ROI on those.
Like we don't care about our hash rate growth We just care about how much money per share we make. And that would be nice. The problem there is there's no growth in that sort of model. They would just sort of be like a refinery with some fixed capacity and they could shed out a dividend. I'd be interested in investing in that just because I think that's how mining works.
I think it's some. Yield each year and it's not a growth industry. If anything, it's sort of the opposite with the having and every, all the margins are going to be driven lower and lower. I lost my train of thought. I'm sorry. It's a,
Oh, I think I muted you as well. So you'll have to unmute on your end. No worries. But the real thought question is what do you value in a minor? And what do you value when investing in one? And I think you did a great job of focusing on the keys that you can control, which is cost per year, a six dollar cost averaging into those operational efficiency and being transparent.
I don't think a minor is really coming out there with a full transparency dashboard. I think how to eat does a decent job of showing all their sites and like how many megawatts are running, but no one's showing live uptime. No one's showing live X, a hashes, or these SG and a cost broken down on a per kilowatt hour basis.
And how. That's tracked over the past year. So there's a lot of transparency. I think that the industry would recognize and potentially reward. What also would help move it forward and differentiate themselves from other miners. So I have to disagree with you on, I think overall the miners are transparent enough.
Like you see the data that you need to determine these things. There's a high degree of subjectivity in like what you consider an overhead cost or a cost of revenue or Whatever, so that's up to investors to individually figure out like how to interpret those things, but they all file 10 Q's They all have you can see their cash costs there.
They all file All the things that give you enough information to make a judgment. I think where they lack in transparency and it's kind of necessary in an industry where you're competing for the capital is just in what they omit. And so if one miner is transparent about like, Oh, our, instead of giving the direct cost per coin, they give their all in costs, they're putting themselves at a disadvantage.
Because they might be compared against other miners direct cost for coin. Like, they're just taking a risk there. Even though they're transparent, what's the point? If you're transparent about something everyone else is omitting, what's the benefit there? It's just that you're being transparent. But the downside is that it gets misinterpreted in the exact same manner that, like, pretty much everything they disclose gets misinterpreted.
And it's worse to your disadvantage. So I think there's a competing force to, like, only be as transparent as needed. And that just so happens to be like, it's enough, for me at least, it's enough, they generally say enough. I wish in the monthly operations reports, they would show how much hashrate, like I did a whole thing on this earlier in the year of like what each report should say, and it's really not even asking that much more from them.
And some of them said they're interested, but at the end of the day, none of them do it. Like, they should show how many Exahash they own. If you say you're upgrading, you're buying a new fleet or whatever, I need to know how much of this you already have delivered, so that I can understand how much more you're gonna spend to get to the target.
I think the funding aspect of ASICs, they could be more transparent on. It's gonna cost us this amount. More from this date, so like from this date forward to get to here's how much cash we have to spend to get from whatever we're at now to whatever exahash here's how much cash we have to spend relative to what you saw on our latest filing without that you have no idea how much of it is already they already bought you don't know what their core fleet is on a lot of them I think wolf shows every how many of each ASIC they have some other companies do this as well It's not very common, but right now, if you want to know like what they actually own, what their fleet is, you have to like dig through all their orders and do all types of it's impossible.
Frankly, it's impossible. I think that's their biggest point of transparency needs to be what's their underlying fleet. What do they own? How much more are they going to have to pay to get to their goals or whatever? They'll tell you, yeah, we're transparent about our orders and how much it costs there.
But it's up to you to make a big spreadsheet of month by month deliveries and how much we paid for it, whatever. And like, read between the lines of every filing to sort of deduce whether or not we received the delivery yet, and where it is, if it's going to be installed, when it's going to be installed.
It's like, I think that part's ridiculous. But investors aren't demanding of this yet. They see a big order, they see the Projected targets and that's it. Like, they're not really accounting for how much more money needs to be spent and where they're at in that progress other than just the raw exahash per second number.
So, yeah, there is room for improvement in transparency. I think it would have to be in the monthly ops. Like, I want to see the joules per terahash, I want to see the number of kilowatts used in your mining operation. Even just joules per terahash would be nice. Most of them do this, some of them don't. And to your point, those are all crucial things to really understand a mining or extraction business like Bitcoin mining.
Absolutely. It's like, here's what we pay for gasoline. That's our like dollars per kilowatt hour. And we're ordering a bunch of new cars that are gonna have some miles per gallon. And we're swapping out our fleet, but we're not gonna tell you, like, our average miles per gallon of our current fleet, or which cars we received, or whatever, even though our entire business is about this fleet of cars.
That's kind of where we're at. But trust us, we are heating greenhouses with our cars, so it's okay. Yeah. Some of our cars run off of ethylene, or whatever. Ethanol. So, Benny, this has been amazing. I have three final questions for you, and I want to give you, if you have anything else to say to the audience first before we jump into these questions, where can they find you?
Um, what's the best way to get in touch? Anything else you want to share at this time? So I'm generally on Twitter or X, I think it's penny underscore ether. You can DM me there or message me there. That's where I'm found. I also go to pub key on a semi frequent basis, which is a sort of quote Bitcoin bar in New York.
There's a lot of great events there. I would recommend going there if you're into Bitcoin. And you can run into him in the wild. That's how I ran into you in Nashville, which was a great time. Just randomly in the elevator. I love that. So the last three questions, their predictions, not going to hold you to it.
If you're willing to make them, I'll go through all three and then you can answer them, which is the Bitcoin price prediction for 20 for June, 2025, and a network hash rate price prediction for June, 2025. And your favorite Bitcoin miner that you see as a. A good play. Sure. So we didn't get to dig into a network hash rate and how that's also misunderstood by everybody.
I would love to go into that maybe next time. But I think any predictions of network hash rate need to include what you think the hash price or price per Bitcoin is going to be. If today, if the price per Bitcoin went down to 60, 000, the hash rate would drop as well. And I have some predictions on exactly how that curve looks.
I think it's very important. And it's like my model's been working pretty well lately. I post that sometimes. When people give a network hash rate prediction, I find it's generally worthless. It should be like a whole curve, or it should be, if Bitcoin is this, then hash rate will be this. I think any other prediction is just up to luck.
Like, if I said, by the end of the year, I think hash rate's gonna be 600. I could be right just because Bitcoin drops, or if I say hash rates going to be 900, I could be right just because Bitcoin like goes on a massive rally. And if Bitcoin didn't go that high, it wouldn't have ended up that high. So, but I'll answer your question provided I'll just pick a number for Bitcoin and I can give an idea of hash rate.
This was in June, right? Yeah, June 2025. And now you think to your point, you need all three of them or all two of them to give a good estimate. Yeah, so I'll go with like. 130. So yeah, I think like 130 and I think we'll be at a, probably will be, there'll be some data will show we've crossed the Zeta hash.
So a thousand X a hash, I think we'll be like flirting around there if we're at 130. I think actually with in terms of future outlook, I think hash rate might just grow regardless of Bitcoin. So long as we stay like above in the hundreds or one tens, one twenties, one thirties, whatever. So I would be confident in saying 900 950, like almost no matter what if Bitcoin is in six digits in six months, which is a pretty significant growth for end of June.
I think we'll see difficulty at like 950. Like if you convert the difficulty number into hash rate, I think it'll be like 950 and I think they'll have been like some, if you look at like a three day average or something, they'll have been some spikes that crossed a thousand. Which is insane for how many megawatts is behind one exahash of power of mining equipment.
When you look at the whole scale. Well, you have to keep in mind that now the Joules per TeraHash is down. Some of them are 13. 5 and like maybe in Correct. March and April and May there's going to be, I don't know, TeraHash coming online. And also all the other, I'm sure there's still S19s running. They'll have been purchased from whoever sold them.
They'll be like S19XPs instead or everything in the whole pipeline just gets upgraded and new hash rate comes in the front of the pipe and really old hash rate comes out the end. So, you don't even need, you don't even need an increase, like, if you consider the pipe itself to be the megawatts, you don't even need the pipe to get longer or change, because you have the higher hash rate, the higher efficiency coming in the front and the lower coming in the end.
The whole amount of hash rate in the pipe grows exponentially because of that. I mean, if you make some, like, pretty simple assumptions. So, I think it's exponential hash rate growth, pretty much no matter what, with some little, like, if Bitcoin goes down, some of that hash rate comes off. If Bitcoin goes up, you can't add more hash rates, so there's sort of an upper limit.
And a curve on the downside. But yeah, I'm confident with my answer. I definitely see it hitting over 1x a hash by June as well. Or 1 pet zeta hash. 1, 000x a hash. What's your miner, your go to miner, if you had to choose one today, knowing what you know? Well, I'm still massively overweight on cores. So I don't know if they're considered a minor still like they're showing like less beta to Bitcoin today's a they're down 3 percent today while some of the other miners are up so it doesn't feel great but I would go with core core iron because they have they're going to have the best fleet and their cost will be awesome a lot of that's priced in and maybe cipher and I'm actually going to take a flyer on bit farms Just because I think they're underappreciated, but I'll have to read all the comments to that latest tweet and see like what I'm missing.
Maybe it's geopolitical risk or something or like something's not working out as planned. I don't know. But I pick those ones because I want the HPC exposure. I think I'm hoping next year some of these miners get HPC deals. And so anyone that has HPC exposure is gonna see an uplift from that. So it's sort of like if any of them get a deal, I think it's gonna be good for all the HPC ones and I think Ironwolf, good mining operations, plus maybe some HPC, and Cypher has some good sites, maybe they'll get HPC, and Wolf, they sort of appreciate it in price a lot, but like, I'm hoping some of them get HPC and it just helps everyone else.
But I wouldn't buy pure play, I'd rather just buy Bitcoin. Like, I certainly wouldn't buy Mara. I think Riot, they have potential for HPC, but they're mostly pure play. Yeah, that's where I stand. Sorry. Didn't get, you know, it was a three simple questions, but my answer, those are, those are the best answers.
And Penny, this was an amazing time. We'll have to have you on the show as well. And I'm excited for this season two of digital gold here. So thanks for coming on the podcast. We're not done yet. I didn't get your predictions, my predictions. I would say June of 25, a thousand X a hash. I agree with you on that Bitcoin price.
I think it's a little bit higher. I think we're at one 65. Six, 5,000. And my favorite miner was Bit Deer and honey, and I think they both had a, a rally. I mean, bit deer's. Rally's been crazy. I like the opera. You know what, I didn't even think about Bit Deer because I, I think that might be one of the best.
We talked about it before with the asics. It's, it's not one of the eight I cover even though I own it, which is interesting. But I think the ASIC story has huge potential next year, especially if like the seal minor. And they've watched really competitive Unix. Yes. Exactly. Especially, it turns out working as well.
I saw them in person, by the way, last week. Oh, nice. The event they had? Yeah. So yeah, I think BitTheor has some potential. But they've just been, their price has just been, is, I don't know who's buying it, but I don't mind, but it's been going up a ton. So I guess that's getting priced in? I don't know. Anyway.
It's getting priced in, but we'll 2025 of next year for them. All right. Well, it's been fun. Thank you. Thanks again. Yeah, this was a great time.