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Foreign.
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Welcome back to Blockspace live, presented by CleanSpark. You've got Charlie and Will today and we are talking markets. We've got Keel Cypher, Keel Alpha on the show. If you hang in for a second, Galaxy is ripping. We're going to talk stretch Michael Saylor and how zcash has a lot more to do with digital credit than you realize. We're talking with Francis Corvino of Lygos Finance here. We've got Khan Farhani of Luxor to go over the monthly look back and of course SpaceX, because SpaceX is a data center company, not a rocket company, which means it's within our purview to cover. Blockspace goes live on Mondays, Wednesdays, Fridays. Whoa, whoa, let me roll that back. Every single day of the week, weekdays at 1pm Eastern, featuring quick hits on AI data centers, some bitcoin mining and emerging technology. Make sure to like and subscribe. Hit the notification bell on YouTube so you get the push notification if you're on mobile and if you like what you hear, it turns into a podcast anywhere podcasts are found. Rss, Spotify and Apple Will, we're leaving Coindesk.
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We are, and I don't know if it's the SpaceX news or people coming over from the Coindesk stream, but downloads the podcast are jumping off the charts, which is always great to see. So yeah, if you're listening on Coindesk right now, this is our last week working with Coindesk on this feed, so be sure to add us as your primary podcast host location. Just go to Blockspace on Spotify, Apple or elsewhere and click the bell notification. Give us a five star review and be sure to download every episode Monday through Friday, 1pm Eastern live and then of course 5pm Eastern afterwards on your podcast location of choice.
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B
This show is brought to you by Clean Spark NASDAQ listed ticker clsk. More on them later on the show. Before we go to markets, we got to take a look at hash rate index, which candidly will all time low hash price this past week, all time
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low that we already got there a little bit ago. February was all time low, but it's even worse now.
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B
I mean 27.
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Yeah, that's all time low.
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B
Yeah, people even. This is the thing, it's so low that people don't even notice that it's all time low because it just keeps going down.
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A
That's bottom sentiment. I think the bitcoin mining in space stories, we can put that aside for now. We'll get to data centers in space with the SpaceX talk at the end of the show. But with revenue forecasts like this, I don't think you're launching rockets to mine bitcoin. You might not even be willing to drive out to Oklahoma to launch a new bitcoin mine.
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B
Yeah, no, we'll kick you out. Please, no more bitcoin mines here. More AI. Actually, not even that. So just over overview of a hash rate index. Fees are low 0.68%. We have an estimated difficult adjustment down of 10%. That's pretty notable because hash is a little bit lower network hash rate on the 7 day moving average.864x a hash. Again, if we were to zoom out or look at the I believe the 30 day smoothed average of the network. Yeah, even if I zoom out, okay, maybe it's not864/hits970. Still not looking very good and optimistic. But it seems that network hash rate has plateaued for now. We'll get into a potential near term catalyst for a direction with Kahn here in a second. Will, is there any other insight to be gleaned from the gloomy hash rate index?
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I think just this follows headlines. Right, so we have the headlines and the data follows later. Typically that we kind of get from the network as it lags slightly. But all these large miners have been selling ASICs, liquidating entire fleets to put in GPUs for AI inference and training. That makes sense. And so we're going to see that percentage of U.S. miners, the percentage of global hash rate in the U.S. i should say is going to go down year over year and we'll see 2026 probably as the reset year going forward and then maybe next year we get a bull market and hash rate flows back. But I would only expect this number to sit and make this low period for the rest of the summer.
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B
Yep. All right. Hash rate is not looking optimistic in the short term. But there are things which are looking optimistic, Will, and that is miners who have pivoted to AI. I think I'm going to let you intro this one. This is some alpha you found about Keel this the other day. Check this out. What's this say?
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Yeah, that's right. So this morning on Twitter sort of circulating. This is not official comms from Keel, not official comms from the other company we're going to talk about in a second. This is just a screenshot on Twitter that's circulating and the stars kind of line up here. So Keel, formerly Bit Farms, has been on a tear. It's traded over six bucks. They downs a huge convertible note, $400 million last week that we covered on the newsletter and on the website. Now we're covering here right now. That $400 million convertible essentially is to go to pay for general costs expenses of the company, AKA building out new AI factories. One of the AI factories that they're currently building out is in Washington. I believe it's Moses Lake. Yes. Moses Lake.
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B
Moses Lake.
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There's so many data center names popping around my brain, so sometimes I'm like, am I adding two from different companies? But anyways, Moses Lake, no tenant name this year. But Ben Gagnon, who's been on the podcast before even the last two months, talked about on their recent earnings call that they expect to have three deals signed this year. We might have a hint right here of who the first deal is with AWS looking to hire a data service technician lead a data center manager at the Moses Lake, Washington area. This is for a data center that's not completed yet. That's stated in some of the details here. The pay range and all this sort of stuff matches as well. Now, what's in Moses Lake? Is this a big city? Is it outside Seattle? Is there other AWS locations in the area? No, there's nothing really there. It's kind of middle of nowhere. There's been a bitcoin mine that was there formerly. You can look it up on Google and drive by it on Google if you want, see all the asics there. But it's transforming into a data center location. So I think like the online sleuths are seeing that, you know, AWS might come out as a tenant. We'll get to Cypher later. That also revealed AWS had a tenant tenant signing with AWS as of today. So looking at the stock price up 10% on the morning to say if this is because of the Twitter sluice or just something else. Hard to say, but Keel has been been ripping since the start of the year and since the rebranding and redomiciling in the U.S. yeah, up.
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B
Gosh, hard to say. A couple multiples, 2 or 3X on the year, 10% on the day on maybe, you know, maybe the stock rips on this AWS tenant rumor. We'll see. Keel's not the only ticker going up right now. Let's look at Galaxy. I mean, look at this. 20% on the day now it's 22%. 22%. It's. Yeah, it's been a little, you know, volatile year. This actually doesn't bring it to like a yearly high, which was around 34 bucks in January, but back at $30.62, up 22% this morning. Will, did I miss some news or is this just everyone being bullish on whatever novogradz did over the weekend? No.
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So this is a little more speculation here. There was some stuff on Friday, nothing with a tenant announcement. There was some rumors around maybe Galaxy would sign a deal with like Jane street or something like that for its data center Helios in West Texas. But nothing formally announced. Just. Just Twitter chatter which essentially worthless for the most part. But the one thing I would say is that they did have the Morgan Stanley head of AI infrastructure and basically one of their bankers go on CNBC on Friday and talk about Galaxy, how it's well positioned and how he thinks it has some more room to grow. No, I think it's a lot of sell side analyst chatter where they're trying to get clients and they're trying to get people to work with them and get that nice spread for sales of converts or other financial infrastructure financial deals. So that's the only thing I can really see is that talk. But I will say that Galaxy itself has sort of two stories that some people, some of like the Twitter trenches, think the the story hasn't been told as well enough to differentiate between the AI side and then the bitcoin side. Obviously bitcoin has been down year to date. It's also down over the last year or so. We're revisiting 20, 24 highs, which is not what you want to be doing right now. We want to be making new highs and so that's somewhat seems like a laggard on the business. And then the other side, you have the AI infrastructure side with this huge campus in West Texas. That's just going to be. It already is a gem for Galaxy. They already have a deal with Core Weave, but they have more room to grow on that campus. I've been there a few times and there's a lot of room to grow there. So perhaps this is starting to price in some of that with Morgan Stanley going on cnbc. But it also could just be it's a new day, the trading bots are trading and it's up 22%.
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It's a Monday so they get to be the darling stock.
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A lot of things are green today for sure.
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Yeah, a lot of things are green, including Cypher. Some of our friends over at Cypher are having a nice kickoff to the week, up 5.92% basically 6% to bait to really continue on a great trend for the year. Kicking the year off around 16 bucks per share. Now 23 since April. It's been kind of ascending upwards. Did I miss something about Cipher? Will, I've been too deep in the bitcoin trenches, wringing my hands because the price is down. What's going on with Cypher?
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Let's do Cipher and then let's jump to Francis. I'll do this last one and then we can Corman, friend of the show Jamie also had some cool news today, but we'll maybe put that one for another day. They're not publicly traded quite yet. This news, Cypher, they were down at the end of last week. Maybe not down on the five day, but down certainly on the 24 hour when there was a big sell off on Friday across everything. And I think what you're seeing right now, that 5, 6% growth over the morning is just kind of repricing some of that. They were also down because they had. They were down last week, I think just because of general breakdown across the sector this morning. I think some of the interest is the convertible note or not the convert. I think it's some sort of senior debt obligation. Apologies, mixing up my converts with keel. They're doing a financing round for their Stingray site. The big news this morning was they did disclose that as a part of that funding round info they let everyone know that AWS is going to be the tenant for their Stingray campus. They announced that signing in March, but they didn't name the location nor the tenant. And now that we know they have aws, they have two leases with aws. Both these leases are very long. They're triple net coverage, meaning they make a lot of cash on these leases and they're backed by one of the most profitable businesses on earth which is aws. So I think that's why you're probably seeing them in the green this morning despite the funding news, which can kind of push down on the stock a little bit as you're kind of going back out to market asking for more dollars from investors.
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Yeah. Great day in the public markets. Speaking of public markets, let's get an ad roll from the sponsor of the show, CleanSpark. Rolling.
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We are CleanSpark, America's Bitcoin miner. A publicly traded company with the largest operating hash rate powered entirely by self
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operated infrast across four states. This is our proof of work.
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We are setting the standard for what's next. Learn more about the intersection of energy
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and bitcoin@cleanspark.com
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B
so will we still have more markets? Data center news. There's Leopold Aschenbrunner. Situational awareness. There's a Corinth announcement. We have Francis Corvino waiting in the wings to talk about Stretch. How much do we want to keep talking about data centers?
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I think that we can throw some of the data center stuff to the end with SpaceX, because we can do Leopold at the end. That was a nice little hit from Wall Street Journal this morning. We could also kind of talk about the Corman piece with SpaceX because it's like terrestrial versus extraterrestrial space centers. So if you're interested in SpaceX, which we're seeing a lot of interest right now around that, just stick around to the end of the show and we'll hit on that.
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Yeah, we're going to hit SpaceX and more data centers at the end of the show. Got a couple more seconds, but we've got Francis in the wings. Francis is my favorite strategy commentator right now. Going to bring him on. Francis, welcome back to the show.
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Hey, guys, good to see you.
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Will. Nice to have your handsome mug on here for once.
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Good to see you again.
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B
You know his old stomping grounds back on the podcast. So, Francis, Michael Saylor didn't sell. He bought bitcoin.
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D
What?
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C
Why? Disappointing. That was disappointing because I, I really thought maybe there was an angle there to, to call an early sale. So I, I, I did think last night that there was a strong chance that Michael Saylor had sold his bitcoin. And the reason that I did is partially because of some of the stuff I've said previously, which is that I think Michael Saylor wants to try and build, like, a really robust ship. And he's willing to, he's willing to do things which are unpopular in order to make that happen. Despite what, what the audience might think. Turns out I was very wrong. We saw some large transactions move out of Fidelity Custodian which were attributed to MicroStrategy. And I'm thinking to myself, well, if you're Fidelity or if you're MicroStrategy and you're sitting at Fidelity where they have an omnibus custody, why would you be moving bitcoin from one omnibus wallet to another omnibus wallet within the same custodian? It didn't really quite make sense to me. Also, generally having worked at a large bitcoin custodian in the past, large bitcoin funds are not in the business of moving a ton of bitcoin just to show that they can, particularly within the Same kind of custodian. It's like hammering a nail just to see if hammer and nail still works. It doesn't necessarily make sense to do that unless you're changing custody policy or something like that.
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That.
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So given the timing of everything, it made sense that, hey, why is their Bitcoin being moved from Fidelity, which is generally not the place where MicroStrategy is doing the majority of its buying? They do a lot of the buying at Coinbase and then a little bit of the buying from Anchorage. And the final sort of destinations where that bitcoin ends up on chain is generally sort of like some go to Coinbase, some go to Micro, some go to Anchorage, and then some go to Fidelity. So it was just very interesting to see that on chain movement happen. Now there is one thing which I'm starting to kind of consider, which is perhaps some of that bitcoin went out in order to be posted as margin. Because I heard from a couple other pundits sort of in the industry who work around the OTC space, and they said, hey, Francis, in fact, MicroStrategy is able to call their own shots so well at this point that they're able to trade on credit to the extent that they can usually buy up to $500 million of Bitcoin. Right. And they don't have to pre fund that, so they don't have to send the USD to the brokerage ahead of time in order to buy $500 million of Bitcoin because the brokerage trusts the credit worthiness of strategy enough that they're like, okay, yeah, sure, we'll just buy it for you and then we'll not settle at the end. But now things might be a little bit different with MicroStrategy starting to show a little bit of weakness. So perhaps this was in fact a transfer where MicroStrategy was beginning to move some Bitcoin to margin in order to make that bitcoin purchase that we saw. Perhaps we're seeing some of the prime brokers in the industry start to be like, hey, you know, we used to give you just this massive credit allowance, but now you're starting to show a little bit of weakness structurally. So we would like you to actually add some Bitcoin to this account as margin before you buy additional bitcoin.
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Okay, how much of this is sort of Charlie putting tape and strings together, given that we don't always have a ton of information about strategy and how much of this is. Is like the actual bet you kind of see behind the scenes not to call you out. But I am curious, like, it's so hard to know what's happen happening.
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This is definitely strings for sure. But it is interesting, I think that you can look on chain with bitcoin in a way that you can't with other assets. So the sort of the pull in order to consider, hey, what is happening on chain is much stronger here, right? Like, if this was a gold trade fund or a gold trust, right? Like, we would not have the ability to be like, okay, clearly something happened here because we saw the physical settlement of gold happen over the Internet. This is something that is unique to bitcoin. So I think it is very natural for us to be looking at each one of these wallets, which are generally quite exposed. And we can sort of understand the underlying mechanics of each one of these wallets individually and you know, ask ourselves some questions like, hey, maybe we can get a little bit of insight early, early from the market.
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Okay. Switching gears to what I think you may have coined the term of which is the frequency wars, like the dividend of stretch versus SATA. I think the news is that stretch is considering a higher frequency dividend than previous. You kind of identified this as a trend and a competitive edge here on the show weeks ago. Is this dividend defi summer for bitcoin?
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I believe they actually approved it.
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Okay. Okay.
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Yeah, so. So yes, I. I do think that there's a lot of sort of comparisons that could be made between this. Is this dividend wars between, you know, micro strategy and. And strive are perhaps the defi summer of bitcoiners. Right. We're seeing very, very high Yield, you know, 12, 13% yield with a potential to push it up even more. And that was what brought a lot of people into defi at the beginning. They said, hey, this is really, really interesting. I can go provide liquidity to this AMM and I can get just massive, massive APR overnight even. And then as time went by, some of those yields started to sort of get a little bit smaller and compress. And now something like 14, 15% yield in DeFi is actually quite interesting. Now bitcoiners are sort of getting their first opportunity to look at, hey, this is 14, 15% yield for something I'm paying attention to. Anyway, why don't I jump on this? Because I think that this is safe and I like high yield. Generally there is just a massive exodus of people to the door whenever that door has high yield behind it. And these are two really interesting high yield products which are now paying out daily dividends. In one sense, biweekly dividends in the stance of strategy. And this thing is also something that can help your life over a long period of time because if you're collecting dividends for two years, right, you can actually use that when you're applying for a mortgage or something because it counts as real income. So yeah, this is something that can be positive for people in their real life and helping give them some stronger sort of like credit proof of income. And then it's also something that's just attractive because it's high yield. And we've seen this pattern play out before in defi summer and now some very different but also somewhat similar structural games being played in the centralized economy now where the only difference is really, rather than logging into MetaMask and buying, you know, a little bit more sketchy coins for a little bit higher yield, you're logging into your brokerage account and you're buying some securities which have a yield which come from a levered bitcoin position being solvent for a long period of time.
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B
So I want to talk about zcash in a sec, but I have pulled up a tweet. I want to get your reaction to this. This is on Saylor bought 100 million it looks like from the MSTR ATM sale. Nick Carter says it's what we expected. Defending stretch by sacrificing MicroStrategy. Why anyone would continue to hold that stock is beyond me. What are your thoughts?
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C
I understand at this point I really didn't expect him to dilute shareholders so aggressively. And I also feel like they're maybe stretching the or moving the goalposts a little on the 1.2m nav being sort of the, you know, we're not going to sell shares and dilute under this level. It's starting to get really, really close and it's starting to get to the point where like just the execution of these trades is going to the execution the financing arrangements that you have to make, the risk that you take just by like putting these trades on. All of those things are starting to sort of creep away at that premium that MicroStrategy shares trade at over Bitcoin. And it's going to get to the point where it's going to flip at one point. And this isn't a perfect comparison but a long time ago we had the GBTC summer as well where people were borrowing cash against their Bitcoin in order to try and take advantage of making in kind creation of GBTC shares. So at nav right, one BTC equals one GBTC share and then those shares after a six month lockup period would trade on the open market and they would trade for a long period of time at greater than nav because brokerage didn't have access or like traditional brokerage clients didn't have access to Bitcoin in other ways. Like they didn't really know how to log into Coinbase and buy physical Bitcoin. So they were happy to just buy it through their brokerage and they weren't really checking how much Bitcoin was actually underlying the security. And that was great up until so many people were borrowing cash to make in kind creation of these GBTC shares that when they tried to exit that position, everyone was trying to exit that position at once. And the inability to actually take Bitcoin out of the GBTC trust because it wasn't an etf, it was a trust where the Bitcoin had to be held there until it converted into an etf. Eventually people couldn't withdraw, they couldn't take the Bitcoin out and it traded well, well, well below nav. So Saylor is at a different point where he's at this 1.2 level, which is the line in the sand that he's drawn and saying, hey, I'm not going to continue selling equity for Bitcoin below this price. Well, now he's getting there. And that to me looks a little bit like the NAV flip that GBTC did back in 2022 or so where
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it started to go below par on stretch. So it's been as low as 93 bucks, might have been a little bit lower and looks like we're Recovering back to 97.98. How important is it to get back to that par $100 level for investors? Or do you think we could hang out on that 97, 98 zone and still sort of be like okay for things to move forward?
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C
I mean, I think there's some natural volatility to these products to begin with. So hanging out at like 98 is probably okay, but much below that is where he's really going to need to raise the dividend, particularly if it's hanging on the lower end of that for a period of time. At some point he is going to have to raise the dividend, otherwise, you know, that starts to get a little messy. But it doesn't have to be exactly at 100 all the time. I don't think that, you know, this needs to be a stable coin.
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B
So we got con waiting in the wings. But I want to Talk about this angle you have which is on Z cash because everybody's talking about zcash, they're obsessed with shielded pool, they're obsessed with privacy and the soundness of zcash. But you have an interesting take on comparing zcash to the Bitcoin ecosystem. Explain this.
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C
Yeah, so currently, if you wanted to chase defi summer or defi type yield on Bitcoin, it is very hard to do because Bitcoin only has bilateral contracts like what Lygos offers. So we have a direct contract with an individual counterparty where we buy, we lend cash against Bitcoin and that's a bilateral contract similar to Lightning Network. It's channel based. What Bitcoin doesn't have is the ability to do covenants or more than two party transactions where people are dynamically entering and leaving. In order to be able to have these multi party contracts on top of Bitcoin, we have invented something rather ingenious called bitvm which allows you to verify a layer two and arguments of knowledge on that layer two which then allow coins to be moved as a result layer one. So you can think of a zero knowledge proof, a bit like the coat check at a bar. You go up to the bar, you drop your coat check off at the bar and then you walk inside. Upon walking back out of the bar, maybe you've done some bartering with someone and now you have two jackets. Someone at the door will give you a ticket and that ticket should say, hey, I now own two jackets. You take that ticket, you try and feed it to a machine enough. If that machine returns you a red ticket, you can't bring any jackets out of the bar. The coat check isn't going to return them to you if it returns you a green ticket. Now you are able to take whatever coats that you have claimed to be able to wear out. What zcash essentially had an issue with was the soundness of the machine checking the ticket. So people were able to make arguments that they owned more zcash or more coats Right. Than they actually do. So that is a fundamental problem. Right. If you're able to create arguments on a layer two inside of the bar that you own something that you don't actually own. It's a fundamental concern. And Bitcoin was reliant on that type of trust assumption. Right? Which is a strong trust assumption. But if you have implementation issues or if you have errors with the underlying technology of it, unfortunately it's going to be a lot harder to trust that we're going to be able to essentially verify zero knowledge proofs of layer twos, where we can have money markets on top of Bitcoin. And those things are really, really exciting, but they rely on the same technology that zcash relies on. And soundness issues will also affect our ability to bridge Bitcoin to layer twos, borrow cash against it, or lend cash against Bitcoin and lever it up and get high yield and stuff like that on a layer two away from Bitcoin. But now we're seeing sort of the soundness issue with zcash. Represent the risk premium that you take anytime you're starting to bridge your Bitcoin. And the more creative that we get with the solutions, the more risky it gets. Zcash is a very advanced cryptocurrency in the grand scheme of things. They have spent a huge amount of money on audits, they have some of the world leading experts in zero knowledge proofs, but there are only so many world leading experts of zero knowledge proofs, unfortunately. And they were essentially able to figure out that this bug existed via Opus 4.8. The scope of people who are actually able to look at these things is an expanding, but in an effective way. It is expanding because people can now punch things into Opus 4.8 that they would never have been able to understand before. So these types of systems are going to be attacked in ways that they hadn't previously. So that means that anytime you're using a bridge that relies on a zero knowledge proof, whether it's on top of Ethereum or whether it's on top of Bitcoin, you have to be considerate of these types of issues as well. Because if you're able to create arguments of knowledge which are inaccurate, that means that you can trick the layer two into pegging out Bitcoin that you don't actually own. To play devil's advocate, there are some situations in which you're only allowed, like only certain parties, a white list are able to actually create a valid proof or a ticket that can be scanned to begin with. And generally speaking, that's a trusted list. So the guy at the bar isn't going to create a ticket for you if he knows that you don't actually own the coats to begin with. Right? But at the same time, these solutions are moving to be more decentralized. So anyone should be able to try and generate their own proof of I own this coat to exit the bar with. And as we move forward in that direction, these issues become more and more prominent. Because a soundness issue where People have live bitcoin in an adversarial environment means that you can take what should be a red ticket, turn it into a green ticket and withdraw a huge amount of bitcoin from the platform. And that's very risky. So for the defi summer world of bitcoin that people were sort of hoping for in the Bit VM world, I think that maybe this is the opportunity to look at it as, hey, whatever we thought we needed to get in yield to make this worthwhile, it needs to go up. Because zcash shows that protocol risk, zero knowledge proof risk, verifier risk are things that need to be quantified from an economic perspective when considering how much return I need to get on my capital for bridging it to a layer two. In the same way that MicroStrategy's debt structure needs to be analyzed when considering am I going to buy this security or not.
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A
Yeah, this reminds me of a quote from Open Zeppelin CEO who tweeted this a month ago at this point that he didn't consider any defi project, even the blue chip ones like aave, et cetera, to be sound anymore in the age of AI, because you can just play around with these things until you find an exploit that's out there, it doesn't matter how hardened the code base is, after all these years you're going to be able to break into it. And openzepplanet is like the premier platform for defi penetration tests. So I think to your point, that's like a very cogent one. We have the defi protocol risk and then we have the financial engineering risk that's on top of it.
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C
Yep. And actually what he's referring to specifically there is probably just virtual machine risk. Whereas with the Bit VM world that we're looking to move towards, with Bitcoin, you take on two different layers of risk. You both have the virtual machine risk. You also have the zero knowledge proof verifier risk. So if something goes wrong on the virtual machine level, that's a problem. If something goes wrong on the soundness of zero knowledge proof verification, like arguments of knowledge level, that's also a problem. Particularly again if these solutions are truly permissionless like we want them to be.
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B
Francis Lygos Finance Co founder thank you so much for coming on the show explaining a whirlwind of topics. We will see you again next time Saylor does something.
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C
Thank you guys.
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A
Cheers.
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C
Bye.
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B
All right, we got Khan waiting in the wings to take us on a review of last month's mining market. But before that, a word from our sponsor, Luxor. This episode is brought to you by Luxor's Commander Bitcoin miner management software built for enterprise operations. Commander gives you real time fleet monitoring, bulk remote commands across your fleet and and intelligent miner which is an automated profitability engine that runs every five minutes, adjusting power settings to live hash rate and energy markets. ERCOT back tests show over 10% more profitability versus binary mining. Commander Pro is $100 per megawatt or a 25 basis point pool fee adder which is roughly half the price of the competitors and comes with a 60 day free trial. Get started at Luxor Tech Commander. And speaking of Luxor, we've got Luxor's con in the wings. Bring him up here. Khan, welcome back to the show.
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D
Charlie and Will, thanks so much for having me back on the block. Always a pleasure to be here.
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B
Yeah. So we've been doing this for a few months now. You publish the Luxor monthly Look Back series. I've got pulled up here and I'll just let you take it away. Explain what happened in the month of May here.
- [33:21]
D
Definitely the month of May was a period for bitcoin mining in which the economics came and went very quickly. So let's get into these details. First thing I'll point out is if you scroll down just a little bit, we're going to see a table with monthly averages right up top there. If you go back up a little bit. Yeah, right here. From a monthly average perspective, the month of May was green across the board for mining metrics in terms of hash price and its constituents. As a reminder, this is the second consecutive month where we see improvements in mining economics from where we were in late February, early March from our all time low cycle. However, as we're all aware, the monthly averages conceal the true trend which shows when we look at the intra month movements. So from a hash price perspective, we saw that bitcoin price and US dollar hash price had a local peak in early May and started to revert back down. And obviously mining markets followed. Difficulty was actually down on average, but up net given difficulty adjustments. We saw one negative adjustment and two positive adjustments throughout the month. And we also saw transaction fees increase as well. Despite all of this though, as of early June we now know that we're down quite bad. And the reason is because of bitcoin price action. As of early June, we saw geopolitical tensions reignite given conflict in the Middle east. And there's also some seasonality and marginal mining moves taking place as well. So there's a confluence of factors, but the TLDR of May is it showed green across the board from a monthly average perspective. But then as we look into the true trend intramonth, we see that we're down bad.
- [35:19]
A
Down bad. I mean it's bitcoin mining, right? So we're kind of used to it. Four year cycle typically happens that mining revenue kind of crushes us every four years. I was not expecting to revisit the lows in February. I was. From a price perspective I did think that we'd actually see more hash rate come offline. And from your report we had sustained growth in some areas of hash rate perhaps, and that's why we're not only having difficulty kind of be where it's at at the period, but hash rate has been like going up a little bit into that one zeta hash and that's putting pressure on it. When you look at bitcoin price as well. So throwing the ball to you, are we seeing some incumbents still in the space? Is there international presence in bitcoin mining? Is it any new entrants that we should know about or mixture of these things?
- [36:10]
D
Yeah, good question. Interestingly, we saw that throughout the month of May we got back to the one zeta hash level. But since then we've reversed quite firmly and we're now down. In fact, I just took a look at our hash rate index data on our website and we see that as of early June, over the past week or so we've lost over 100 exahash when we look at the seven day simple moving average for network hash rate. I think a lot of this has to do with marginal mining capacity moving in and out of the network in addition to seasonal curtailment taking place as of early June. Given that we're now in the 4 CP season, there is some ongoing chain mining native dynamics. But of course bitcoin price action was a big driver as well. In Q1 we saw that the Middle east tensions caused a drop in hash rate which we suspected, some of which came from affected jurisdictions. At the same time, we now see that marginal hash rate moved back in throughout May, which means that the change in network difficulty and hash rate we're seeing is not necessarily being driven from a hash rate supply shock, but it's more so mining economics being affected by bitcoin price action. So the uncertainty really is hinging on the bitcoin price side of things versus mining metrics native to hash rate.
- [37:32]
B
Yeah, you guys previously, I believe identified that Iran had rough estimated maybe seven eggs a hash which dropped down in Q1. I think it's back a bit by the month end. And you know we're always looking towards like the next hash rate catalyst. And you hinted at this seasonality we have. I would say it's like the new like China wet season hash rate migration phenomenon domestically here in the United States and Texas we've got the Texas 4 CP on the horizon. Imminent. Can't explain this and how this affects how this stages hash rate and particularly hash rate derivatives going into the summer.
- [38:22]
D
Absolutely. So this is an interesting seasonal trend as you pointed out Charlie, that we've seen since 2022. It's shown itself through many different signals both on chain and through hash rate derivatives markets which we'll touch on right now. And it's essentially the seasonal pattern that we see. It starts off in ERCOT as we estimate with hash rate index data, around 17% of global network hash rate is hosted in Texas being powered by the ERCOT electricity market. Now one of the incentive programs that ERCOT has is called 4cp. It stands for four coincidental peaks. And essentially the way it works is facilities. Transmission charges for the next whole year is determined by four 15 minute intervals of the highest grid demand during the months spanning from June to September of this current year. So if you're online during these peak intervals, you're going to be charged much higher transmission fees for the next year. Conversely, if you're offline and you're curtailing during these periods, you get to access this big cost savings for transmission costs next year. So the incentive for miners is to curtail proactively in an effort to avoid these peak intervals so that they capture these cost savings and these, this trend shows itself in many different ways. I'll point 4 I think interesting insights that we can look into. Charlie, if you bring up that screen again, I'm going to point to a couple of charts.
- [40:00]
B
Yeah, yeah. Which one do you want me to pull up?
- [40:04]
D
So okay, that's the first one right here. So yes, right here there's three different ways to look at this. And then there's a fourth additional way from the hash rate derivatives market. The first on chain signal is if we look at 4cp season versus outside of 4cp season the rest of the year we see a difference in average difficulty adjustments. So what do I mean by this? The average Difficulty adjustment between 2022 and 2025 during four CP months, which is from June to September, was around 1% plus 1%. So we see that the average Difficulty adjustment is upwards and positive during this period. Outside of this period, throughout the rest of the year, it's more like 2.1%. So just based on average difficulty adjustments, we see around a 1.1 percentage point drag based on this seasonal curtailment that's taking place. But much like the month of May, we know that these monthly averages are actually concealing an even better insight. So if you scroll down just a little bit more, we'll check out the next chart over here. Now we're looking at the same thing, but now we're looking at specific months instead of the 4cp versus the rest of the year. And we see another interesting detail. We see that the curtailment itself is actually concentrated in the month of June. So June is the only year during the year where we see on average, negative difficulty adjustments. So we're seeing a decline in difficulty. And the reason is because the curtailment is most intense during this month. And conversely, towards the end, end of the 4 CP season, as we get out of September and the risk of curtailment ends, we see a rebound which is concentrated in October as well. October tends to be the strongest month in terms of hash rate and network difficulty growth. And we call this the beach ball effect. The reason is because during summer you have a lot of hash rate that's being pent up and being controlled, essentially like holding a beach ball underwater once the risk subsides and there's no penalty for being online during these peak intervals. As we get into October, all of a sudden this beach ball releases and we see this resurgence in hash rate. These are interesting insights that we can pick apart when we look at month to month difficulty adjustments. The final one is you can go even deeper and look at specific hours when these intervals occur. That's because ERCOT releases them publicly after the fact. And we see that after the fact. If you were to look at these peak intervals, you would see that block times slow down significantly. So if you. Yeah, exactly. Right here we can see that during these hours, when the peaks actually occur, block times are more like 12, 13, 14, 15 minutes versus the target that the network aims for, which is 10 minutes. So we can see that miners are curtailing very specifically. Even more so when we get to these peak curtailment intervals.
- [43:18]
B
This is one of my favorite charts ever because it's something finally revealing about block times and the real meat space that miners operate in.
- [43:27]
A
Will Khan, are you telling me that when I buy my coffee at Bitcoin on a square terminal now, it might be a Little slow at some points during the year because of Texas miners. Is that what I'm hearing?
- [43:40]
D
Absolutely. If you're buying it afternoon to evening times when peak grid demand hits, you might need a little more time for that to settle.
- [43:49]
B
Not if you use lightning. Okay, Khan, I got one last question for you. And that is we are seeing a phenomenon in US dollar denominated hash rate forward curve which is flipped into contango, which means that the future price is higher than the current spot price, which is a rare occurrence in hash rate forward markets. Explain this. I mean you kind of just did, but you know, double tap on this for me.
- [44:22]
D
Yes, definitely. Yeah. So now we get to the punchline. The punchline is we see all these on chain signals of the incoming forecast and guess what? The forward market is expecting this and pricing it in. Which is why we see this shape of the curve that you just described as contango, which essentially means that forward hash price levels, which you can lock in by engaging in these contracts for the next six months is right now offering a hash price that is higher than the current spot hash price. And the reason behind this, the intuition, is because mining companies, forward sellers know that as we get into 4cp season, the risk of curtailment increases, which means hash rate is expected to drop. If hash rate drops, the value of hash rate that remains online increases. So hash price is going up, which means forward sellers are able to command a premium in forward markets at the moment. So the forward market is this fourth financial signal in terms of expectations, which is telling us that curtailment is expected and it's baked into forward market expectations as well.
- [45:40]
A
Some deep financial modeling for bitcoin mining. Let me tell you, a lot of people out there, Charlie amongst them, at one point we just plug in an ASIC and let it rip.
- [45:48]
B
I wish I had that wish five years ago. Oh my gosh. But, but it also takes money to make money. So got to have money to put up and hedge. So that's a whole nother egg to crack. Khan, last thoughts, final thoughts. Capstone, before we go and talk mining stocks, the summer is going to be hot. What's that mean for bitcoin mining? What's the June monthly look back going to look like?
- [46:16]
D
Yeah, we're at a very interesting time right now. I think a lot of the headline revolves around bitcoin price action and uncertainty. I think looking forward, there are a few potential headwinds that we can keep in mind when it comes to the bitcoin price action side of things. First is the ongoing tension in terms of geopolitics and conflict in the Middle East. Obviously Bitcoin is this global liquid asset. It reflects real time market conditions and we're seeing a lot of uncertainty right now in Bitcoin price. Geopolitics has a role to play separately in terms of capital markets. I think it's also interesting to see that there is this high level rotation out of Bitcoin and crypto native markets into AI infrastructure for capital. Obviously, much like railroads being built back in the day, AI infrastructure is the main project of today, perhaps the next decade or so. And we see this reflected in capital markets as well. A lot of money and investment is simply moving towards AI infrastructure. And perhaps Bitcoin is seeing a bit of a substitution effect in terms of growth capital moving elsewhere to look for returns. And then we also have an incoming set of IPOs which may arguably be the largest IPO cycle of this decade. Right. We're talking about aerospace and defense companies, AI labs, et cetera. So I think there's an interesting effect here where capital is being sucked out of Bitcoin and perhaps going into these other areas of growth. So that's what we're keeping in mind from a price action perspective. And then obviously when it comes to the mining side of things, we're watching curtailments. In fact, our research and development fleets located in Texas is curtailing actively at the moment. We are testing our intelligent mining operations so we get to see this in real time. What we expect is for hash price to be around the $30.50 range up through to November of 2026. So that's where short term expectations are at the moment.
- [48:22]
B
Khan, thanks for coming on Block Space and sharing the Luxor and hash rate index insights. Looking forward to have you on again whenever the next installment comes out. Cheers.
- [48:35]
A
That's fun. It's monthly.
- [48:36]
B
Yeah.
- [48:36]
D
Thanks so much, guys. See you around. Take care.
- [48:40]
B
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- [49:51]
A
Okay, will time to rip more data center stocks.
- [49:54]
B
Time to rip more data centers SpaceX on looming IPO. I think it's what, like next week? Am I getting this right?
- [50:04]
A
Yeah, it's, it's really soon here. I don't remember the day, but let's actually go to this Leopold story first.
- [50:10]
B
Yeah, yeah. Okay.
- [50:10]
A
So let me this is fresh from the Wall Street Journal this morning. We did a little rewrite of it, but the Situational Awareness Hedge Fund, it's doing pretty well. It's doing pretty well. So the Wall Street Journal got some inside scoop from people associated with with situational awareness. For those who are not in the know. It's the hot new hedge fund, mostly focused on AI infrastructure. It's co founded by a guy out of OpenAI and he wrote an essay called Situational Awareness the Decade Ahead, basically laying out this thesis for why AI infrastructure and AI in general will recompute the entire economy. And if you really want to ride the wave, then you got to get in on the AI infrastructure stocks. He did this with a few purchases, including in the past stocks like Core Scientific, Irin, et cetera. And as of the latest filing, which is just a snapshot, every quarter they included more Bitcoin mining stocks or former Bitcoin miners as they're more and more going as including Bit Deer, CleanSpark, Keela Infrastructure, formerly known as Bit Farms, et cetera. So we covered all of that on Block Space. I think we've talked about in the podcast podcast this morning the big news for situational awareness, which the Wall Street Journal got a nice scoop on, was that they broke $20 billion in assets under management, which brings them into the larger categories for hedge funds. It's pretty far up there. Then the last thing that they noted was that Jane street actively is investing with them, meaning that they're giving situational awareness the ability to invest dollars on their behalf. They're up over 1000% since the inception of the fund, I believe, not including fees. And then they're up 270% year to date as well. So they're doing pretty well. The one thing I'll say about the snapshots, the 13 Fs and GS, is that those are very context dependent on the moment. The Wall Street Journal article laid that out pretty cleanly. But if you don't follow these things, giving you a snapshot of the holdings at a certain point in time, there's a lot of puts and calls and stuff like that in there, which give you kind of like some indication of how they're thinking about the market structure. But it changed quite a bit. The thesis, however, is pretty cleanly laid out in that essay, talked about. And then some of the other holdings, like bitcoin miners pivoting to AI infrastructure. Any thoughts on that, Charlie? But we can talk about SpaceX in a moment.
- [52:37]
B
Leopold is copy trade for the indefinite future. This kid. Kid, I mean we're talking kid, we're talking low 20s when he wrote this essay back in I think 2024. So I think he can drink alcohol now and he runs a $20 billion hedge fund. It's ironic though, you know, that the Wall Street Journal got an inside scoop to situational awareness because the, you know, the rumor on the street is Leopold because of his proximity and because of the theme of the situation, situational awareness cabal in the Bay Area is that he knows all the people, he's got all the contest, that's his alpha, you know, those, I mean those Zoomer Group chats must be going wild. So yeah, that's Leopold, I think. What else have we got? We got Cormant as well.
- [53:28]
A
Yeah, I mean, we'll just hit on this really quickly because Corman's not public. The friends of the show. I thought it'd be interesting to kind of talk about this, but they announced a new land deal that they're working on. I think they just put on LinkedIn. I didn't see it in the press releases, I didn't really see anywhere else, but I think just giving people a sense of what's happening in some of these former pasture land across the US that people are finding these locations, throwing them up on LinkedIn, trying to sell them, trying to find new partners, providers. I wanted to pair this with the SpaceX story because this is your prototypical land deal you'd find in the US or elsewhere. This piece being in Texas and SpaceX jumps everything and says, hey, how about we move this entire process to space? That's kind of the story of the prospectus in S1. Now, of course, there's this big in between step called Colossus in Memphis, which is approximately 1 GW gigawatt site as of Friday. We had new news that we were not able to cover on the live stream because it hit at the end of the day, which is that Google signed an LOI, an agreement with SpaceX to have a $920 million monthly lease for compute at XAI's Colossus campus. There's a bunch of outs in this, which a lot of people on Twitter were really quick to critique, that Google can kind of walk away for any sort of reason here that might happen. You might get a headline in 30 to 90 days that this contract is over. But assuming that it does click, you start to see a pathway for XAI to start making a ton of cash and pay off its data center very quickly. Which goes back into the thesis for all these bitcoin mining companies that are pivoting to AI in the first place. That's the same math that they're doing it. Elon has just been able to do it faster, bigger, better than anyone else because it's Elon Musk. Charlie.
- [55:26]
B
Yeah. Let's review the latest in XAI deal flow. So XAI merges or acquired or merged, joined with SpaceX earlier this year and SpaceX had in 2025 made, I believe, roughly $18 billion in gross revenue. As I brought up last Friday, the anthropic deal alone, which is 1.25 billion a month, adds like 80% gross revenue. If you bring in the Google deal of an additional 9 or 20 million per month, that then means that just these two tenants alone more than Double Space X's revenue for the coming year. Assuming they sound as clients. And these deals are like as and they remain, you know, continuous. One other thing is like, so there's Colossus 1 and 2 in Memphis and Colossus 2 remains Xi's kind of flagship now. Now it's like they're all the GPUs are the same basically at a high level. Whereas Colossus 1 is kind of a mix. It's a blend of diverse GPU sets which, depending on how deep you want to go, they can be good and bad at certain things. It's basically probably the less desirable compute stack for a client. But xai has it, SpaceX has this ready to go and they need tenants
- [56:56]
A
and people need compute, People need electricity right now. There's so many conversations still out there about we need size, we need compute at size. We're seeing headlines once a week about A new company needing compute. I mean, there's one last week at Jane street looking to build its own data center campus, right? And you can go build one and wait 12, 18, 36, 48 months to get something going, or you can talk to Elon and rent out part of the data campus. And people with cash apparently are choosing to do that instead.
- [57:28]
B
Yeah, a couple. So, like a lot of people kind of wonder why is Google doing this? I think a lot of, there's a lot of asking questions of why does Google want to rent Compute? They have a bunch of their own. And one angle is a lot of people probably forgot this. Google acquired a 5 to 6% ownership in SpaceX back in 2014 to 2015. This is long before they did AI. This is before the XAI merger acquisition. And so this kind of like one, it drives additional revenue to SpaceX. So it like adds a lot of tailwind to their income to their imminent ipo. It also diversifies Google's compute across like different labs and different landlords. I think this is a trend we're seeing across the industry right now. I believe every major lab now that Anthropic has The deal with SpaceX is now running multiple vendor compute strategies. So you have diversification and it does in a way become almost like this, you know, kind of looped system where everybody has to deal with everybody else. I have this tweet here which I will pull up, which did the numbers over the, over last week kind of as a bait. Tweet from Boring Biz says Elon Musk's XAI reportedly spent 40 billion to build their data centers. Based on public disclosure of the Anthropic and Google deals, XAI will get paid $26 billion per year to license the company COMPUTE for these data centers. This account says this is a payback period of 18 months and attaches a chart and I think, you know, at the, at the, at face value, yeah, this is a ton of revenue coming in for the initial spend. However, the big question, which I don't believe we know the numbers on, is how much does it cost them to run this compute? What's their power? What, you know, ads, what's their, you know, overhead? SG&A. Like, you know, if those, if the margins are good, this is still an incredible deal. But we don't know that yet, as far as I'm aware. Will you have thoughts on this?
- [59:50]
A
A lot of cash. Capex costs are really high. This is where we get those clips. Like we had one last week, people saying that it's too costly. The math is a math. This is too much of a bull market that's turning into a bubble. And then you have the graphics against the railroad boom of the 1860s to 1890s or other time periods, the PC boom, the airline boom, the automobile boom. Just really depends, I think, on do you think this AI infrastructure is going to be worth it? And then what is the compute refresh rates? That's a huge consideration, I think worth talking about more. And then lastly, how do you think about some of the adjacent industries? We saw memory stocks popping the last six plus weeks. How do you think about that when it comes to OpenAI? And when they're building this out, if they're able to turn around and sign two large leases and perhaps be able to pay off everything they've done in 18 months, that's a huge win compared to some of the others out there that are trying to stack convertible notes on top of senior debt on top of other options to get something going. They're actually going to have revenue come in the door to pay for these things. Meanwhile, that's not even necessarily like their future business model. So huge win for them. I don't have much more to say on that. We'll have to get more experts on to give us the bull or bear case for it.
- [61:10]
B
It really does showcase that while there are clearly now two front runners for Frontier models, Anthropic and OpenAI, you can argue Google Gemini is up there. Nobody really puts XAI as a Frontier model. But yet XAI is the one which appears to be generating some of the best revenue, which means we have a competitive and dynamic landscape. This is exciting to cover. Theoretically, this might be better for the end consumer. If this non monopoly persists, we'll have to cover this in weeks to come. Speaking of which, thank you for tuning in. Blockspace goes live every weekday at 1pm Eastern. This live show is brought to you by CleanSpark, NASDAQ listed ticker CLSK and we are leaving CoinDesk. So stop what you're doing, subscribe to the Blockspace feed. Search Blockspace on whatever platform you're on and go there. We end in a week. Otherwise. I'm Charlie. I'm Will.
- [62:16]
A
Thanks for listening.
- [62:17]
B
Thanks for listening. See you tomorrow.