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How the US Plans to Fast Track Data Centers, STRC Depegs from $100, Hive Signs $220M AI Deal
01:18:56
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- [00:00]
Hunter Beast
Foreign.
- [00:05]
Colin
What's going on, y'?
- [00:06]
Matt Williams
All?
- [00:06]
Colin
Welcome back to Block Space live presented by CleanSpark. Bombshell news today, Charlie, as the Federal Electricity Reliability Council is issuing new guidance to expedite data center large loads in local grids somewhat maybe pushing the boundaries of what they're actually obligated to do, but they are trying to make sure there are guardrails in place to make sure that this does not affect retail electricity prices. More on that for our lead story after we get to our first our Hash Rate Index update to start the show. Following that, we've got three interviews lined up today. We've got Rob Hamilton of Anchor Watch, we've got Quantum Wizard, Hunter Beast, and we've got lectures Matt Williams on to talk about misconceptions with AI curtailment abilities and also AI energy markets in general and why these providers might need more hedging than Bitcoin miners themselves, despite the fact that their compute is much more lucrative. For our second news story today, we also have news that Hive has inked a new AI deal, sovereign AI, as they're calling it, on the back of them acquiring a data center that they have been a tenant in since 2018 in Bowdoin, Sweden.
- [01:23]
Charlie
That's right, Blockspace goes live every Single weekday at 1pm Eastern and featuring quick hits on AI data centers, Bitcoin mining, emerging tech and markets. Make sure to like and hit subscribe. Click the notification bell if you are on YouTube to get the push notification and this turns into a podcast shortly after we wrap up the live show. Find it on any podcast player or downloader that you want. Leave us a review, five stars out of five, preferably. And if you like the stream, you'll Love our newsletter. Newsletter.blackspacemedia.com if you can't listen to the whole stream, you can quickly skim to the newsletter. We include memes in the newsletter now. Yes, we've capitulated. We do add memes. It's a. It's a look into our psyche, the collective psyche of Block Space. This show is brought to you by CleanSpark. Nasdaq listed ticker CLSK on CleanSpark later on in the show. Let's kick it off with some hash rate index. Colin, let's look at the state of mining.
- [02:30]
Colin
Yeah, this is the Hash Rate Index update brought to you by Luxor. Charlie, I wasn't looking at Bitcoin's price today. I don't really look at it that much anymore because we focus on Data center so much. And I regret to inform you that it's down to 62,000 after pumping recently to just about 66 following the most recent sell off to its yearly low around 60 or 59,000. So as a result of that, hash price has taken somewhat of a hit. But we're coming off of a negative difficulty adjustment. I believe the previous adjustment, Charlie, was negative 10%. Yeah.
- [03:08]
Charlie
Down 10% to really kick off the 4 CP season in Texas because that's when everybody's curtailing for the four coincidental peaks.
- [03:16]
Colin
Yeah. For all that heat. So that we can rip that sweet, sweet AC that I assume the European tourists to the US for the World cup are realizing is actually the best thing ever.
- [03:29]
Charlie
Oh man, they're eating at Waffle House and getting and doing it in.
- [03:32]
Colin
They're doing the most mundane things other than like Texas barbecue. Like they're going to the local places. But you'll see these posts about people going to like Golden Corral or Waffle House and having like a transcendent experience,
- [03:46]
Charlie
which they're not wrong. I love Waffle House.
- [03:48]
Colin
You can, you can see the aristocratic ghosts leaving their body and they inhabit a like hillabilly form as a result. Anyway, all right, that aside, difficulty just fell and now it's looking like we're only about a third of the way through the current epoch. But there's an estimated difficulty adjustment of around 5% given current block times and hash prices at $32 a day or $32 for PETA hash per day. And man, if you look at hash rate, man, we're still just absolutely in this downtrend. I mean it popped because of the recent difficulty adjustment. And also I'd imagine maybe some curtailment subsiding in Texas and elsewhere. But overall the. We're basically where we were a year ago. Which again tracks what we've been saying about hash rate probably being stagnant this year if not falling at by the end of the year from where it was when we entered in January.
- [04:45]
Charlie
Yeah. Then just to go back to Texas, like this past week in Oklahoma, which is Texas's younger stepchild brother, it was hot. So not surprised that people are curtailing will monitor Hashra Index. We'll catch it next Friday too. To close out the week to review what the bitcoin network did. That'll be close to the next difficulty adjustments. We can see what happens. All right, Colin, let's introduce the people to something called ferc. If you aren't aware, FERC stands for the Federal Energy Regulatory Commission and we have a really interesting development. I don't think anybody else is talking about this in bitcoin adjacent land here because this is like kind of an app. It's kind of ambiguous how the power gets to your home. But it starts with ferc. Yeah,
- [05:40]
Colin
I was getting it confused with ercot. I thought it was the Reliability Council. So thank you for correcting me there. Ferc, Federal Energy Regulatory Commission. This just hit this morning and the TLDR here is that they are issuing new guidance on how grid should speed up data center interconnection. Now the trigger event for this was on October 23 last year. The Secretary of Energy invoked Section 403 of the Department of Energy Organization act like a very rarely used piece of mandate of authority to direct FERC to consider new rules for large load interconnection. Specifically, the two most important parts of this new framework are, and again this is just a framework and guidance. There's nothing set in stone from a regulatory front here. There's a reason for that that we'll get into in a second because FERC's kind of entering a gray area over their, their actual authority and jurisdiction. But the framework of principles for new and co located high hybrid data center facilities of 20 megawatts or greater asserts that grids, or specifically those large loads, grids need to assign on Those large loads 100% of the associated network upgrade costs. This is similar to what we've seen in ERCOT recently where they're now telling data centers, you want all this power, you're going to have to upgrade the grid accordingly. We're not going to do that for you. It's a, it's a, it's a seller's market for energy right now. And then the other thing is that they want to expedite the study process by 60 days for loads that agree to be flexible and curtailable. Basically saying if a load is saying that they can shut down at times of grid stress, you need to expedite the study process for that to make sure they can get through the queue quicker. And what they're basically trying to do with this is they're trying to expedite large loads for AI data centers to the grid in a way that is still, hopefully still a little, a little responsible to make sure that energy prices for retail aren't skyrocketing. That's part of what the demanding them to pay 100% of the transmission cost is doing. Instead of socializing those costs along other rates like for retail consumer and other, or commercial and other industrial consumers, they're trying to make sure. That these data centers don't lead to a spike in costs. It's also a part of the curtailing aspect. One last thing here, Charlie. Their FERC's guidance says they want to see grids expediting, especially when data centers are bringing their own power. So if a data center is going to have backup generation, let them rip that first and then solve the interconnect later and again when they agree to curtail during high stress periods.
- [08:29]
Charlie
So okay, so I think if you, if you aren't aware with this, with these abbreviations in lingo, let me like zoom out and try to put in layperson's perspective terms. So if we talk about the regulatory hierarchy of different entities and organizations, it goes like this. You have the federal ferc, which is a regulatory body which, which says how the regional transmission organizations or ISOs, RTOs and ISOs can behave. These are multi state grid interconnect systems that connect like the high voltage lines and the distribution transmission. And underneath. And as underneath the RTOs and ISOs you have the utilities. That's where the ones like you, that's who sends you your power bill in Oklahoma. You're going to get your power bill from PSO Power Service in Oklahoma or OG and E Oklahoma Gas and Electric. So you have FERC, the regulatory body, RTOs and ISOs underneath that and then utilities which then actually send you the power. So when we look at the giant data center backlash which is happening everywhere on Boomer and Zoomer social media, this FERC proposal would be, would ameliorate that considerably in that it says right now if one of these big data center loads seeks to be built,
- [09:59]
Hunter Beast
all the
- [09:59]
Charlie
power lines and distribution that need to make that happen are actually typically on the shoulders of the utility itself. The utility builds with power lines and then sometimes charges back a lot of that to the actual entity that wants you to build the power lines. But it's actually like a socialized cost to all customers of the utility. And so this would say data centers. If you are going to like the, you guys pay the bill. So you got to. And it helps if you're bringing your own power generation so we don't have to distribute it to you. This would be a very good sign for people who want like some kind of like healthy medium here where the end user, the retail consumer, you know, Main street is not paying for Wall Street's data center build out. That's the TLDR on like my explanation.
- [10:52]
Colin
Yeah, I like that. Because what they're trying to do basically is have their cake and eat it too. Here they're saying we need to get these data centers through the door. And why is a federal agency doing this? Well, you know, you could say that the Trump administration's pro growth, there's also a national security angle here. They want to make sure we have more of these than adversaries so that we can stay at the forefront of developing these models. And they want to do that in such a way that doesn't just absolutely kneecap all the other payers. But I want to go back to this gray area because part of per your explanation of what FERC does, FERC typically only has regulatory jurisdiction specifically over how generator are generating, sorry, how power generators, how power plants connect to the grid, but they typically leave how end consumers of that power can interconnect with and consume that power. They leave that up to the states and the local authorities. And what FERC is doing here is they're kind of stepping into a legal gray area because as the chairman of FERC herself said, you know, from this or during, you know, the discovery for this, she basically said we're trying to figure out what our actual limits here are. And there is a case here with pjm. PJM is the power market that services Pennsylvania and parts of Ohio.
- [12:27]
Charlie
A large part of the largest one basically. Yeah, yeah.
- [12:32]
Colin
There's actually a case here with PJM where earlier this year FERC ordered PJM to let co located data centers pay for only the grid capacity they draw instead of being billed for full grid services regardless of how much they get from on site generation. Basically, if you're in PJM right now, as I understand it, you can have on site generation, but you still have to purchase whatever your load is from PJM from the grid and then you can sell your generation back to pjm. And FERC here is saying that is wildly inefficient. Just let them actually consume what they produce on site. This should be net positive because you don't have to worry about giving them additional load. And then if they need anything else they can buy it from pjm. But there's no reason why they should have to buy and then send power back when they already have the generation on site. But this is a gray area because you could argue that the on site generation that a data center is co located falls under FERC's jurisdiction because it's generation that's connecting with the grid. But you're also, FERC is also trying to mandate how that load within the Grid is managed, which is technically on PJM and the localities. And so there's actually jurisdiction for this. Sorry, almost done. There's actually jurisdiction for this or. Sorry, there's a legislative battle. I can't talk today.
- [13:56]
Charlie
There's a lot of words, There's a lot of dollar words we got to wade through here.
- [14:00]
Colin
There's litigation outstanding for this that will decide whether or not FERC is overstepping its bounds currently. And this could potentially have ramifications for the guidance it's trying to give now. Because if FERC is really trying to wade into how large loads interconnect to the grid and pushing the boundaries maybe of their jurisdiction, that case could decide whether or not what they're trying to do with this new guidance is actually permissible under the law.
- [14:31]
Charlie
So, and so you bring up the legal challenge because this is ongoing and this is again, you say gray area and this is where the part two, the other shoe might be dropping here because I got to show this. This also announced yesterday. Surprised I didn't see any, like the bitcoin media pick it up, but friend of the show, Cynthia Lummis, friend of the show, Cynthia Lummis, also friend to bitcoiners and broader crypto legislation, introduced a legislation to modernize rules for high powered grid connections. Now, this might also sound like the same dang thing, and in a way it kind of is. This is the Power up act introduced the day before yesterday, I believe the day before the FERC proposal. And it would codify into law what FERC is trying to do by regulation. So let me say that again, it would make it a law what FERC is trying to add as a legislature. This is a parallel legislative path. And it matters because right now, as Colin said, FERC rulemaking can be challenged in federal court, but if Congress passes the bill, then it can't. And then also the Power up act would kind of allow FERC to issue a final rule on these within 18 months. It would increase like the large load definition from 20 megawatts, I believe, to 100 megawatts, which would probably be more in line with how big this shit's being built anyway. These are very, very big data centers. So we've got our eyes on this. I think Cynthia Lummis has been talking to bitcoin miners for a long time. Of these senators, she's probably the one who is probably the most dialed into the transition in finance and money and the transition into, in large loads and data centers on the power grid. So we may have yet Another ally who is sophisticated and smart and so shout out Cynthia Lumnis. If said that she wants to come on the show, she has an open invitation.
- [16:27]
Colin
And to cap this off, we will be keeping track of this because this is probably the largest single regulatory response yet to the AI boom in the US it's coming at the highest level and it could completely rewrite the rules for federal regulation over grids.
- [16:47]
Charlie
So yeah, this is a really, really big deal that's really that buried in obscurity unless you're in the industry. So eyes on this. This will make the Facebook boomers happy. This might kind of ruffle the feathers of some of the AI data centers, but it's good for them. It's like helping them take their medicine probably is basically what it is. Okay, we got Rob Hamilton in the wings and we are going to talk about bitcoin stuff with him. But before we bring Rob on, let's hear have a word from our sponsor, CleanSpark.
- [17:15]
Colin
We are CleanSpark, America's Bitcoin miner. A publicly traded company with the largest operating hash rate powered entirely by self operated infrastructure across four states.
- [17:31]
Hunter Beast
This is our proof of work.
- [17:34]
Colin
We are setting the standard standard for what's next. Learn more about the intersection of energy and bitcoin@cleanspark.com
- [17:47]
E
if Bitcoin's actually the best
- [17:48]
Colin
money and it's the thing that people should accumulate, it's the best risk adjusted asset. I lose zero sleep about whether or not that's gonna happen.
- [17:55]
E
I just ask the question of when is liberty matrix map the you're running on large pieces of the bitcoin miners can absorb that energy and and in
- [18:06]
Colin
many ways this feels like a second
- [18:07]
E
bite at the apple to build a new Internet.
- [18:19]
Charlie
Energy investors forum in Dallas. Be there. There's a code in the video description. Okay, Colin, let's let's talk stretch and other bitcoin shenanigans with our boy Rob Hamilton. Welcome back to the show, Rob.
- [18:35]
E
Hey everyone, thanks for having me.
- [18:37]
Colin
Thanks for joining Rob.
- [18:39]
Charlie
So Rob, I know you're in the entrance game and you're in like the, you know, the bitcoin game. But I'm going to put you on the spot and we're going to riff on what everybody's talking about not just in bitcoin Twitter, but also in finance Twitter, which is stresh which is plummeting 85 now. I think it hit 82 overnight. Am I wrong about this? It was low. What are you seeing out there? What's the reaction in the world of Bitcoin investor, Twitter.
- [19:09]
E
Yeah, I guess maybe just take a half step back stretch. STRC is the stock ticker, is this preferred equity instrument, MicroStrategy issued that is supposed to be at $100. That is the target goal. The idea is that when the share price goes above $100, strategy will issue additional shares of STRC to keep the price at $100 or you know, or they can't keep it from going lower as we're seeing today. But the idea is that if it ever goes higher, they're going to sell, create, issue new shares and they take the incremental dollars they get from selling those shares and buy bitcoin with it. The idea being that bitcoin with a roughly 30% CAGR being able to pay 10% to get access to credit today and paying out that dividend is actually a pretty reasonable position from their perspective. When you have 850,000 bitcoin on your balance sheet. What we're seeing currently with this dip down, I actually have a little man on the street journalism to report here. When I was in New York City at OP Next, there were multiple people at the Pub Key afterparty who I was talking to that were hanging around the bar and they were saying that they were going on Robin Hood and they were going, they were borrowing money from Robin Hood and then going lever long STRC as like a carry trade, right? So if Robin hood was charging 6% interest and STRC was paying 11 and a half percent interest, they could just carry that spread and be able to carry that forward. This gets further exacerbated, which I think is not as often talked about. But in the general defi ecosystem there are tokens like the Apyx token that basically allow you to take dollars deposited and get these tokens that basically go into the market by STRC and then what you can do, it's called in defi looping. And David Seyroy had a really great video about this maybe like a month and a half ago where all what you would do is you would get some Apyx token, you would then lock that up, you would get dollars for like, like a loan against it and then you'd go and buy more Apyx and you would just loop this continually, continually. And looking through it like I think a lot of the deleveraging is kind of a breaking of this carry trade where people were thinking that it would never go below the $100 or stay really close to it so their margin position would be protected. And all you needed was a couple incremental sellers to cause a, a cascading downward like you would see in any other financial asset that has financial leverage on it.
- [21:40]
Charlie
I mean. Yeah, so the thing is like Stretch is still paying out 13.4% yield. It's now doing it twice a month, I believe. Yes, but like the yield is still intact.
- [21:52]
Colin
Supposedly the treasury, in response to this. Right. It was 11.5, I thought. And then that's.
- [21:59]
E
That's right. So the way like just with any other instrument, like you could view it like a bond, right. If you have a hundred dollar, like the value of the bond's a hundred dol. And you're paying eleven and a half percent interest, but now all of a sudden you can buy that same note for $83. They're still paying that rate based on if it were at $100, 11 and a half percent. But that's why it actually goes down. It's like 13% now. Which is interesting too, because the other major preferred issue in the market is seda, which is part of Strives Capital Stack. As a preferred instrument, they went right to daily dividends, which actually just as a financial premise, it's kind of cool that they've been able to break it out into a daily issuance of a yield that gets paid out. Because you would have this dynamic where if right now we're in between the issuance of the notes of the coupon payment for strc, why would you want to hold STRC for the other half of the. If there's one day right before they issue the dividend where if you hold it, you get paid. You don't get paid anything. If you hold it today, on June 18, you have until the end of the month where the next dividend payment gets paid. You might as well park your capital somewhere else. You're not being paid to hold STRC in the interim. And you can kind of see also like for the STRC Live dashboard you have here, SEDA has dropped off as well, but it's higher. And you would think intuitively, wait a second, that doesn't make as much sense because Stride has a smaller bitcoin balance sheet. Conceivably, like the strategy should be a better credit risk because they have so much more assets on their balance sheet. But it's because on the interim at least you're getting paid to hold that coupon note daily in with seda. Whereas first strc, it's only twice a month, which just got moved over. Originally it was once a month and now it's twice a Month. It wouldn't surprise me if in the coming month or two Saylor just moves it to daily because it's not like it has a significant overhead cost to them. They might as well try and disincentivize intermediary capital flight of leaving for like most of the market time coming in the day of buying it, getting the dividend and leaving again.
- [24:01]
Colin
So this to me, given that SATA is also dropping, it seems somewhat endemic right now. I mean this is not just isolated to stretch and strategy. Rob, so is your read on it, what you just said. Do you think we're starting to see some of these defi looping trades or some of this carry trading from all these different platforms unwind right now a little bit?
- [24:23]
E
Yeah. So APYX says that they have $400 million assets under management that are kind of buying these assets out in the market. And it's interesting with the beautiful age of AI, I can just point Claude right to the contract address and it'll just tell me the liquidations, which I did just before coming on the show. There was like a million and a half dollars of liquidations in the morpho APY USD USDC market, which doesn't sound like a lot. Right. But I think the larger story though is that you have some people that are just moving, pulling out, going elsewhere and then you have these levered positions that start unwinding, they're going to have to probably reevaluate their capital stack and also morpho. So not morpho is the lending protocol, but strc, the stock only trades during market hours, whereas defi is 24 7. So you start having this market dislocation too where Apyx started freezing the ability to move these funds. Because what are you going to do if someone wants to sell during off market hours? Apy, someone has to hold the balance sheet risk. If I'm able to sell now and then I have to wait till the market to open to close my position. You're not able to do a clean arbitrage, so you almost have this like inversion where D5 starts becoming tied to the traditional market hours if that's the main asset.
- [25:36]
Colin
Which is hilarious too. Sorry, Charlie, I just had to make this point. I believe one of Sailor's selling points for this was that this was not defi.
- [25:44]
Charlie
Right.
- [25:45]
Colin
That it didn't. Was not exposed to the risk of defi. You know, this is traditional finance.
- [25:50]
Charlie
Okay.
- [25:53]
Colin
This is not shitcoins, you know, and it's. And it's still beholden to the same risks that Tank, you know a lot of these lending protocols on chain.
- [26:05]
Charlie
So anyway, but Colin and Rob, I gotta ask, how did Saylor come up with Stretch? Well, he does talk about it here on this CoinDesk interview, which I'm gonna roll tape and we can let him tell us himself.
- [26:18]
E
Did Stretch. You know, I designed all these with AI. You know, I couldn't have done it myself. I, I literally said and I used artificial intelligence and I, and I went back and forth with the AI for a few hours. And so you were just on chatgpt
- [26:31]
Colin
just like the rest of us figuring out how to design these different offerings
- [26:36]
E
and arguing with it and saying, can I do this, can I do that?
- [26:40]
Colin
So this is vibe fi.
- [26:42]
Charlie
That's what this is.
- [26:45]
E
I'm going to have a controversial hot take. I would say that holding preferred equity is probably way better of a financial product than Defi's ever previously had. Rather than yield farming fruit tokens and stuff. Right. Like there's actually something here. So like. And also Saylor doesn't have control over what people do with his stock. So for someone to go run off and create an entity and start buying these things and allowing the looping and the leverage that would never be accessible anywhere else like in a traditional financial system, you can't like that. That is a factor which is outside of his control. And I actually just dropped a link in the chat here for this protocol. Apyx was offering 90% APY to lend your Apyx token into the protocol. Which definitely signaled that there was some sort of capital distress event that was happening. It is now in the past. He did that tweet last night, now this morning it's back to 12 and a half percent. So there was definitely a dislocation overnight to be offering 90% yield. And now we're back to 12 and a half in the morning. Which would probably partially also explain that this is independent of strategies balance sheet. This is independent of their ability to pay the debt. This is something that is just a financial just kind of unwind and defi leverage that just has these larger market impacts now. And I think this is, this is part of the trade offs of integrating these assets into Defi is that you're going to have a lot of this volatility and then it comes back into publicly traded stocks. Like it just gets right back in.
- [28:16]
Colin
And I think that that's fair. My point in bringing that up was not to say like it's strategy's fault that people are doing these carry trades. It's simply that this is A maybe an unintended consequence of issuing something like this in an industry that is, you know, associated with degens. Right. And I actually do think, though, at some point he was saying that this was a net benefit of, like, basically synthetic stretch, the idea that it could be traded and integrated into other things as well, which, again, all of this is out of their control. I merely highlighted as a spectacular consequence of this industry that he's swimming in. Yeah.
- [28:57]
E
And so there's like this when you think about strategy, right? There's actually kind of three partners. Like, there's three constituent stakeholders at the moment that are at odds with each other. You have the MSTR common shareholder. You have the STRC preferred shareholder, and you just have people who like bitcoin and are holding bitcoin. Right. And there has to be. It's kind of like air in a balloon. Like, you have to find somewhere where the capital is going to go and where the capital is going to be sourced from to be able to pay the dividends. I think the biggest controversial thing around the management of the treasury up to this point was they had a $2 billion cash. I believe it was $2 billion in cash. And they went and they bought a convertible debt note that was far out of the money, but it wasn't until 2028, end of 2028. And so that was almost a billion dollars they put out of the table that pulled out of the cash reserve, which I think probably spooked some investors, where now there wasn't as much of a cash reserve there. And he's at a point now where, like, does he sell bitcoin to pay the dividend, which would, you know, upset bitcoin holders. It'd be capital coming out of the bitcoin ecosystem. Does he issue more MSTR to pay for the STRC balance, or does he let STRC kind of hang out, like, below par? Right. And, like, all of these things are, like, you have to find somewhere where the dollar is coming from to be able to ultimately keep the flywheel going.
- [30:21]
Charlie
And the worst part is, is that Mythos is down, so he can't ask me those. He has to use, like, Opus 8, who's not going to give him the right answer. Meet those. Meet those. Would know what to do. Rob. Okay, before we let you go, we got another great bitcoin guy, Dev, in the. In the wings. Hunter, Beast. We're going to talk about some quantum here in a second. But before that, Rob, I want to get your take on the Illinois crypto tax. Now, I know I don't think Anchor Watch has anybody in Chicago that I'm aware of. But the, but the governor and Illinois want to tax every single crypto transaction. This is like a big deal. Does this.
- [31:02]
Hunter Beast
Yeah.
- [31:03]
Charlie
Wait, whoa, whoa.
- [31:04]
Matt Williams
Hang on.
- [31:04]
Colin
I thought it was just brokers and exchanges. I don't think it, I think it's just on.
- [31:09]
Charlie
No, it's all transactions you make if you when of any crypto type if you're within the borders of Illinois. Like I was going through this. I think he's right. Even if you like consolidate UTXOs.
- [31:21]
E
Yeah like self custody self transferring UTXOs 20 basis points. You know it's. Colin, please keep me honest here. If I'm totally wrong here I'm gonna,
- [31:32]
Colin
I'm gonna fact check this. I'm Jenny me VPT this live on air because when we, when we had the reason why Charlie is because when we had Tim on yesterday he was saying it was just bitcoin that was custody with a, with a broker.
- [31:46]
Charlie
No, I think, I think, I think he was emphasizing that it included that. I mean the thing is like this is really new. This was added in omnibus budget bill like very recently and we're all still kind of reeling. I don't know, maybe less of figuring out less of resolving self custody. Self send topic right now. I'm curious Rob on the impacts of people running bitcoin or crypto. Crypto related business is in Illinois. Maybe like this. If Anchor Watch were in Illinois, what would you do?
- [32:18]
E
I mean that'd be something that grounds to leave over, right? I mean we saw like it's not the same exact thing but you saw in Washington state that billionaire tax they left and now Gabe Newell, the God of gaming and Steam is now just moving to Florida. Right. Like you're just going to. When you tax something you disincentivize it from happening. And when you're dealing with like a digital asset just pretty. It's not like it's a steel mill plant where like it'd be really hard in capital model intensive to move elsewhere. If you're dealing with software people are just going to move somewhere else.
- [32:47]
Hunter Beast
I.
- [32:49]
E
It's something too that I think there are probably some property rights questions there where if it is including just self transfers like if it's my own property, like why are you taxing me from using my own property when there is no capital?
- [33:00]
Colin
It doesn't. It's only at the service layer. And I think that's really, I think that's really important because like it's still bad. I mean this still is for sure. You know, like this is creating a new, you know, tax onus on service providers in, in. In the state.
- [33:16]
E
It's interesting. Chicago has a big like, like the, the cme, like the Chicago Mercantile Exchange. Right.
- [33:21]
Charlie
The.
- [33:21]
E
The cboe like, like the futures markets and the commodities future markets that exist there. It's, it's funny enough, I guess a plus for using an etf because you're not going to get taxed on the etf.
- [33:33]
Charlie
The ETF will get taxed if. Well, they're not located in Chicago, I don't think. But yeah, the ETF will get taxed on like inflows.
- [33:40]
E
Oh, the inflows in. Absolutely. Yeah, you're absolutely right.
- [33:43]
Charlie
Yeah.
- [33:43]
Colin
And you know, it's also interesting, there's a gray area because withdrawing from the exchange could be a taxable event. That's something that's.
- [33:49]
Charlie
That is. Yeah. That is a taxable event. Right.
- [33:51]
Colin
But like once you actually self custody they're not going to tax you on everything.
- [33:55]
Charlie
It's like, it's like bit nomials there. It's strike. It's the, the crypto ATM people. Like there's a. Is Chicago. It's like financial one of the.
- [34:08]
E
Yeah.
- [34:08]
Charlie
In the world. So.
- [34:10]
E
Yeah. It's also too just quite ironic where I think it's four out of the past seven governors of Chicago have been like arrested and like for fraud and corruption. Right. They're not really like the best stewards of responsible managing their capital. Once Governor Pritzker removed all of the toilets out of one of his house to say that it was basically uninhabitable so he didn't have to pay property tax on it. Right. These are the people that are trying to find ways to save tax. But trust me, they're going to use that 20 basis points of every transaction that's happening at these service layers for a really good cause. They're going to actually solve all of the problems in the state of Illinois by making sure we can tax this.
- [34:45]
Charlie
Rob, thank you so much for coming on Block Space. Really appreciate your time. Let's rip again very soon.
- [34:51]
E
We'll do.
- [34:52]
Charlie
Excited to have you back. Cheers.
- [34:54]
Colin
Thanks, Rob.
- [34:56]
Charlie
Okay, we got Hunter Beast, co founder of Surmount Systems here in the wings. We're going to bring him on. Talk about Quantum and Bitcoin. But before that, a word from our sponsor, Luxor.
- [35:12]
Colin
This episode of Blockspace Live is brought to you by Luxor's Commander Bitcoin miner management software for enterprise operations. Luxor's Commander Gives you real time fleet monitoring, bulk remote commands across your fleet. And intelligent miner, that's an automated profitability engine that runs every five minutes and tests your power settings against live energy and hash rate markets. Ercot backtest showed 10% improved profitability with intelligent mining versus binary mining. Commander Pro is a hundred dollars per megawatt or a 25 basis point pool fee adder, roughly half the price of competition. And you can try it free for 60 days. So if you'd like to learn more and get started, go to Luxor. Tech forward slash commander.
- [35:52]
Charlie
All right, let's talk Quantum. We've gone weeks without talking Quantum. Colin, we got Hunter in the wings. I'm going to bring him up here. Fingers crossed the mic works. Hunter, can you hear me?
- [36:04]
Hunter Beast
Yeah, I can hear you. Can you hear me?
- [36:05]
Charlie
Rock on. Sweet. We got you. Well, good day. We haven't covered Quantum in a little while and so I'll. But in the meantime, Bitcoin's gone down, so let me. You can put your little market wizard hat on here. In your view, do you think the drawdown in Bitcoin at all has anything to do with Quantum? Some people say yes, some people say no. What's your view on this right now?
- [36:32]
Hunter Beast
It'll always be an albatross over the markets until it's solved. I also kind of want to speak to some of the stuff you're just speaking to Rob about.
- [36:42]
Charlie
Oh yeah, yeah, go ahead.
- [36:43]
Hunter Beast
From first principles. So like you were talking about like, you know, geographic arbitrage and regulation, you know, like generally speaking, and just slowly becoming, slowly but surely becoming more and more aware of how we have this huge grifter class in the United States that their whole job is to just legitimize corruption, like come up with new words, to find legal ways to act in corrupt and exploitative and extractive ways where the money just goes to them and it goes nowhere else. They're not capital allocators, they're not creative or productive individuals. And, and if it weren't for them, the dollar would probably be worth probably about a thousand times more than it is now if you, you know, price it in gold. And if gold was the money, right? Like if, if we never left the gold standard and we had, you know, any sense of fiscal restraint, then, you know, we, we wouldn't be supporting this grifter class of unproductive individuals with, you know, hard earned money, you know, so, like, it makes sense to, you know, at first to think of geographic arbitrage and maybe that might make sense. I Mean, look, I, I live in Colorado and Colorado, we pass a bunch of nonsense laws and you know, like, we have, our state even just got sued by Xai, by Musk, because we came up with this AI law that our governor signed. And I, I like police somewhat. I used to like him more. You know, he used to be very freedom minded and he, he did technically sign the AI bill with reservations, but he did sign it. And so, you know, like that, that put essentially our First Amendment rights up, up to question. And they're being challenged by the DOJ and by Elon Musk and so. Right, and rightly so. And so, you know, going back to, you know, like first principles, I just, I just kind of gradually becoming aware that, you know, there's a bunch of people making up fake problems and fake solutions to the fake problems and selling them and. Right. And so like, like until, you know, somebody makes a law and a jackbooted thug comes up to your doorstep with a gun, until that happens, all of that's just fake, you know, like all of that is not real. And so until they come and, you know, try to, you know, essentially grab me and put me in some prison and they think, you know, they can rob me of my physical freedom, but they can't never rob me of my intellectual and spiritual freedom. And so really, like, that would be their worst mistake. Right. Like a complete admission of, of fault and wrongdoing. And I would be my most productive in prison, I would imagine. Like, I would, I would, I would be reading so much and writing so much and doing so much to undermine them from within. And so like, that would be like the worst thing they could ever do.
- [39:37]
Charlie
You couldn't go on podcast, Hunter, which as we know, is the backbone of the bitcoin economy.
- [39:43]
Hunter Beast
Oh, right, Proof of opinion. Poo. Of course. I'm familiar with poo protocol.
- [39:48]
Charlie
Okay. So I, you know, we have, I have some like quantum update questions for you, but you brought up AI and I actually want to throw a curveball at you. Do you see that some AI researchers cracked what's called the Erdos problem? It's a long time mathematical problem.
- [40:06]
Hunter Beast
Well, there's not just one Erdos problem, by the way.
- [40:10]
Charlie
Okay.
- [40:11]
Hunter Beast
There are like thousands over over a thousand, almost two thousand, I think.
- [40:15]
Charlie
Context of quantum here. And I hear this argument a lot, and this is for me kind of a big black swan that I can't like evaluate. Like a lot of people make the argument there are quantum timelines, and those are based upon conventional like research and timelines and expertise but then we have something like Mythos. We have like this.
- [40:35]
Hunter Beast
Yeah, yeah. So you know, you know, it's, there was actually a famous professor here from CU who once said that one of humanity's biggest failings is our failure to understand the exponential function because it's just not something that usually really occurred in nature except for maybe in like wildfires. But essentially like we, we always discount the, the consequences of compounding technological innovation. Like you know, I mean history always bear this bears us out like it back tests. But oftentimes it's like 95% of that progress happens in the last 5% of the time. And so like how, how can we like mentally model such a, an event? Well, like this is one way, right, to realize, you know, there is a certain threshold to intelligence. And you know, if you listen to various scaling laws, you know, like for example, like a 10x in compute results in a doubling of output quality. If that continues to hold, then you know, I mean, it's only an inevitability that we develop very capable machines that are capable of thought. However, we do have to remember that these things are not conscious nor aware. Right? Awareness is a level of consciousness that is far beyond thinking. And so the way I kind of think of these things is like, I mean humans, we, we, we, we are capable of thinking without being conscious as well. Like we have the subconscious thought, we have dreaming. And so like that's, that's something they could do. They can think, but necessarily not necessarily be conscious, much less aware. That said, that's a very powerful thing, right, to be able to amplify a thought. And so, you know, just, just something to consider is that they, they, they could be very powerful at essentially amplifying enough thoughts to find every little crack in every little thing. And one of the things that you know, a lot of people fall into is like, like you always have to think of things from first principles, right? And a really good first principle whenever you're working in software engineering is guttles incompleteness because it has a number of
- [42:49]
Charlie
implications on, you know, what's Godel's incompleteness for those of us who aren't aware.
- [42:55]
Hunter Beast
So the way I understand it is that, and by the, I'm not, I don't have a strong foundation of mathematics, but I do understand that Godel's incompleteness essentially points out that any sort of any, any mathematical system that is capable of describing itself cannot consistently describe itself. Like there will be gaps in its capability to prove its own proofs essentially. And so like there's no system of mathematics we can devise, except for maybe the most simplest, you know, the most trivial systems that, like, are like Bitcoin script, for example. Very reduced problem set. Very declarative, very. You have to unroll every loop. It's very, you know, some say it isn't turn complete. Then we can quibble about, you know, what is it. Yeah, no, no, there's like a. There's a specific. It's Wolfram. Stephen Wolfram. He defined all the cellular automata. And I think it's Rule 1, 119 or 110. Rule 110. Yes. So essentially, Stephen Wolfram, cellular automata rule. So long as it passes Rule 110, then you know that that could be one test of Turing completeness. And so a lot of people are like, we have to even agree on the definition of terms when we discuss these things. So regardless of that of turn completeness of. Because it has a huge bearing on protocol design. The whole reason Ethereum is so complicated, they have gas, and the gas is not deterministic. The whole gas model charging for unit of computation with gas is. It's. It's. It's very contrary to a lot of how Bitcoiners think of Bitcoin, and for good reason. It's not intuitive, and it's really largely a consequence of Godel's incompleteness that we cannot prove that something will halt execution. It's a halting problem. Right. So halt execution before actually running it.
- [44:53]
Charlie
Yeah.
- [44:53]
Hunter Beast
So sufficient complexity.
- [44:55]
Charlie
So I want to. I want to let Colin get into question. If you want. Colin, I'm. I kind of want to zoom out.
- [45:02]
Hunter Beast
Did I answer your question, Charlie? I forget.
- [45:04]
Charlie
I don't know. But you gave us a good. You gave us a good sound clip. That's what. That's what matters. We're not here to. To answer the questions. We're here to get good.
- [45:12]
Hunter Beast
Oh, we're not here to seek truth, of course. We're supposed to just entertain, I guess.
- [45:16]
Charlie
Exactly.
- [45:16]
Hunter Beast
Sometimes I feel like prison might be better, you know, Like I might be more. So much more productive than just.
- [45:22]
Charlie
I don't know, Charlie.
- [45:23]
Colin
I actually have a little bit of a seasoning question before you get to the meat and potatoes. Going back to the exponential problem, Hunter. This is kind of Ray Kurzweil's theory on AI that we'll get to the singularity much quicker than Right.
- [45:38]
Hunter Beast
He puts like, 2045. I feel like Ray Kurzweil might have overshot the singularity. I think it could happen a little sooner than that.
- [45:44]
Colin
So this goes to my question for you. Do you think when bitcoiners are underestimating the potential threat of quantum computing, they're not taking that exponential function into.
- [45:57]
Hunter Beast
Which is funny because bitcoin is a bet on technological progress and gold would be a bet against technological progress. I can imagine about five different ways you can debase gold just from the fundamental physics of the universe. 99.8% of the solar system's gold is in the sun. So if we were serious about debasing gold, we should start like some kind of plasma lance project to mine the sun and also have the positive effect of reducing its metallicity and extending its lifespan. But regardless of that. Oh, and also reducing the possibility of what is it like another Carrington event, like from the 19th century where there were sparks in the telegraph wires, where, you know, it would fry all our electronics today. So regardless of that, you know, like we should learn to 10 our star and extend its age. And that's just one of five different ways you can imagine like the gold supply being dramatically different based and, and it's not even the most powerful way either. So regardless of that, and this based on mainstream physics. So regardless of all that, you know, it's, I, I, I, I, you just have to remember that like if you're betting on bitcoin, you should also bet on AI you shouldn't be betting against AI. Like, I know it sounds scary because there's a lot of socialists who want to scare you about it. They want to say, you know, create some kind of machine God for us to worship. And you know, you know, I really would like people to read is the story and from the book of Daniel called Bell and the Dragon. It is a fantastic story. And it's not the dragon. I'm really like, dragon is one thing, but the, but Bell that. Well also actually dragon is. The dragon is a cool story too because it's like, like this thing people fear, like people always fear this thing. But if you're clear minded about it, like there's really nothing to fear. Like you can absolutely live your life in a way that is spiritually fearless. You know, knowing that like you are doing the right thing. Like always remember like you know the eight Beatitudes from, I think that's Matthew and like the, the ten Commandments, right? Like these are, these are valuable particles and rule sets for like living your life and building a, a productive, flourishing civilization. Right. So like it's always important to go back to like first principles in scripture and like especially during a time where there's like maximal information asymmetry. You know, like, you really do have to go back to, like, your. Your. Your principles. Your principles are your armor as you explore the complexity frontier.
- [48:15]
Charlie
Shout out Hunter for finally making a biblical reference that I didn't know off the top of my head, given that I grew up Protestant. That's in the Catholic.
- [48:24]
Hunter Beast
So that's the thing is, like, I. Not only I'm kind of cheating because I have a Bible that also has the. It's a Catholic Bible. So already it has more books than you. Yeah, and also it has the Apocrypha too, and it's an older book, so it predates a lot of the, like, information warfare that.
- [48:41]
Charlie
Okay, I. As much as I would love to keep talking about the Apocrypha and different canonization, I want to go back to Bitcoin and we got about five minutes, and I would love back to Bitcoin.
- [48:53]
Hunter Beast
As if that's any different.
- [48:55]
Charlie
I know, I know, I know. I want, I love to like you to give us kind of an update on like. And feel free to be a little more technical, you know, in a short amount of time. Give me an update on, like, what's going on with, like, the bitcoin quantum discussion among the technical people. We had some presentations at OP next. They were great, but there's like, not, you know, those don't tell you where the state of discussion is. It just talks about different proposals. How would you characterize the past three or four months in quantum discussion? Is it moving forwards or is it evolved? Describe this to me.
- [49:27]
Hunter Beast
We haven't even seen the beginning of the heat dialed up. Being dialed up. Like, it is really like, we. We need to be preparing for the fact that there are a number of things moving in place right now that I think 2027 is going to be peak quantum FUD if we do nothing and it's going to tear us apart. And there will be. It will be worse. Like, if people think this is a bear market, it'll be worse. And that said, we also. There's a possibility that we can make an effort to address that at a fundamental level in a satisfying way that it, you know, treats bitcoiners as intellectually honest free agents best we can. I know there's so many narratives around that, you know, bitcoiners are retarded or whatever, but, I mean, you wouldn't be a bitcoiner if you, you know, didn't have free agency, free will. Right. You know, just. Just pointing that out. And I don't know, I guess maybe this is naive of me to think, but maybe with like, when presented with evidence and transparency and honesty, there's nowhere in the Bible that allows you to lie. By the way, at least the Catholic Bible or the Christian Bible, maybe not Luke's Bible.
- [50:39]
Charlie
Well, you can mislead. Yeah.
- [50:41]
Hunter Beast
Anyway, regardless of that. Tease Charlie. Liar.
- [50:48]
Charlie
Yeah,
- [50:51]
Hunter Beast
so regardless of that, you know, I just, Yeah, I will tell you that I am, I am, I am founding a company as we speak. I will be raising capital and if anybody wants to join me on that journey to very seriously accelerate the timeline to bitcoin, quantum resistance against really not just even quantum resistance, but every conceivable threat and every conceivable concern that would get in the way of adoption of bitcoin and essentially when it's most needed. Because the one thing I want to avoid, at least if I can have any say in it, is Weimar usa, where we, we go back to National Socialism. You know, support for that was actually kind of high here. There was a lot of, I would say, like ideology back then that I'm hearing kind of, you know, it's not. Was it Mark Twain who once said, history doesn't repeat, but it does rhyme. And you know, like, it's interesting like the AfD, like is, it is a, the leader of the AfD in Germany, the alternative for Deutschland is, is a homosexual. And you know, it's, it's actually like what they call far right. You know, it's not far right in my opinion because like they have a lot of like kind of national socialist sounding policies around. You know, we should give, give subsidies to farmers and renters and things like that and homeowners and, and so, you know, we, we need a, A, a homeland for the, the white children. But regardless of that, the AfD, like the, the just saying like it's interesting how, you know, homosexuals certainly are rejecting a lot of the more progressive causes because the progressive causes are aligning with Muslims who hate homosexuals. And so it's, it's just interesting to see that dynamic play out, you know, from incentives because incentives are very powerful here. And even worse, you know, like we're, we're just seeing like a return to kind of socialist tendencies. And you know, you can either like lean into that at an accelerationary standpoint. But I'm not an accelerationist. I don't like to accelerate or think about, accelerate pain or misery. Instead I like to think, you know, of what can we do that doesn't require permission from the state to essentially Prepare for a time of great trial essentially.
- [53:19]
Charlie
Hunter, thank you so much for your time. We hit on like 18 different topics and that's awesome. Really appreciate this. Best of luck out there in the arena, working on different ways to quantum proof Bitcoin so that the people may decide if we do it or not. So I appreciate you very much for your time and being out there. Despite bitcoin not being an easy place, it's a very cruel, hostile environment. But we do it because we love it. Thank you so much.
- [53:51]
Hunter Beast
Good.
- [53:51]
Charlie
Thanks. Honor.
- [53:52]
Hunter Beast
Thank you.
- [53:53]
Charlie
Cheers. Love, hunter. Probably top 10 in my Mount Rushmore of like nice bitcoiner devs. So we are going to keep going. We got Matt Williams from Luxor coming on here very shortly to talk about AI and energy. And we're also going to talk about Hive's new 220 million dollar deal. But before we go to Hive, let's hear from our sponsor, Lygos.
- [54:28]
Colin
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- [55:16]
Charlie
All right. Hive signed a big deal. Three year GPU cloud contract worth $220 million US. Colin, I'll toss it to you. Explain.
- [55:28]
Colin
Yeah, so there's actually two, two news items to cover here that were released concurrently with each other. So the first one that we'll go over is that Buzz HPC, which is Hives HPC subsidiary, signed a three year GPU cloud contract worth 220 million with Bell Canada, which is a Canadian government adjacent IT provider. And specifically this contract will have Buzz HBC hosting their own Nvidia Blackwells at a Bell Canada data center that will be used by Cohere, which is a Canadian AI model company to run its foundation models on this infrastructure. According to Hive, this brings their contracted ARR to just over 100 million. Now for the second news item here that is related to Hive. They just acquired a 32 megawatt data center in Bowdoin or two they're going to acquire. I think the details of the deal are still being hammered out, but they are looking to buy a 32 megawatt data center in Bowdoin, Sweden that they have been using as a tenant since 2018. Importantly, there's no acquisition price yet. I think that's still being hammered out, considering that this is to acquire, not acquired. And the Bowdoin Municipal Council has approved the acquisition, but the deal is not closed. That's still subject to all of the rigamarole that would go on as you are going through the M and A process here. And one thing to note here, Hive actually filed the SEC updates for both of these under an Amendment for their ATM. They have a $300 million ATM outstanding. So far. They've raised 85.3 million from this ATM with 214.7 million of capacity left on this. And I could be wrong about this being the first, but now Hive is doing this under domestic issuer laws with the sec. Not foreign, as former mining pod, now block space listeners will maybe remember from a Frank Holmes interview we did back in the day, they opened up a headquarters in Texas and now it seems as though they are moving towards domestic issuer rules and not foreign. Potentially as a consequence of that, but also largely because now they have more US shareholders as they've dual listed on the NASDAQ and the Toronto Stock Exchange. So just kind of a fun little technicality there.
- [57:55]
Charlie
Yeah, interesting that they're acquiring a site in Sweden. I mean, we are seeing this Iron has the, what, 400 megawatt power pipeline in Spain. You have some interest in France, I believe. Was it Mara?
- [58:12]
Colin
Mara Exion, which is like Exion.
- [58:16]
Charlie
It seems to me that there. Yeah, there's some deals happening in Europe, which is interesting and exciting to see.
- [58:24]
Hunter Beast
Not.
- [58:24]
Charlie
Not quite the same power profile, but maybe we can.
- [58:28]
Colin
And the scale won't be as big. To me, it may indicate two things. One, getting deals done here is getting harder because there's so much competition. And two, Europe doesn't want to be totally left behind. I mean, it's kind of a foregone conclusion now that whatever their data center and AI industry will be will be kind of a vassal state to the U.S. but there's still deals to get done over there. And Hive specifically said they're going to convert that data center to a tier 3 data center for AI and HPC. Compute load.
- [58:58]
Charlie
Yep. Shout out Hive, OG, Canadian, Ethereum and GPU miner was like made their big break in that category. Now full circle back to GPUs. I think we go to our final guest, Colin. We have our boy friend of the show, Matt Williams, legitimate friend of the show. Legitimate friend of the show. We're going to bring him up here. We haven't done a mic check. We're going to, we're going to just go in blind. Let's see. Matt, welcome to the show. Can you hear me?
- [59:30]
Matt Williams
I can hear you brother.
- [59:31]
E
How you doing?
- [59:32]
Charlie
Rock on. Fantastic. You have a great month. Appropriate shirt.
- [59:37]
Colin
I was about to say good, good for you man.
- [59:40]
Charlie
We have got you to come talk about AI and energy. You've typically been our derivatives and futures guy but now I guess you're the energy guy too. Colin, what do we want to talk to Matt about?
- [59:52]
Colin
We're going to talk about all that but first as a native Chicagan, Chicago in that sounds worse. As a native of the beautiful city of Chicago, what is your take on the new I don't know what we even want to call it. Excise tax on Bitcoin transactions that Illinois just passed.
- [60:13]
Matt Williams
Yeah. All right. Well first of all, all my complaining about Charlie not being on here has finally paid off. So it's great to see you, Charlie.
- [60:20]
Charlie
Yeah, I'm here. I'm finally, I'm wearing a button down shirt too so I've dressed up.
- [60:25]
Matt Williams
Appreciate it. Second of all, just so everyone knows, all my friends, people listening, I don't work for the Illinois government so I didn't put this into play. However, I think the complaints about this are largely overblown is my take on this. I think 20bp tax that's going to mostly apply to brokers and exchanges, not really move the needle. I mean we're Talking about maybe $60 million a year in revenue for the state. Now I think the larger issue here is the precedent and whether or not other states follow suit if it bleeds into other areas. But for the typical Hodler, this isn't going to impact you at all. Small time traders, same thing. So I get it, I get it. It's problematic. I think precedent is probably the larger issue here and whether or not other states follow suit. So that's my two cents. I think fundamentally not a big deal. Year over year it's the larger precedent and but I think we would all be fooling ourselves. Fillino wasn't the first state. Another one was going to be eventually.
- [61:32]
Colin
So irrespective of your take the to tax me Harder, Daddy. If it's only 60 million, if it's only 60 million, why do it at all? I mean, that's. That's like a. That's not even a spit in the bucket of the.
- [61:46]
Matt Williams
I mean, there's some. There's some context here you're probably not aware of. Like, Illinois has been in dire straits financially for a long time. Governor Pritzker has taken upon himself to increase our credit rating, which he's done every year. He's done better. So, like, in that regard, he had inherited a large deficit. He's got to get out of it. Generally, when you have a deficit, you got to get out of it through taxing people. It's not ideal. No one wants to get taxed more. But this particular tax, what other people aren't talking about is he's also introducing a tax on gambling event contracts, prediction markets, tobacco. Like, there's a lot. A vast majority of this bill in terms of revenue is not coming from crypto. It's a very small part of this. So it was a larger bill. This got tacked on. I think it's not good for the industry is my stance, just because of the precedent. But I think people glomming onto this is the larger part that are missing the bigger picture.
- [62:43]
Colin
Yeah, that's all really good context and kind of just to put a cap on this. Do you think this will change anything about companies incorporated in Illinois for crypto services? Do you think that this means anything for service providers servicing Illinois residents?
- [62:58]
Matt Williams
Totally, yeah.
- [63:00]
Colin
Do you think they'll. Do you think they'll quit the jurisdiction, though? Like, do you think there's a chance that exchanges will say, we're just not going to deal with this? So, sorry, it's Illinois residents. You can't buy crypto on our platforms anymore?
- [63:09]
Matt Williams
I don't think it would go that far. I think the larger issue is, like, stifling innovation here and, you know, preventing people from coming here and doing, you know, new cool things around crypto. From an exchange perspective, you know, they've tried, for as long as I've been in this business, like the financial services business, they tried to do a financial transaction tax on, like, futures and options that never passed. I think this is a small. I think the real reason that Illinois is trying to do that is to see if this works here, that they would maybe do it larger on other commodities transactions, which would represent a much larger revenue stream for them. So, yeah, I think it's bad.
- [63:47]
Colin
That's scary to think about, considering Chicago is the futures capital of US markets. I don't know what the downstream effects of that would be, but that seems like it would be much more consequential.
- [63:59]
Matt Williams
Yeah, I mean this is everyone's favorite politician, Elizabeth Warren's idea.
- [64:04]
Charlie
Okay, well let's switch gears. Let's talk about something which is very much your domain. Luxor, as I understand, is expanding the energy desk to AI data centers. Luxor's long time bitcoin hash rate energy desk. What does it look like now that you're looking to AI data centers? How is it different?
- [64:26]
Matt Williams
Yeah, so at the baseline, like essentially what we are, what we launched last year in October is we're a retail electricity provider in ercot. Right. And we've actually just got approval for SPP as well.
- [64:40]
Charlie
My neck of the woods.
- [64:41]
Matt Williams
Yeah, exactly. So what we do is we serve load for, primarily for bitcoin mining data centers. All we're really doing to start is the low hanging fruit of extending that into non flexible load data centers. So from a rep perspective, the construct is fairly the same. The difference is that we have to incorporate hedging more as part of this. I think down the road there's a world where we expand our commander product to potentially manage GPUs and there's some other services we could provide. Part of our suite can be extended to this. I think it's still too early in the AI space in terms of. It's not a one to one in terms of management and optimization of mining to AI. It's not even close, but I think it will trend that way. And so we want to be positioned, start with, like I said, low hanging fruit, be able to serve load, be your rep, be your QSE for AI. And that's what we're doing. And we'll be probably, I would guess we're ready for that by end of July.
- [65:44]
Colin
You mentioned hedging there, Matt, and we were talking before coming on air. You mentioned that hedging is actually much more important for these data centers than for bitcoin miners. That seems counterintuitive to me just at first blush because the contracts are more lucrative. I know the power can sometimes be more expensive, but bitcoin volatility has just been insane for bitcoin miners. So why is it more important and what are the pieces that make it more crucial for these providers than with bitcoin miners?
- [66:17]
Matt Williams
Well, I guess the context I meant hedging is more important for AI is around power. Right. So if you're a miner and it's not profitable, you can ride spot because you could just turn off if it becomes unprofitable. Right? That's the whole crux of flexible load is you mine when it's profitable, you turn off when it's not. Or if there's incentive programs you want to participate in, you can ramp up, ramp down. We all know that. But for AI, depending on how you're deploying your GPUs, you might have to ride crazy power spikes. I mean, we've seen it this year, we've seen it with Yuri. Your power price could go from $40 megawatt hour to $9,000amegawatt hour as a cap. If you're not hedged, you're exposed to that because you, you know, in many cases you have 99 to 100% uptime requirements. So, you know, think about it like let's say you're 100 megawatt facility and you're currently at $40amegawatt hour and you're just routing spot, right? That's $96,000, right? I mean $6,000 a day. Now imagine that spike to twelve hundred dollars a megawatt hour for a full day. And that's not unprecedented, like, not even this year. Like now you're going from $100,000 a day to tens of millions of dollars a day. And that could last for days. So if you're not hedge, that's what you're up against. And so I think there are people. Well, and then the other thing is like if you're, let's say you're starting up a new, you're launching a new data center, you're about to go live. If you're not your own credit support, you have to go to someone to provide that credit support. And they're probably going to require you to be 90 to 100% hedged. So it's not even like should you do it, you might have to do it if you're not providing your own credit support. And like the other reps and QSCs that I'm talking to, that's pretty much the standard right now for them to deal with you is like for taking on your risk exposure, you're going to have to be 90 to 100% hedged.
- [68:22]
Colin
So going back to this, in addition to hedging, you mentioned that some of these data centers need to have 100% uptime. Some of them maybe not. What actual wiggle room is there for AI data centers to curtail and engage in demand response? And it's kind of a ridiculous question in the sense that obviously not all of these data centers are the same. They're not like bitcoin miners. They're not just producing one form of compute. They could be producing multiple different forms of computer. But yeah, so you kind of mentioned that there's a misconception that they can't curtail. Can you unpack that for us?
- [68:57]
Matt Williams
Yeah, I think you kind of hit an answer to your own question. I think it's the misconception is that AI is completely inflexible, but I think certain AI loads are more flexible than people think. And you kind of touched on that. Not every megawatt needs to be available every second depending on the use case. So training loads can be shifted. Batch jobs can be delayed. If you're doing certain inference workloads, those can be geographically distributed. And then there's backup generation too in batteries which are dispatchable resources. My point is you can't just bucket it into all of its non flexible. I think depending on the use case and how the GPUs are deployed or the TPUs are deployed, there is flexibility and I think there's opportunity for curtailment strategies, more or less my thoughts now, it's still like, it's still very early and I think people right now it's a land grab for megawatts. I think that's phase one, right. It's everyone's like, how do I get all the megawatts I can. Phase two is optimization and I think margin compression will push us towards phase two. And that's when people are going to start looking at like, all right, where, where are my AI loads flexible? And then how do I deploy strategies on that flexibility?
- [70:14]
Charlie
Yeah, it seems right now it is absolutely a land grab, it's a power grab. And when we get to fate. And so I think a lot of bitcoiners imagine we tell ourselves these stories that somehow AI gets crammed into this land grab scenario. But when we think about the future optimization, there is this concept of a mullet miner. And this is fun to me, but I don't want to delude myself in drinking the bitcoin koolaid here. To what extent do you think this AI in the front, more dynamic, flexible load in the back. Bitcoin mining model makes sense as we think about optimization and hedging.
- [70:54]
Matt Williams
I mean, first of all, I hope it comes to fruition. Just so the term mullet mining continues. I feel like next time I come on here, I'm going to have a T shirt made for mullet mining.
- [71:03]
Colin
You should have a mullet.
- [71:05]
Charlie
You should have a mullet.
- [71:06]
Hunter Beast
Yeah.
- [71:06]
Matt Williams
All right, I'll tell you what, I'll have a mullet with a T shirt.
- [71:10]
E
Perfect.
- [71:10]
Matt Williams
It's perfect. I think this is conceptual at best. Right now. We've floated this idea. I think we're starting to try and build a strategy around this. I think the crux of it centers on backup generation. I think backup generation for AI data centers is super costly. You have to have tens of millions of dollars put in for redundancy sake. It's almost always sitting there idle. And then, but like, the thing is when you pitch this idea of like, hey, you should leverage that backup generation either for curtailment or deploy mining on that gen. It's, you know, you get two answers here. Like one, you know, I'm worried that like the ramp up, ramp down isn't going to be fast enough for that. And two, like is, is this going to create maintenance issues on that generation for me? Because like, I need it to be reliable. I think the first question, it's a valid point, but minor management software, ours included, has advanced so far that ramping up, ramping down can be done in seconds. We're talking under a minute. I think that point is moot or largely so. Again, it depends on the use case that we're talking here from AI. But I think there's a huge opportunity to deploy mining on that backup gentleman because you can defray a lot of the cost for that. It's sitting there idle. I think another argument would be if you are running that backup gen on mining now, you know it works, right? It's not like you're not waiting until the moment when you got to fire it up to know it works. Now maybe that's a flimsy argument, but I think it's valid and it's a revenue stream. Right. And then it also allows you to participate in demand response and other ancillary service programs. So to me, I think people need to get comfortable with it. There's probably some work that needs to be done on the software side to make people fully comfortable, but I think
- [73:04]
Colin
it's a real opportunity right now. Matt, you mentioned the revenue piece. To me, it seems like right now this would be negligible. But you mentioned also before we went on air that in the future this might make sense as margins compress on HPC compute when you get to that optimization phase, this actually might be something that big players would consider because it would actually be meaningful sour of revenue and reducing costs.
- [73:28]
Matt Williams
Yeah, I mean your point's incredibly valid. The whole Movement right now is because there's so many more dollars per megawatt hour for mining or for AI than there is for mining.
- [73:37]
E
Right.
- [73:37]
Matt Williams
And so the numbers are obscene. The amount of money going in the space is obscene. So you're right, people, this might not move the needle, but I think it will. And I think margin compression is real and it's going to happen. And so I think this is just a logical piece. Honestly. You could work on deploying this sort of thing and not actually leverage it until you want to. But I don't know. I think it's a real opportunity. I don't think it's as negligible as you think, but it definitely doesn't move the needle. It might help you in terms like when you're doing financing, showing another alternative revenue stream and getting ROI on your capital expenditures.
- [74:19]
Colin
You got the closer, Charlie.
- [74:20]
Charlie
Yeah. The big one is everybody's launching compute indices. You can trade them on ice, I think very soon. No, not yet.
- [74:32]
Matt Williams
Yeah.
- [74:32]
Charlie
Okay. Well, okay, here's the question then. Compute futures, are they feasible? What challenges? Is anybody actually able to build them? Talk to me about gpu.
- [74:43]
Matt Williams
Yeah, so we're exploring this. My trading desk is onboarding to basically all these venues. What you're seeing right now is a lot of ideas. No liquidity and zero volume. Not to say like it's not going to happen in the future. You know, there seemee made an announcement. The one you're referencing is the ORN futures on ice. That has a long way to go in terms of CFTC approval before it becomes legit. I do like those guys, so I hope they're successful, but I don't think it's imminent. And then there's, you know, there's perps, there's some defi stuff. Like there's a lot of OTC transactions that are happening. No, I'm sorry. A lot of people are trying to build OTC markets but not a lot of transactions are happening. My two cents on this is it's very early. I think a lot of these indices are solving are looking at the wrong problem. They're looking at like machine prices, you know, like volatility in a H100 H200, which is interesting, but it's like kind of like would you rather have ASIC futures or would you rather have hash price futures? To me I'd be more interested in like hedging my revenue volatility and then my machine price volatility and maybe there's room for both. But the real problem to me is how do you solve the value of a terraflop or a GPU hour? And I think that's incredibly hard, almost impossible. But the person that solves an index around tracking and making it fungible across GPU hours, then you have something that has real traction, that has the real ability to create liquidity. Have a futures contract on SIMI or ice, but we're not there yet. I don't.
- [76:17]
Colin
So we need, like the WTI crude of compute.
- [76:20]
Matt Williams
We need the hash price of compute.
- [76:22]
E
Yeah.
- [76:24]
Colin
And for our listeners, a teraflop is not like, you know, an X Games mega ramp trick, in case you were.
- [76:30]
Charlie
But it could be, you know, imagine the X Games sponsored by Luxor.
- [76:38]
Colin
All right, I think that does it. Hey, Matt, thanks so much for joining. We'll have to get you back on soon. I think we've got Ethan coming up.
- [76:46]
Matt Williams
Well, just give me enough time to grow a mullet.
- [76:48]
Colin
Yeah, we need the mullet. I missed the flow, man. You got to get the flow back, I guess. You know, you got to look a little buttoned up if you're going to try to launch compute futures. Maybe.
- [76:57]
Hunter Beast
Yeah.
- [76:58]
Matt Williams
It was like you had long hair and a beard and look like a caveman, so I had to pick.
- [77:02]
Charlie
Yeah, look, Cole and I, we're just talking heads, so. Yeah, if you catch us, if you catch me with a tie on, I'm dead.
- [77:09]
Matt Williams
So.
- [77:10]
Charlie
Yeah, anyway, yeah, on that note, Matt, thank you so much for coming on the show. Really appreciate your time and catch you in person at a conference sometime soon.
- [77:20]
Matt Williams
Thanks, guys. Love you guys.
- [77:22]
Colin
Peace, man.
- [77:25]
Charlie
Love that guy. I don't. I'm starting to doubt if his name's actually McLuxer.
- [77:29]
Colin
Yeah, that's Matt Williams, slash McLuxer. Formerly trading onions on X now apparently gluten tog.
- [77:38]
Charlie
Yeah, well, you'll have to find him.
- [77:40]
Colin
And just a note, Chicago would be. And I don't think that he is this, but Chicago would be maybe one of the worst cities in the US to actually have a gluten intolerance. Like all the good food would be denied you.
- [77:52]
Charlie
Hey, well, let us know, readers and watchers in Chicago right into the show. Let us know about your gluten intolerance. Okay, we've come to the end of all the stuff we have today. Thank you so much for watching Block Space Live, coming at you live 1pm eastern every single weekday. After we wrap up the live show. You can find us streaming as a podcast anywhere podcasts are found. Newsletter coming out daily@newsletter.blogspace media.com this show is brought to you by CleanSpark NASDAQ listed ticker CLSK thank you so much for listening. I'm Charlie.
- [78:31]
Colin
I'm Colin. And one quick announcement. We will not be going live tomorrow or Monday as we are traveling for personal reasons. But we will be back Tuesday of next week and on for the rest of the week.
- [78:44]
Charlie
Yeah, we got to go on a company retreat to go figure out how AI works. We'll be back. Hopefully we don't go too deep. Catch you later.