← Blockspace: AI & Bitcoin
Blockspace: AI & Bitcoin
Hut 8 AI Update, Crypto-Backed Mortgages, MARA Sells $1.1B BTC
01:26:49
On today’s Blockspace Live, we have Hut 8 CEO Asher Genoot and cover the big news that MARA sold $1.1B in BTC.
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- [00:00]
Asher Ganut
Foreign.
- [00:05]
Colin
What's going on, y'? All? Welcome back to Blockspace Live, brought to you by Clean Spark. Charlie Spears is out today. We've got longtime Block Space and Mining pod co host Matt Kimmel on. And we will be unpacking a lot of news today. There are pretty sizzling headlines on the docket today. We've got crypto mortgages busting out with Coinbase and Better Homes and Finance for the first time ever approved by Fannie Mae. We've also got some really great interviews lined up with Ken Egan of the Bitcoin Policy Institute. To unpack the recent clarity news, we've got Astrik and Newt, the CEO of Hut8on to talk about their AI expansion. We've also got Matt Williams on from Luxor to discuss GPU financing and energy markets within their derivatives desk. We also will close on a note about MERA selling Bitcoin to retire some of their convertible note debt. And a quick market update. Little pulse check. It's looking dicey out there, but first I'm going to have to throw it over to the long time difficulty weatherman Matt Kimmel to give us an update on what's going on with bitcoin's hash rate. Matt, give us the lowdown. What's going on on the mempool?
- [01:19]
Matt Kimmel
Well, hash price is taking a dive alongside bitcoin price today. What we' is a potential difficulty increase in the current environment. But that might change as we're only about halfway through the epoch and the hash price environment is, as you can see on the chart here, Colin, changing quite rapidly throughout today. It looks like we're just above the $31 per PETA hash per day level on the hash price and difficulty has been pretty volatile, I would say. I think three of the last four difficulty adjustments have been 5% plus moves. The last one was a a downward seven and a half or so percent. We're pricing in right now. The expectation is that the next one will be about four and a half percent. But as I was saying before, since it's expected to be an upward adjustment, we're having this move right now in bitcoin price and hash price. Probably give a little bit of that back the latter half of this epoch. That's where we stand, Colin. That's what I'm seeing out there.
- [02:33]
Colin
I think volatility is the name of the game currently. Like you said, difficulty has been all over the place, as has network hash rate for reasons that we can't quite put our fingers on. It looks suspicious if you're looking at the seven day average hash rate starts to come offline as the war in Iran kicks up. It's hard for me to believe that there's enough there for us to see more than 100 exahashes come off. We talked about this last week on the show. There's been speculation thrown around, around that, but we've recovered since then. We've gone up from 931 exahashes up to nearly 1000 at the time of recording currently. And it's just hard to know what to expect from bitcoin's hash rate and from the network at this point because. Because everything within bitcoin mining is getting thrown off by economics. Bitcoin continues to be thrown for a loop and also all these miners are pivoting to AI. So we'll leave that there for now. Not too much more to comment other than week in, week out. It's looking kind of bleak if you're still operating and still hashing, more power to you. Cowabunga. But for those of us with higher power costs, it's looking pretty tough. We'll sunset that though, and we will bring on Ken Egan of the Bitcoin Policy Institute to talk about potentially the biggest news so far of the quarter for the crypto industry. I would say so. Without further ado, we welcome Ken Egan to the stage. Ken, how are you doing, sir? Thank you for joining us today, gentlemen.
- [04:03]
Ken Egan
Very, very happy to be here. I'll tell you one thing I got from that last, that last segment is I have to buy another bit, Axe. Because, you know, because you never know. You never know. I'm an optimist.
- [04:18]
Colin
I'm glad to hear that you are an optimist because we definitely, we need a little more hopium, you know. So speaking of optimism, there was a lot of optimism around this Clarity Act. I mean, when these, when these acts were introduced or these bills were introduced over last year, the Genius and Clarity act kind of in tandem, it was seen as a huge boon to the bitcoin and crypto industry in terms of giving regulatory clarity. And specifically with the Clarity act potentially giving these stablecoin issuers and exchanges a leg up on the banking giants that tend to run things up in D.C. now, it doesn't seem like that's the case. Can you give us a quick update on what your understanding of the newest draft of the Clarity act means?
- [05:05]
Ken Egan
Sure. And just for your listeners who don't track this stuff really closely, when Genius act passed last summer, there was a provision in that act that banned stablecoin issuers from providing yield on stablecoins. As most of you probably know, stablecoins are backed with primarily short term Treasuries that issue yield. So the issuer is getting yield. This, of course, was. The banking industry fought for that provision. They hate the idea of competition for deposits. And we thought it had been decided. Turns out 2025 was kind of a bad year for the banking industry in Washington D.C. the crypto industry did a really good job getting legislation advance, at least most of the way through. But they regrouped at the end of the year. They launched a new lobbying arm called the American Growth Alliance. They got together and they managed to sort of bring this issue of stablecoin yield back. But not yield. Not yield per se, but rewards. Some of your. You probably have some listeners who have Coinbase accounts. If you hold USDC in your Coinbase account, you get yield. I think it's somewhere around 3.4, 3.3%. And the bank industry hates that. So they got this provision back into the market structure discussion that we are going to ban rewards. What they thought was the back door for yields. Of course, Coinbase hated that. It's an important part of their business model. I think generally speaking, the larger crypto industry didn't like that and sorry about that, and fought the banks on this. It kind of brought market structure discussions to a standstill. Part of the problem on the Hill now is there is a lot of battle fatigue among staffers. They've been doing crypto legislation since last January. They're tired of it. It's been a long slog on Capitol Hill and this was just an issue that was very sort of industry focused. Most crypto users were kind of ambivalent about it. But you had Coinbase primarily on one side of it and then the bank industry on the other side. It went back and forth. Patrick Witt, who runs the White House Council for Digital Assets has been playing. I give him a lot of credit. He's burned a lot of shoe leather walking halls of Congress back and forth in the White House trying to build bridges. Finally last week, Senator Tillerson from North Carolina, retiring Republican, and Senator Ulcerbrooks from Democrat from Maryland, a freshman senator, came up with what they think was a bridge deal that will at least get this bill advanced. Of course, because it's a bridge deal that it's sort of a compromise. Nobody really likes it on the industry side, I should say. So what it does is it essentially bans rewards. It bans what are considered bank Deposit like activities. So just leaving your USDC on Coinbase, you won't get your 3 point something percent anymore. However it leads space for rewards for activity. And that remains to be seen what that looks like because it leaves a lot of space for rulemaking and regulating and regulators to figure out what that looks like. There's the talk of sort of economic equivalence. Whatever exchange like Coinbase were to offer could not be the economic equivalent of a bank deposit. So it remains to be seen nobody really likes it. The draft text is not out yet. There have been sort of typical capital style. They've been, you know, you can go in with a pen and with a pen and paper, take notes, no pictures, no recording, you can't walk out with it, you can't walk out with the text. So we'll see. I think the goal is though, they are trying, everybody is trying to get. So I should say this, everybody in the political, in the political establishment, Congress, the White House wants to get both sides to a yes because they want to get this bill done and it's a win for nobody, except maybe the banking industry if this bill doesn't actually pass.
- [08:57]
Colin
I'm curious to see what the rewards piece even looks like. I commented on the last live stream, it almost sounds like the only way to make that work is to have incentives that we've seen with exchange tokens in the past. So Binance has their own exchange token. So maybe if you're using USDC to do trades on Coinbase, you get a discounted trading fee. That's the only clear thing I can see other than maybe if you're making payments within the Coinbase app. But let's be real, who's really using USDC to make payments in their day to day life? Right, and you mentioned that no one's really happy with this right now. And I want to pull up this reporting from a Punchbowl news reporter, Brendan Peterson, that says Coinbase is not sold on the stablecoin compromise. I don't know if this means that they're walking away from the negotiation table on this two part question. First part, have you corroborated this with your own sources and people that you know involved in this process? Is Coinbase so upset with this that they are going to walk away? Number two, how does Coinbase have so much sway in this process? I get that they're the largest exchange in the us but how is it that if they walk away from this, it can basically tank the deal?
- [10:08]
Ken Egan
So Coinbase has not said publicly what they think about This, I think, whoever always beware of anonymous sources. And Brendan Peterson is a very good reporter on this space, so he knows the stuff. So he's talking to people who are involved in negotiations and that, you know, that, that, that, that statement, Coinbase is not happy. Could just be a staffer saying, I met with a Coinbase lobbyist and they don't like it doesn't necessarily mean they're going to back out. You may recall when, when Coinbase removed, when Brian Armstrong came out and said, no, we do not support the last, the bill last time around, he took a lot of heat, both politically and I think from, you know, from the White House and from some members of Congress saying, all right, you just blew up the negotiations. What are we going to do here? So we'll see what happens. I think Coinbase is probably trying to figure out exactly what this means to their business model before they come out and definitively say, because like you said, it's unclear what that means. So I think they're probably trying to figure out what this means, what the workarounds are, how they can respond to this from a business perspective before they come out and say, we support it. My gut says they do not want to oppose it just because there is a lot of momentum from the White House and from, you know, from, from the Republicans in Congress to get this bill done. So nobody wants to be the ultimate sort of party pooper. That's just not a great way to be. And if they can live with this, I think they'll try. Remember this, this is not, this is the first bite the apple. They can go back and do this again. I think one day there'll be stablecoin yields. It's just a question of, like, what happens, you know, in markets for that to eventually happen and why they're, why they're so powerful. I mean, there's, for one reason, Brian Armstrong is the only senior executive that's actually the one to go to the Hill and talk about this. So he put himself out there, which in itself makes you, you know, sort of makes you an industry leader, but they're the biggest exchange in the United States. They have a lot of customers, they are publicly traded company and, and they are a big, they're a major force behind the crypto lobby. Right. A lot of the funding comes from Coinbase and, you know, and sort of affiliated, you know, affiliated groups. So, you know, upsetting Coinbase. You know, there is, there is a potential political price to pay in your reelection campaign. You know, Stanley, crypto in a Fair shake. Coinbase is a major player in that section in that sector. So it makes sense that, you know, to the extent possible that members of Congress are going to want to make Coinbase happy. And again, because of their size, they do sort of lead. I speak about the crypto industry, right. All this has different implications for bitcoiners, but the crypto industry, you know, they all kind of operate in Coinbase to shadows. And I think the fact that Brian Armstrong has taken that leadership role is why he get, you know, he gets it right. He gets an outsized vote because he's actually, you know, he's. He stepped up.
- [12:43]
Asher Ganut
Yeah.
- [12:44]
Colin
And before kicking it to Matt for the next question, as I asked that, as I asked that question myself, I had to remind myself, I believe the crypto lobby spent the most out of any lobby in the 2024 election cycle. Right. So we're moving with massive amounts of cash right now. And we may be a smaller industry compared to the larger pie in the US economy, but we punch above our
- [13:07]
Ken Egan
weight and very loud.
- [13:11]
Matt Kimmel
Ken, you are just a wealth of knowledge on this. It is great to talk to you. It seems like so, you know, this past the House, right. Last summer, it seems like the scope of this has just blown up. Right. And like stable coins have been stablecoin rewards, I should say the key sticking point, grabbing the headlines. But are there any other kind of pain points that you could see, you know, they're being kind of jockeying over that could postpone anything. And correct me if I'm wrong, but this is kind of the key hurdle to get through markup. And then from there it would go to the Senate floor for vote. It's just so kind of two questions there, but I'll toss it over to you.
- [13:57]
Ken Egan
Yeah, just one more point on the opposition. A lot of it's driven by community banks. This is how you've gotten a lot of Republican senators to be skeptical, because community banks are big in Midwest and out West. But, you know, as the point I've made to some of these staffers is that like the biggest enemy of community banks are big banks, right. In the 1980s, mid-80s, there were 14,000 community banks in the United States. And now there's like 4,000. And that's a long time before, you know, the first transaction, you know, the first bitcoin transaction was, you know, was affected in January 2020, 2009. So I think it's just industry protectionism. Yes, there is for bitcoiners. Is there very. All the stablecoin, it's important in the sense that like, you know, we want industry to be able to function and you know, for the country to benefit from it. So it is, it's important to all of us in that regard. But for bitcoin in particular, there's a piece of market structure that's getting less attention that we really are, that we certainly BPI are paying close attention to and that is the blockchain regulatory certainty acquisitions as part of those provisions. These are the provisions that guarantee the rights of software developers to develop, to build their software without risk of being charged. We're looking to front run and avoid future tornado caches and samurai wallets. There are some, there are. We're getting a lot of resistance from law enforcement, lobbying groups about how this dilutes the ability of prosecutors to prosecute illegal money transmitters and the like. So this is a concern to us because without those basic guarantees, you know, this industry is never going to flourish in the United States. And again, we believe strongly that, you know, that these protections are guaranteed by the Constitution, by the First Amendment. So this is, this is the next fight. So even if we get through stablecoins, I'm sorry, if we get through stablecoin yield this week, which I think we probably will when this bill goes to markup in the Banking Committee come April, there's a whole other discussion that bitcoins need to be paying attention to and that is the BRCA and those software development provisions critically important for us.
- [15:59]
Matt Kimmel
Yeah, it's definitely been top of mind for me throughout this, so appreciate that. One more thing, and this is just me trying to piece together all like Congress and the regulatory puzzle at the same time.
- [16:14]
Ken Egan
That is Washington.
- [16:16]
Matt Kimmel
You know, it's like this political drama. Like I hope they make some kind of show about this event, but the, the SEC came out with their own kind of classification. Right. Does that, you think, what, what does that mean, I guess in context of this and how close is that to kind of what's going on in the Clarity act as far as like, you know, classifying some of these different types of crypto assets and what the context of what it means in the broader sense?
- [16:50]
Ken Egan
You Remember choke point 2.0 under Biden was there was never any legislation that harmed the industry that got through Congress. It was all rulemaking. And I think that the SEC and the CFTC are trying to set the precedent because you never can predict. I think market structure will pass, roughly probably reflecting the stablecoin agreement that was announced a couple days ago. I think it'll pass. But I think the sec, you never know. And I think the SEC and the CFTC are trying to get ahead of that rulemaking as much as they can within their authority. Because again, most of the, all of the heartache and the headaches, I should say that we experience, the industry experienced under Biden was there was all regulatory nature. There was never. Elizabeth Warren tried to get a bill passed. She couldn't do it because, you know, everyone knew it was a bad bill. But you know, Washington's fickle parties change, majorities change leadership changes where, you know, the crypto industry is doing really well now and bitcoiners as well in Washington on the right, on the policy side, that could change. And I think the SEC is trying to set precedence, precedences that at a certain point will be just too difficult to undo if we get, you know, if legislation just completely fails and we have to deal with a different regulatory environment. Maybe, you know, three years from now,
- [18:08]
Colin
let's, let's hope that we're not a, you know, a barren coin or a world Liberty Financial 2.0 away from the pendulum swinging against crypto in the next cycle.
- [18:17]
Ken Egan
You know, I will say this. There is, I would say certainly on the bitcoin side, there is a, there is a, I would call it a bipartisan consensus that bitcoin is a real thing. I mean, you've got like your Senator Lummises, right. And your Bernie Moreno's who are great. You really believe it. People get skeptical of politicians. I can tell you these are members of Congress that really believe in this. Nick Begich in the House, for example. I really believe the importance of this protocol. And I think there are a lot of Democrats who maybe aren't like Nick Begich or Cynthia Lummis, but still fundamentally believe that bitcoin has a role to play. So I think there is a bipartisan consensus. Now the rest of crypto industry, who knows, that's not again, as bitcoiners, we're not. Again, for policy perspective, we think people should be able to business for legitimate businesses. We still believe that 90% of cryptos are scams. But there are. People will find a role for Ethereum and Solana. I don't doubt that whatever it is, maybe they'll be durable use cases. But I am pretty comfortable saying that there is a durable bipartisan consensus on bitcoin that at least it should be able to exist in the United States. People should be able to trade it, use it and you know, and benefit from its properties. So we'll see. But yeah, a Lot driven by sort of politics and, you know, who's in the White House and whatnot. But I do, I feel I should say this now because three years from now, I'm going to get this thrown back in my face. But it is. I am comfortable saying that there is a general. A genuine, general bipartisan consensus. Not everybody, but if you had to vote yes or no, should bitcoin live or die in Congress, I think you would overwhelmingly get. No bitcoin should live. You get the thumbs up.
- [20:02]
Colin
So, Ken, last question for you, and then we'll get you out of here and you can be quick on this one if you need to. You're confident or optimistic that we will end up reaching a resolution on clarity and it will be pushed through. At this point, I'm confident.
- [20:15]
Ken Egan
I think both parties want it. I think the White House is, you know, is trying to make. Is doing everything they can. Remember, this is not just, you know, there's Democrat opposition, but there's also been some Republican holdouts. I think the White House is pushing really hard again. Patrick Witt deserves a lot of credit for just, you know, taking the burden of a lot of these negotiations. He's done a great job. So I do, I think, I think that a markup, when this hits banking come, you know, later, later next month, mid, late April, I think a working text will come out that will have a. I think it gets 60 votes. Ultimately. I do. I remember also this is April. The midterms are coming up. Like, you know, if you block, if you're a holdout senator or a member of Congress in the House. Right. Who votes to block this, you know, six months out from the election, you know, you better. You better hope your banking friends step up for you because the industry is coming. The industry is coming.
- [21:09]
Colin
Yeah. The mystic one issue, crypto voter, is going to put your head on the chopping blocks.
- [21:14]
Ken Egan
That's the thing. There's lots of, lots of pro crypto voters. I've never met an anti crypto voter. You know what I mean? I just don't think they're out there.
- [21:21]
Colin
I hope not. Well, thank you, Ken, for all the work you do and all the work the Bitcoin Policy Institute does. It's really nice to see some adults in the room championing our industry to make sure that we get what we need. So appreciate your time and hope you have a good weekend.
- [21:36]
Ken Egan
Thank you. Thanks for having me.
- [21:37]
Matt Kimmel
I love hearing what's happening on the Hill. That's great. You do.
- [21:41]
Colin
I do, too. Even if it makes me A little sad, you know what I mean? There's, you gotta crawl through the swamp, fight off the moccasins, you know, even
- [21:50]
Matt Kimmel
if I don't agree with it all, it's just a compelling story, like just to follow the characters in play, the jockeying for position. It's just like a, it's a real life drama.
- [21:59]
Colin
Like yeah, it's like all the King's Men but with autistic software developers and
- [22:04]
Matt Kimmel
greedy politicians at this point, your words, not mine.
- [22:10]
Colin
And on that note, we will go ahead and hop into our first story of the day. Depending on who you're talking to. One of the biggest stories of the quarter and that is Fannie Mae to accept crypto backed mortgages. This is coming from the Wall Street Journal. There's also a press release on it that will get up and what is essentially happening here. I'm going to try to demystify this because I think this is one of those headlines where you can read it and you'll read the headline and you think that that means that Fannie Mae is accepting bitcoin for mortgages when Fannie Mae doesn't even originate mortgages, right, they buy mortgages and package them into mortgage backed securities from le. But what's happening with this is Coinbase and Better Home and Finance have partnered to introduce the first Fannie Mae approved crypto backed mortgage. And what's happening here is through this partnership you can go through Coinbase to take a crypto backed loan that you can then use as a down payment on a home, on a home for a mortgage through Better Home and Finance. And Fannie Mae is giving this their rubber stamp of approval and saying we like this structure and we will actually purchase these mortgages from Better Home and Finance and we won't just turn our nose up on it because there are some other companies that provide crypto backed mortgage services, I believe. I don't know their names off the top of my head. When I was doing research though, earlier in the week those popped up. I would imagine the interest rates are pretty high. They're also not really institutionally approved. And for those who don't know what Fannie Mae does in the mortgage realm, like I said earlier, they will buy mortgages off the balance sheet of some of these lenders, free up their ability to lend more capital and then those mortgages get packaged and mortgage backed securities and all of that wonderful financial engineering. But this to me really does strike me as a pretty big deal. Before I toss it over to you, Matt, for second takes on this just want to go over a few fact, go over the fact sheet for this because there are a few things I want to get out of the way. What's interesting about this is these, the crypto part of this where you're taking on a crypto backed loan to pay the down payment on these mortgages, there will not be margin calls. That's what the press release said. I'm kind of struggling to understand how that would work. Basically you won't get liquidated from your position, but you will be over collateralized even more so than you normally would be, I would imagine. But I think that's a pretty notable part of this. The other thing, as you would also expect, the rates for these mortgages will be higher than the standard 30 year or what you're getting in the traditional lending market where we're looking at a half a Percentage point to 1.5 percentage points depending on the consumer's credit profile. And also you can use Bitcoin USDC for this. The other thing that I thought was really interesting about this is for users interested in pledging usdc, the USDC could earn rewards that can help offset the mortgage payment which enables borrowers to reduce their net interest rate, et cetera. And I, I thought that was super interesting given what we just, the sec, you know, the segment we just had with Ken. Because I, I almost can't help but look at this in conversation with clarity. Was this designed with clarity in mind for that reward portion? Could coinbase do this already without Clarity? I assume they're probably, they probably could, it seems within the bounds of the law, maybe Clarity just solidifies it so they know they're not going to get in trouble later. I thought that that portion was interesting, but yeah, just to reiterate this, this is from the press release. No margin calls, no top offs. If Bitcoin drops in value, the mortgage terms remain unchanged and no additional collateral is required. Market movements alone never trigger liquidation. So that part seems pretty incredible to me. What are your takes on this, Matt?
- [26:17]
Matt Kimmel
My initial take is that I am generally just pro Bitcoin being more integrated and useful in financial services. And this is evidence of that. Practically useful. You could use Bitcoin as part of collateral in a mortgage. That's a big deal in my opinion. I think, you know, the ETFs have helped with making Bitcoin more useful in financial services. The options markets around ibit. Right. Something that this kind of calls out to in my head that it reminded me of was battery finance. And I'm remiss of the guy's name, but I remember him as the guy who came up with the bitcoin backed bond. And that was a way for us to deal with our national debt. But they put together a commercial real estate loan where bitcoin was a part of the collateral mix. And the idea here is that on these long duration loans and as bitcoin as this appreciable asset, which we know it has attractive collateral properties and that it's very liquid and that you can move it very quickly, but because it has these appreciable properties that you would think over long time horizons, the loan to value would actually look better in the future. Right. Because your actual, the value of what you're putting up against it is going up. And so that I thought was really interesting on the commercial side of things. And this is almost like me as a residential consumer general citizen of the United States could now keep my bitcoin, right. Essentially take out a loan against it and in the way of a mortgage and then at the end of the term get my collateral back and keep my coins. That is pretty fascinating. And so this non margin callable type leverage with Bitcoin is I think quite attractive. I'm sure as the details come out around this, the thresholds that you have to meet, right. Maybe the down payment you have to put alongside it, right. There's probably different intricacies. As you already said, the interest rate may not be as attractive, but it's an option for bitcoin holders to use the asset in financial services. And I just think that that trend is increasing and that's good for all long time bitcoin investors.
- [29:16]
Colin
It reminds me of when we had Gort on for the Wednesday show. Charlie had this question for him where he asked is crypto eating finance or is finance eating crypto? And he said, does it really matter? It's just congealing into one. I generally do like this. And I was wondering as I read it, what would it take to actually have bitcoin or stablecoins as the collateral for the whole house outside of just for the down payment. But now that I'm saying it out loud, I don't know if that even really matters. Is anyone putting their stock portfolio up? Can you even do that for a house? I don't think we'll ever see that. The fact that you can basically do this for the down payment portion instead of actually selling your crypto like you said, Matt, it's pretty big.
- [30:01]
Matt Kimmel
Yeah. I mean ultra high net worths, right? Use their assets to take out loans and basically use that financing to live their lives and kind of sidestep actually selling assets and paying taxes. That's like a tried and true thing over time. So this is somewhat of a, you can draw an analogy to that.
- [30:26]
Colin
Yeah. And I, I just going back to our segment with Ken, you know, it's pretty incredible to see that we've come this far and then we actually are getting these kinds of financial tooling rollouts now versus could you, I mean, if you went back like two or three years ago, could you imagine telling yourself this and be like, nah, that's not going to happen, dude. You know, or like going back to 2017, even when Bitcoin was still laughed at, you know, by most, by most people in serious rooms, you know,
- [30:56]
Matt Kimmel
I still don't think it was given enough attention that a couple weeks ago the leaden bitcoin backed loans were tranched together and given an investment grade. Bitcoin's just like little edging into the framework of structured financial products and the traditional financial services is just incredibly promising long term.
- [31:22]
Colin
All righty, now we have Asher Ganute, CEO of HUD8, backstage. I know a lot of folks are interested in this one. Hut 8 has been in the headlines over the last year with one of the more exciting AI expansions of a public bitcoin miner. We will go ahead and get him on the stage. Asher, Mr. Ganut, welcome back to the Blockspace pod. How you doing?
- [31:44]
Asher Ganut
I'm doing great. How are you guys doing?
- [31:46]
Colin
Doing good, man. Interesting week in the news. Some good, some bad. Mostly good today except for when we close on the market segment. Getting a little dicey out there. But for our intensive purposes for this interview, we're really interested in getting some updates on y' all's AI expansion. To recap for those who have not been paying attention, who might have forgotten, hut 8 came out with a really a banner deal back in December with Fluidstack and Anthropic for their Riverband campus. I believe the contract terms were just over 200 megawatts for this first phase with an option to expand up to 2 gigawatts over these options that you'll have in the contract. Asher, can you give us some updates on how that Riverbend campus is going, how the build out is going and what the timeline is for this build out?
- [32:38]
Asher Ganut
Of course, the overall deal was about a $7 billion deal. It was 245 megawatts, it about 330 megawatts utility. And we're planning to deliver the first data hall towards the end of Q1, early Q2 next year, and then be rolling out data halls throughout the year. And so construction is progressing well. The switchyard from Entergy, Louisiana has been been building at record speeds, substations coming online and all of the equipment is moving forward. So we're very excited. We've obviously dove in a lot deeper with fluidsac Anthropic and the team to go and really design the remainder of the final data center. And so very, very excited. Overall, things are progressing as planned.
- [33:21]
Colin
You also have this proposed site in Illinois in Logan county, and the last headline I saw on it that there was a delay in the vote on the permitting and zoning for this. Is there anything that you can say about this? I know that these things are typically sensitive, so I understand if you want to duck this one. But I just wanted to ask the question, are there any updates you can give us on this site? Because it seems like one of the more interesting, one of the more interesting sites in any portfolio for these miners expanding into traditional and AI data centers.
- [33:51]
Asher Ganut
That's actually not even a site that we've announced yet. For example, we have a gigawatt site in Corpus Christi in Texas. That's a site that we've shared and some other opportunities as well. That's a site that came into the news because we were doing some of the zoning hearings, but not one that we've shared with the world yet. I think as we're developing across the US there's two major concerns. One is will energy prices rise if the data center comes? And two is how does this affect me? Will it take away my water? And so forth. I think for us as we're developing is giving folks confidence that when we develop sites, we're paying for the transmission upgrades that are necessary, if so, and then any supplier energy rates, we're also backstopping and paying those as well. And so ultimately that's on the power side and then on the other environmental side, water, we use a closed loop chiller system. And so we're not using water to cool down the data center and kind of on a continual basis. And so from those perspectives, as we're going through different zonings, I think there's a lot of FUD in the market right now where people are kind of scared of data centers and not diving deeper to kind of understand what's going on. And so I think in Illinois we're going through an educational process. And as we go through that educational process, we've gone deeper with the community. They are understanding the project more. And so we continue to move forward on that project, too.
- [35:07]
Colin
You know, there are jitters with a lot of these, especially rural communities and some not so rural. You know, our. My co host, Charlie Spears, mentioned recently that Tulsa has passed a moratorium on data centers. You're seeing a lot of, you know, counties and small towns float similar things. And even on the state level, I believe there's legislation out in New York right now for that. I find it very interesting also very frustrating because to me, this seems to have been a problem that we could have avoided if we had put the right dollars into investing in the right energy infrastructure through the last few decades. But we can't cry over spilled milk. On that note, of the sites that you have announced and you are developing actively outside of Riverbend, Asher, which ones are you most excited about in terms of their capacity and their feasibility for AI workloads?
- [35:57]
Asher Ganut
We're seeing a lot of demand in the market today, and we're seeing that demand at large scale and also smaller scale as well. And we see a lower need on latency, not just for training, but also for inference as well. So as we are continuing to develop sites, we actually have confidence across a lot of our sites that have power. Timing to power is really the focus there. And so timing to power is the element that drives kind of the demand right now. But overall, we're optimistic. We're having great conversations where we were a year and a half ago to today. We have deep relationships with the majority of the customers out there of this product at the scale. So excited to continue to grow those relationships and continue to be strong partners for them in supplying their compute needs.
- [36:38]
Colin
Asher, another thing that we covered on the POD this week is we're starting to see some tremors within private credit. Blue Owl and BlackRock are two of the bigger ones that came out recently. They changed the terms of their payouts and withdrawals for these private credit pools. I would love your take on if you're seeing any shifts in the private credit market currently and how Hut 8 is approaching financing for these massive data centers.
- [37:08]
Asher Ganut
Our financing conversation has been really, really strong and we've been very excited by not only the terms we announced, but actually announcing better terms afterwards as we continue to grow. I think when we think about the overall private credit markets, the big thing to think about is, and to be aware of is not all deals are created equal. Right? The credit who backs those contracts is really important. As more companies take on debt, those credit profiles change. So that's the first thing. The second is not all contracts are created equal. Some have termination rights, some have delay penalties, some have all these other kind of mechanisms. And so when you think about the private credit markets, I think there's this kind of generalized fear of oh no, there's these kind of this noise out there. But ultimately at the end of the day, for example our River Bend project, we have Google Credit, we have very, very strong partners in execution and we
- [37:57]
Ken Egan
see a lot of demand for that
- [37:58]
Asher Ganut
paper, for being able to finance that. I think that'd be very different if we had different customer base with different credit profile or didn't have a strong of a partner program in building and executing. So it really comes down to kind of confidence in the tenants and credit's ability to pay and also confidence in the execution. And so I think you have the credit markets who were very, very excited and wanted to finance every data center deal. And now we're starting to differentiate these deals and I think that's what you're seeing in the market rather than a pullback on private credit.
- [38:28]
Matt Kimmel
Colin, I'll pop in here with one if that's all right. Hey Asher, the Fluid Stack deal, basically Google, it's huge. Just talked about speaking with Anthropic Mike. I'm curious, what are these companies when they're assessing working with you, what are they asking you? What do they want to know about you that helps get this done?
- [38:50]
Asher Ganut
The quality of how we think about execution. We dive very, very deep into the engineering with our engineering teams, the commercial constructs. And for us at HUD 8, we're really focused on not just commercializing data centers, we're building long term partnerships. And that's kind of the key focus of how we've been developing the relationships. And as we look, if you think about it, when we announced the Riverbend deal, we announced two deals at the same time, we announced a data center contract, but a much larger strategic partnership. And that was kind of key and core to how we engage in these relationships. And so for Hut 8, really the questions they're asking is do you have an interesting site that I'm interested in? Are you a partner that I can work with long term? Are you someone that will be able to execute and deliver on your promises and what other ideas do you have in terms of innovation on the power stack, on the infrastructure stack that can continue to grow as well? Overall, we're extremely excited. Our partners relations have gone deeper and deeper year over year and month over month. And we think that overall you have A lot of volatility in the global macro markets today, but demand is as strong as ever. You see a lot of demand for compute. I think the adoption of AI with agentic AI and openclaw has been unreal. That has driven a lot of this additional demand and I see that only continuing to grow.
- [40:07]
Matt Kimmel
Yeah, on that demand front, you know, we see it too. I, I think I saw with the large load requests for Erica, like 250 gigawatt. I mean just like numbers that kind of blow your mind. What's it, what's it like the, the conversations you have with the grid operators? I assume you're doing that too, and they, you know, are assessing you guys as well. What is it like working with them and getting, you know, the approvals in place?
- [40:34]
Asher Ganut
We need to build more generation, more transition more everything. In the US you have a lot of areas that are capped and they're thinking about, okay, how do I support this and how many years will it take me to support it. Finding nice needles in the haystack of sites that are near term availability at scale is really, really important for us. With utilities, with energy generations, ipp. It's the same conversations as well, which is what is the long term partnership here? How do we build infrastructure at scale in these communities and how do we operate as a local partner in those regions. All those are pretty critical to the discussions that we have and I think are going to drive the success we're going to be able to build as well.
- [41:14]
Colin
I guess as a closing question, Asher, where do you think we are in the current CAPEX cycle for these AI data centers? It seemed like it got really frothy last year. I really liked your point about some of these financers just throwing money at anything that had AI on it. And now they're kind of pulling back a little bit and saying, hang on, not every operator is the same. Where do you think we are in this current AI moment?
- [41:37]
Asher Ganut
I see demand continuing to increase because if we think about AI, the majority of people who use AI just use a simple chat function in ChatGPT or Cloud or Gemini. They're not diving into workflows, they're not diving into integrating into their suite of services. And you're seeing that adoption happening in real time right now. That's really driving this kind of wave that we're seeing in compute today. I only see the adoption of AI continue to increase. I mean, internally at HUD 8, we're building a full scale team on AI implementation and workflow across our whole organization. We don't want to just build for AI, we want to build with AI and that is kind of key. And we're one company in the millions of companies out there. And so I'm very bullish on where we see demand going and that demand and that use case and that adoption is ultimately what's going to drive the underlying data center demand.
- [42:25]
Colin
Matt, you said you had one more question for him.
- [42:27]
Matt Williams
Sorry Asher.
- [42:28]
Ken Egan
Last one.
- [42:28]
Colin
Promise.
- [42:30]
Matt Kimmel
Last one. Thanks, Asher. So you talk about that. How do you think about serving. You talked about inference versus training. How do you think on the infrastructure operating side about serving these two different. Essentially a lot of people don't think about it that way, but I'm sure you do.
- [42:47]
Asher Ganut
So what's interesting is actually the differences between these loads had been less and less separated as people initially would have thought two, three years ago, people would have thought, hey, you can do training in the middle of nowhere in these large scale campuses. But for inference latency matters, you'll go to smaller data centers and centralized hubs where population is. But the reality that you're seeing today is when you're on these AI workforces or these products, you ask a question and goes and does its homework for a couple of minutes and comes back saving a couple of milestones on that latency doesn't actually make that big of a difference relative to if you're scrolling on Instagram or going through your emails or so forth. That's actually been really, really interesting, which has been a change in shift in latency versus training. Sorry. In inference versus training and the needs and the differences in latency in those two situations, we're seeing actually a lot more commonality rather than differences in those workloads. And I think that was kind of a common perspective that existed about a year or two ago.
- [43:55]
Colin
Ashford, thank you so much for joining us, man. Best of luck to you all throughout the rest of the year and we will be keeping an eye on that Riverbend campus.
- [44:01]
Asher Ganut
Thanks guys.
- [44:03]
Colin
Always a pleasure with the Hut 8 team.
- [44:06]
Matt Kimmel
Now when I'm on Claude and saying thinking, I'm just going to be thinking about how Asher is serving the same workloads about it differently at all.
- [44:15]
Colin
I've never really thought of that. I mean, I don't know what, you know, data centers I'm plugging into and I use Claude, but that's an interesting thought to think like I might be talking to some of the people who are running these things that are actually spitting out my studio Ghibli images or my research for these various stories Absolutely you are.
- [44:36]
Asher Ganut
That's pretty cool.
- [44:37]
Colin
It is pretty cool. All right, and on to our last interview for today. Long time friend and friend of the show. True friend of the show. Not just a ironic friend of the show, but Matt Williams of Luxor Technologies. I don't know to call you anymore, Matt, your director of Fine. I mean, you're the head of finance. You also do stuff on the software side now or you kind of just do everything. Oh, you're muted. See, he's Mick Luxor. That's actually his title.
- [45:08]
Matt Williams
Yeah, that's what I was trying to say. Yeah, call me Mick Luxor.
- [45:12]
Ken Egan
Yeah.
- [45:12]
Matt Williams
No, these days my title is head of financial services, but I run Luxor Pool now, the energy business and then also derivatives, which I helped start.
- [45:25]
Colin
Yeah. So for context, Luxor launched these hash rate forwards and futures. First hash rate futures ever, and I would also say the first non deliverable forwards in the sector. And now you all have expanded into energy trading and also into some HPC business lines. We'll touch on the energy side of this first because I think this will be interesting for our audience. Matt, can you give us a rundown of exactly what Luxor Energy's expansion into HPC and AI means for energy markets and hedging and how are these products for data center operators and AI HPC data centers different than for miners?
- [46:07]
Matt Williams
Yeah, so maybe I start with what we do for miners first because that's what we launched last October. So the energy business isn't necessarily just about trading. We're what's called a retail energy provider, electric provider actually in ercot. So we launched initially in ercot. So basically we interface between the data center and the utility and manage risk exposure and billing for miners. So this is a prerequisite to run a data center in ercot. So that's primarily what we launched. And now more recently, we'll be making some announcements in the next couple of days, actually around the full tech stack that we're offering. But one of the things that we do, we integrated our energy offering with Luxor Pool. And basically what we do is we allow miners to use their rewards to pay for their energy. And that's automated, it's settled daily and it's just you basically pull rewards, convert it to USD and pay for the energy bill. And that's like, that's what differentiates LOGSER from all the other reps that exist in ercot. We also do QSE services, which is like demand response and ancillary services. And we're working to automate that stuff as well. So like that's the backdrop of what we launched. We're also expanding that business line into SPP as we continue to grow.
- [47:27]
Colin
Can you explain spp? Because that's the region that's in the Midwest, right?
- [47:33]
Matt Williams
Yes, SPP is actually like technically it's like Midwest, but it's like a bunch of different states and some states are multiple isos. So like Texas is a good example. Texas has like 3 or 4 different ISOs within it. Some states are full SVP, some are like part SBP, some up part other ISO. So I could try and give you a list, but it's kind of nebulous but basically like you think like Nebraska. Nebraska is like a good example of svp. It's very different from ercot. They don't have like the typical REP structure, but they're very heavy on like you know, demand response type programs. But your original question is like how are you? Yep, sorry, go ahead.
- [48:15]
Colin
No, no, you go.
- [48:16]
Matt Williams
I was going to try and answer your original question, which is how are we expanding it at hpc? So our initial goal, like when we built this strategy like well over a year ago now, the goal was use energy as like a stepping stone to get a larger addressable market for Luxor, not just bitcoin mining, but like the larger data center space. And the goal was like, let's start small with mining, start in ercot, expand that way and then over time as we grow then we can start getting into hpc. But as we've seen the space evolve so fast and so many miners pivoting, we're like, we should probably step up our efforts. So what we're working on now is basically taking the capabilities we have and expanding that the AI, hpc. But it's such a different dynamic pretty much from every facet that there's a lot required for us to get up to speed on that. What we're working on right now is basically we want to start like just take the rep business that we have now, expand that into any data center. But that comes with different collateral requirements, different like credit sleeve requirements. Then you start getting into the trading piece. So like hedging becomes much more relevant for these non flexible low data centers. And I'm happy to get into why, but that's like, that's the main difference right there.
- [49:40]
Colin
Yeah, and that's my next question. Just a few points of context for people who might be lost in some of the jargon. The basic idea here is Luxor Energy is providing services that allow miners and data center operators to Hedge their exposure, get the best deal on their energy rates. For miners, they have this kind of full stack where you can do derivatives hedging. You can also do, by derivatives I mean you can hedge your hash rate so you can sell it forward and hedge your output so you can lock in a price for how much you're going to mine. You can also do that on the energy side of things to make sure that you're getting the best deal on your energy. So they're expanding that into AI and HPC players. And we were talking yesterday and you said miners aren't hedging power costs, but AI and HPC data centers are. Can you unpack that?
- [50:27]
Matt Williams
Yeah, it's quite simple actually. And it's not to say it's not like a blanket statement. It's not like no miners are hedging. The main difference is AI data centers, they have to hedge power because they're obligated to. And they're obligated to because they're fixed margin consumers of energy, meaning their revenue is fixed based off of the business model that they have. And you know, in periods of, you know, volatility in energy prices, they have to ride through that because like they have 99.9, 100% uptime requirements. And so what that equates to is like if you're not hedged with those type of requirements, you know, when you see stuff like the, you know, the storm fern that happened in Texas and power prices go from $50amegawatt hour to 5,000, you have to ride through that because you have contractual obligations to be up. Now if you're not hedged, you're just weathering that and getting destroyed. And now your margins get obliterated, Your collateral requirements go right through the roof. And to be honest, any sort of financing that you're trying to get for expansion goes out the window. If you're not hedge, it's almost like, I wouldn't say it's table stakes, but it's almost a prerequisite for financing these operations is having a hedge fund. Whereas miners, miners are what's called flexible load. They don't have to hedge because if power prices go above their strike prices or break even, they can just turn off or there's other curtailment opportunities where they actually can sell power back to the grid and make more money. It's not that they don't hedge, they don't need to hedge at all because they can just turn off when it's not economic. So I mean, what that brings us Back to on the like as we expand into AIHPC from like a retail electric provider in ercot now we have to have the capabilities to put on a PPA which is a power purchase agreement, which is an effective hedge for a data center. We're onboarding to trade on intercontinental exchange so we can do longer dated futures contracts. We participate in the day ahead in real time markets. All these are ways for data centers to hedge their exposure, trade around their power which is it's less relevant to miners.
- [52:47]
Matt Kimmel
Matt, from one Matt to another here, I want to hit on the elephant in the room as tensions in the Middle east, the energy markets are going crazy. What have you noticed just lately since the conflict started and how are you know, behaviors changing or what? What are you guys doing? Help me understand that a little bit.
- [53:10]
Matt Williams
So if you're talking specifically like the impact on like crude oil from what's going on in Iran, it's less, it's less important than you think. Specifically in ercot. Like most of the power generation from ERCOT isn't from crude oil, you know, nat gas or renewables. So there is an impact but it's nowhere near what you would think. So if you see a massive spike in crude oil it's not going to have as big of a trickle down effect to power prices in ERCOT as you would think. There is an impact but we're not seeing much of one. The beta of crude oil to power prices is not that high.
- [53:48]
Colin
And the other crazy thing too is because we have regional natural gas markets here, the waha rate right now in West Texas is negative for nat gas prices. You will get paid for offtake. I think it's crazy. I've seen not to get into geopolitics too much but I don't think Americans, yeah, the price of the pump's going up nowhere near places around the world. Australia is starting to see some pain. I think Thailand's starting to energy ration. So anyway, to me it shows even though we're so interconnected how fractured some of these energy markets still are in regional anyway. Throwing it back to you Matt. Not you McLuxer, the real Matt.
- [54:32]
Matt Kimmel
Yeah Matt, you're so in tune with the micro mechanics of all this. I, I was seeing it, you know, from a 200 foot view that all these large load requests with Aircot, you guys, you know, work with them closely that they were, you know, maybe looking at these things. I saw a workshop on like a batch basis versus like a single one by one basis. There's you know, maybe favorability towards flexible loads or not. But what, what do you like when you read the tea leaves on this, like looking out into the future, do you, do you think these things matter as far as who actually gets the approvals of the requests and just how that like trickles into, you know, this like the growth of AI and bitcoin mining? What is your perspective there?
- [55:23]
Matt Williams
Yeah, obviously does matter. I think what you're seeing in real time and we'll continue to see is all the large scale data centers, call it like 50 to 100 and above megawatts. That's all going to AI if it hasn't already. Right. And so I think the mining growth that you'll see will be on a much smaller scale, kind of like what we used to see, which is the 10 to 20 megawatt sites might be more suitable for mining and less suitable for AI. Although I think that's changing as well. I think in terms of hash rate in North America, you're probably going to see a fairly large. Well, you already are. But like a continuation of the exodus of hash rate out of North America just because the economics aren't great as we know, like hash price is at all time lows, power prices are going the other direction and the margins for AI HPC are multiple pools higher than mining. You know, I'm hopeful that like maybe you'll start seeing more, you know, hybrid data centers where it's you know, 8, call it 80, 90% AI HPC and 10 to 20% mining so you can participate in curtailment ancillary service programs. I think that would be an interesting model going forward, but we're not there yet. I think what you're seeing is just a mass migration.
- [56:44]
Colin
Matt, a closing question. Pivoting away from energy markets and we can keep this high level. I think it's probably best if we do keep it high level. But Luxor is also getting into the GPU market. Curious about the differences between GPU financing and ASIC financing and if, how to put it, you just went through all of these complexities, right? With the way HPC operators are looking at energy markets versus versus bitcoin miners. What are some of those differences with how they're thinking about financing these rigs versus how we've seen bitcoin miners do it in the past.
- [57:19]
Matt Williams
Yeah, it's wildly different. Pretty much across every variable it's different. I think when you think about financing or how a financier looks at financing opportunity, they look at the revenue profile first. If you look at mining and Bitcoin and hash price, it's extremely volatile and downward trending as of late. Whereas if you look at AI hpc, a lot of the financing that you're seeing is based off a contracted revenue or you know, it's like it's debt against that contracted revenue. So it's a lot more flat. Right. And predictable. And then going back to like, who are the lenders? Lenders for ASICS have always been, it's been a hard game, right? So like the cost of capital is much higher. The structure is different. The lenders are either like niche crypto lenders or vendors providing financing. Whereas lenders in the AI HPC space is like infrastructure funds or private credit or banks, like more institutional, traditional finance type lenders. And then the cost of capital is cheaper. Sometimes you're seeing single digit debt for these. And then the biggest one to me, because we do financing for Asics and our deals are anywhere from call it 10 million to north of 100 million. That doesn't even move the needle. In the AI HPC space. You're talking about deals that are north of a billion dollars. So it's like the financing terms are more favorable, the revenue is more predictable and the scale is just much larger. And I think those are the key differences that you're seeing. And then the core financial models are very different as well. Happy to go through those too, but that's like at a high level. I think that's what the main differences are.
- [59:12]
Colin
I think we'll, we'll cap it there. We've chewed up enough of your time. Mr. McLuxer, Matt Williams. Thank you for joining us, man. Always a pleasure to talk to you.
- [59:20]
Ken Egan
Yeah.
- [59:20]
Matt Williams
Where's Charlie, by the way? I only came on here to see him.
- [59:25]
Colin
He's, he's at, he's at a wedding today. Yeah, I didn't. Come on. Matt's back on the pod for the first time.
- [59:31]
Matt Williams
I love you, Matt.
- [59:32]
Ken Egan
Thanks.
- [59:32]
Asher Ganut
Okay.
- [59:33]
Matt Kimmel
There's only room for one Matt. I get it. It's fine.
- [59:36]
Matt Williams
I love you, Matt. Colin, you know I love you. I just skied with Will, so I don't need to see his, his butt on here. But like Charlie's. Where is he, man?
- [59:46]
Asher Ganut
Tell myself, hey, Charlie's.
- [59:47]
Colin
Charlie's living the good life. He's got nuptials to celebrate, so.
- [59:51]
Matt Williams
No, I'm happy. So tell him I said hello.
- [59:54]
Matt Kimmel
Hey, I.
- [59:55]
Colin
Next time you're on, I will ask you about your bitcoin coin. Hopefully you're not down too bad. And on that we will see you later. Have a good weekend, Matt.
- [60:03]
Matt Williams
Thanks for having me guys.
- [60:04]
Colin
Take care. Always a pleasure with the Luxor crew. And before we hit our last story of the day, well we have two more but the last one is more of just a market checkup. But before we hit our last major story of the day, a quick word from our sponsor, CleanSpark. We are CleanSpark, America's Bitcoin miner, a
- [60:26]
Asher Ganut
publicly traded company with the largest operating hash rate powered entirely by self operated infrastructure across four states.
- [60:39]
Colin
This is our proof of work. We are setting the standard for what's next.
- [60:45]
Asher Ganut
Learn more about the intersection of energy and Bitcoin@CleanSpark.
- [60:52]
Colin
So Matt, I've got this next story and you might be surprised to hear this, but public bitcoin miners are selling bitcoin.
- [60:59]
Matt Kimmel
Dude wouldn't be a bear market without it.
- [61:04]
Colin
Colin wouldn't be a bear market without it. And in this case, Mara is selling bitcoin that it bought much higher than this bought, didn't mine and took out convertible notes to do so. The headline here from blockspace, Mera jumped 6.4% as company sells 1.1 billion of bitcoin, repurchases 1 billion of convertible debt. Convertible notes to slash debt 30%. So Mara sold 15,133 bitcoin it had before this sale. If I can get my notes up in front of me right here, before this sale it held 50, let's see 53,822 Bitcoin. After the sale it has 38,689 Bitcoin and it has paid off a substantial amount of convertible note debt. Now a few things to note about this. I wanted to. So if you're looking at the Khiron at the bottom where it says clarity crypto mortgages, HUD 8 CEO Marisols. We actually flipped it originally it said Marisales at the beginning. I realized we weren't going to have enough time to do this segment before our interview. So I wanted to move it towards the end because there is actually quite a lot to unpack here. And for those of you who are not buried in SEC filings, good for you. It's not the best thing ever. MERA has a number of convertible notes that are outstanding and if we actually look at their filing for this statement, if we look at their filing for this new item, we can see that they have a total of 2 billion, basically 2.3 billion outstanding in these convertible notes across five different notes. But at the beginning of the year they had 3.3 billion. So they've made some headway here and the structure of these notes are really interesting. And the timing of when Mera took out these notes is also interesting. So just to give a quick rundown, they have a 1% note due in 2026. This one is the leanest of all. They've paid it off the most. They only have 48 million outstanding. The original size was 650 million and they issued this in November 18, 2021. For those of you who don't know how these convertible notes work, it's a loan that can be converted to shares of the company later on if the note holder decides to do that. They'll do that obviously if the share price is higher than the convert strike price for what they convert the note to and for that November 1st. Hold onto your seat there, Matt Marist stock was $55.40 at the time that was issued and the conversion price was 76.17 for that note. And for those of you who don't have your Bloomberg Terminals or Google Finance up, Mara is currently trading at $7.78. So no way you're going to get the conversion price on that one. We look at some of these other ones though. They also have one due in 2031 that was issued in August of 2024. They have a zero that's at 2.125%. They have a zero percent note due 2030 that was issued in November 2024. And they have a zero percent note due 2031 that was issued in December 2024. They also have one more zero percent note due 2032 that was issued July 2025. Now the interesting part about this is the notes that they paid the most down were those November 2024 notes and the December 2024 note. Why this is relevant, I believe they also paid down some of the August one. But the August and November and December notes were issued at this time that Marrow was buying Bitcoin with these proceeds. Mara issued the 2031 note in August 2024 and bought Bitcoin with it. Bitcoin was roughly 60k in August. It was 100k in December when it issued a massive note to buy Bitcoin as well. And Mera paid down these notes that were due in 2031 and 2030 first. Because these notes have holder puts where the note holders could actually call the value of the loan in 2017. So for the December note, they the or for the November note. Excuse me, there was a holder put where the loan could be called in December 2027. And then for the December note, the holder could call it on June 4, 2027, which is only 15 months away. Now, the reason I bring this up is because if those note holders call the note at that time and exercise that put, they call it for the full value of the note. And if you notice on this press release, Mera actually paid roughly like 90 cents on the dollar for these notes. So they actually negotiated to pay for less than the principal value of the note. Now, if you're wondering how they could do that, this gets into kind of an interesting game of chess with the way that the financing on these things work. Because the consideration that Mara is weighing is if we get this note called next year and we're not liquid enough, we're going to have trouble paying down this debt. And on the other side of this, the note holder is asking, how much can we actually make on this note? And if we do wait, will we actually be able to get this paid back without having to go through some sort of rigamarole? I'm not saying Mara would go bankrupt, but in a bad scenario with another company that they're liquid, they can't actually pay. These notes might end up forcing them into bankruptcy and then that will be strung out over a number of years to restructure the company and sell off assets to pay off secured holders and unsecured holders. There's this balancing act that both sides are playing saying, how can we get the best of this deal? I was talking to a former bitcoin mining executive yesterday about this and I asked him, because it does raise a good question. These notes are 0%. You sold this bitcoin to have cash on your balance sheet. What's the rush to pay it off? Part of the rush, I think, is that put where they can exercise the note or they can call the full value of the note in 2027. The other side of this, in terms of the rate that Mera got to pay this off, these notes almost certainly were trading much lower than what they paid off. So if they paid it off for 90 cents on the dollar, these notes could have been trading lower than that and most likely were trading lower than that. Especially if you look at the times that they were issued and where merit stock price was when they were issued versus where it is now and versus where the actual strike price was for converting the notes to shares. If you look at the conversion prices for these notes, it is much higher in most cases for all of them. I believe some of them are in the realm of like 20 to $30 per share, even higher. Like we said, there was that one from 2021 that was like $70 per share. So if that's the case, Mera negotiated this rate up, make sure that the note holder was happy, felt like they were getting a good deal. But Mera could also get a better deal in the sense that they don't have to pay off the full value of the note. The last thing to note about this before I toss it over to you, Matt, is that typically, and we don't know this for sure, obviously, because no one's disclosing this in SEC filings and the note holders are not publicizing this, but when these financial institutions issue these notes, they'll often short the stock as well. Right? Because you kind of have a neutral trade there. You are going long the company with the convertible note because the convertible note will have the strike price to convert it into shares.
- [69:19]
Matt Williams
Right.
- [69:20]
Colin
And typically if the interest rate on the note is. If the interest rate on the note is lower, then that means that the conversion price for the shares is probably going to be lower than not. If the interest rate is higher, the conversion price will be higher. So the note holder feels like they're getting something out of it. But if you're issuing a note and the conversion price is higher than the current stock price, you might short that stock on the other end to make sure that you're making money both ways on this trade. And Mera is down substantially over the last year. So if this company, if these note holders were shorting Mera, then they probably made a decent amount of money on this trade. And if they're getting 90 cents on the dollar, then they're basically recouping the cost of issuing the note to begin with. They're probably happy to wash their hands with this and walk away from it. But overall, Mara, stock price actually ended up pumping after this because it did clean up their balance sheet a little bit. These notes were potentially a risk to the company if they were called in 2027. So it's hard to say that Mera didn't make a good move here. If I'm looking at this right, why are you holding all this Bitcoin if the market is no longer rewarding you for holding this Bitcoin, like being a high beta trade to bitcoin, they're the ETFs now, they're Bitcoin treasury companies. Investors and traders have not treated Bitcoin miners as a Bitcoin proxy trade for quite some time. And they're especially not doing it now that AI is on the table and there are more revenues to pull from that. So overall I think this is a good move for Mara and shows you how far we've come in terms of how these bitcoin miners or managing their balance sheets. That was a lot, Matt. I'm sorry, I will shut up and throw it to you.
- [71:04]
Matt Kimmel
No, I love how deep you dove into this because I, I, you know, I'll, I'll put the headline to what you're saying. It's, you know, marriage stock price jumped as they cleaned up their balance sheet a bit. My question to you, having dug into the sleuthing, the SEC files, right, tracking this whole journey, do you think it was a good idea in the first place to issue these notes and buy bitcoin?
- [71:33]
Colin
Oh, hell no, dude. It's the craziest thing ever. I mean, to me, this is, this is what retail does, chasing trades, right? Bitcoin pumps after the election in November. And then you buy in. You don't buy in when Bitcoin's at 60. You buy in after bitcoin's already peaked its head above 100k and basically set the top. I mean, we went to 120 throughout 2025, right? But you know, potato, potato, plus or minus 15, 20%, you're buying close to the top of the last cycle. I remember when this came out when News of Riot did something similar. These bitcoin miners ended up issuing convertible notes to buy bitcoin and the market at first rewarded them for this because we were just exiting the tail of paper bitcoin summer with all of the bitcoin treasury companies, right? In fact, Merit did their first one, their first convertible note to buy bitcoin in August, right at the tail end of the DAT mania and the crypto treasury mania. Then you had other companies like CleanSpark. And I'm not just saying this because they're a sponsor. They issued convertible notes and they actually plowed that money into their operating business. They said, we're not going to buy bitcoin with this. Why would we buy bitcoin with this? The whole point of our business is to produce bitcoin below spot. It never made any sense to me. In what world do any other commodity producers take on debt to buy the commodity that they produce, nothing else in no other market. Do you see that? So I think obviously it was irresponsible to do at the beginning. It's nice to see that they're changing course now, but that's a lot of debt, man, that they still have to plow through that they basically have nothing to show for it. Less to show for it with the bitcoin that they bought from this.
- [73:29]
Matt Kimmel
I'll ask you another question. It is tradition in bitcoin bear markets to see minor forced selling and I'm not, I'm not calling this forced selling. My question to you is
- [73:48]
Colin
do you
- [73:49]
Matt Kimmel
think there is more to come on this? Oh, I will say like in magnitude this cell is like one week of sailor buying, right? Just to like put it in perspective for you know, people listening out there. But what, what do you think there? Right, because that this is what we see. This is what we talked about this in 22, right? We, we, we've, we weren't you know, talking with each other at the, at the time, but we've you know, exposed Facto talked about 2018, 2019.
- [74:22]
Asher Ganut
What do you.
- [74:23]
Matt Kimmel
Is this time any different? Right? We are 50 plus percent down from all time high in October. That is a rapid dive across five months or so. Do you think we see the same type of behavior again?
- [74:45]
Colin
I think this time is different but for the wrong reason in the sense that it's not going to be different that miners are going to sell bitcoin to make sure that they have enough cash to operate. I think a lot of these guys are going to sell their entire stacks. I think we've already seen Mara said they're going to do that. They're not done selling. I think that they'll probably exit this year if not completely divested of their bitcoin holdings. Close to divested of all of them. Cypher has said the same thing as well. Bit Deer has already sold their entire bitcoin stack. I haven't seen other announcements or might have just missed other announcements from other miners, but we've covered it on the pod in the past. All of these bitcoin miners, I would imagine their CFOs are running numbers with their researchers and quants asking how do we manage this book? How do we manage our bitcoin holdings? How do we get out of these positions? Because just to reiterate the point, none of these companies are. There's no benefit for them to hold bitcoin anymore. They need money to finance these HBC builds and to manage their operations. And that bitcoin is just sitting on their balance sheet almost more as a liability in terms of its volatility than an asset right now because no one's buying these stocks to get bitcoin exposure anymore. I wanted to run this analysis before we started. I didn't. Maybe I'll do it for a newsletter soon. You can see the correlation between bitcoin miners and bitcoin price break down since the ETFs were launched. And I would imagine that since the AI pivots became front of mind, that correlation continues to erode. And I wanted to pull up bitcoin treasuries here to show just how much selling there is to come. They haven't updated Mara here, but this would be again, per what we said, this would be in the 30,000 at this point. If you look at riot, riot's got 19,000 bitcoin. They've sold some this year as well. They've got a little over 19,000 to sell. Hut 8's got almost 14,000, 13,000, 6,900. Clean Spark's got 13,000. On and on and on and on. I think this is actually one of the biggest headwinds for bitcoin's price in the near term. If there's not enough volume and demand on the other side of this, you're going to see a historic unwind from these bitcoin miners. They're going to be selling their bitcoin on the open market over the next year or two. If you couple that with some of the bitcoin treasury companies you're holding, any of them have to unwind too. You have a lot of selling pressure coming from, from these companies that have accumulated it. And this is the nasty side of 2025's mania, right? All of these people were cheering on these headlines of like, you know, company you've never heard of raised $500 million to plow into bitcoin. Now those stock prices are in the dirt. Same thing with bitcoin miners. You know, they were all, there's all this chest beating about how much bitcoin they hold. It doesn't really matter for their business anymore. So what's your take on it? I mean, does that resonate with you? Do you think that's on the mark or do you think I'm a little too doome today?
- [77:44]
Matt Kimmel
Well, well, I'll say first because you asked about the correlation point, I've run those numbers and the correlation dropped precipitously post ETF January 2024 in US spot. Bitcoin ETFs, I should say. And throughout last year these companies were increasingly like, if you look sector wide, based off of their future AI pivots rather than the bitcoin price itself. So those correlations have continued to drop. What I Find interesting though is what you're saying is we will maybe similarly get the type of minor capitulation like event that we've seen, but different in nature. The behavior that's driving it is quite different. It's not selling for survivorship in bitcoin markets, it's selling to pivot to maybe fund new types of operations. I find that really interesting. It resonates with me. We ran numbers recently and looking at the sector, these mining companies, by the end of this year it looks like around 70ish percent of their revenues will be coming from AI and so the transition is underway. It's not like we're just you know, kind of one baby step into it anymore. What I find fascinating, you know, having been around and you were, you were as well is this kind of period of huge operating capital market funded in the U.S. bitcoin mining, gigawatt plus operations and businesses of the last couple years post China mining ban. When we look back at mining 10 years from now we may look at that like wow, what a flash in the pan because it almost seems like we are maybe in a transition reverting back pre China mining where it's more global, more stranded, modular, like ragtag, like less you know, beautiful and you know, public market and kind of drum up and you know, I, I'm struggling to find a words for it right now
- [80:11]
Colin
we're moving from the cathedral design, massive, you know, multi hundred gigawatt facilities back to the chicken shack mining.
- [80:19]
Matt Kimmel
Thank you. Yes, like it seems like we are, we've, we're coming full circle on this, this and it's like I just, I feel like I'm getting, I'm getting shades, I'm getting notes of, of you know, what times past. But it'll be fascinating to see like this year I think will be really telling in that like the market may be dramatically different when we look at it next year but I'll wrap up there.
- [80:45]
Colin
I think that you're right about that and I think that ultimately the bitcoin mining ecosystem will be a bit, little bit healthier for it or at least the network. Right. I think that getting these big public companies out of bitcoin mining, disintermediating hash rate just decreases the attack vector that a government like the US government could have on bitcoin in terms of censoring certain transactions, etc. But we'll leave that there and we'll just end on a quick market note. But first a word from our other sponsor. Lygos. Hedge funds are getting liquidated Is your Bitcoin safe? It's not just Bitcoin's price drying up. Big whales, hedge funds and lending desks are going under. After the notorious 10, 10 and 2, 5 liquidations. Counterparty risk is rampant. So it's more important than ever to understand who actually controls your Bitcoin. And with Lygos you are always in control. Don't be the next FTX or Celsius victim. If you are working with another loan provider, do yourself a favor before it's too late and check out Lygos Finance. There are a preferred Bitcoin backed lender. They use Bitcoin native smart contracts to help you protect your stack. You are always in control of your keys. No one else has control over your Bitcoin. With Lygos you always know where your Bitcoin is. Hold your keys. No wrapping, no bridging, no rehypothecation and competitive rates as low as 10% APR. Go to Lygos Finance to learn more. And with that we'll, we'll be quick on this because there's not too much to say but going into the weekend, man, we're frowning. Everything's red. Red square comes up on the market dashboard make grog sad. Green square go away. We're down 4% today on Bitcoin. 66,000. Just above 66,000. Let me refresh this. Ah, just dip below 66. We're at 65,9 and it seems like this is reverberating into the wider market. The S and P is down just over a point today at 1.3% down to 6400. Let's see what gold's doing. Gold has been the Boomer rock has been getting absolutely destroyed recently after a pretty historic run up. Ah, all right, gold up when everything else is down. Seems like something, something's going on in the markets. Matt, what's your take on all of this?
- [83:09]
Matt Kimmel
Well it's the two ton gorilla is that's dominating everything is conflict in the Middle east
- [83:18]
Colin
again.
- [83:19]
Matt Kimmel
It's like cash rules everything around me. It's like no Middle east tensions rules everything around me in the markets right now. Yeah, I think when it comes to Bitcoin, right. It has given away the speculation of the bull market already in my opinion. I think we are, we are in and do for quite a bit of chopping throughout the, the rest of the year. Maybe we get a lower low. Right. Maybe the, the sort of capitulation type event that you're talking about comes to fruition. But it seems like our range Here is somewhere around 75, 76 and somewhere around 60. Right? And when you, when you look and zoom out at. At a lot of the cyclical indicators and I know like guys like James Check do a great job at this. It. It. When you look at momentum, when you look at positioning, right. When you look at these, these kind of on chain type of indicators, these things allude to in. In combination that we are closer to a bottom than we are a top.
- [84:34]
Asher Ganut
Right.
- [84:34]
Matt Kimmel
That. And I don't necessarily know if the exact bottom is hit. Right. You can never know that. But to me, you know, and I have a, A bias fundamentally and a belief in bitcoin, it's that, you know, we'll. We'll probably hang around here. Relief rallies will get sold down from investors that are, you know, deeply underwater from 100k plus. Right. But then the, you know, most, the. The stable, most fundamentally believing hodlers will, you know, buy the, the strong dips and that will create this back and forth, forth and back and forth until eventually one day the, the sellers exhaust. That's my, that's my opinion. But yes, the, the. That you cannot dismiss in all of this. The macro picture that you have this conflict in the Middle East, Bitcoin's held up well throughout that. You have a new Fed chair coming in. At some point there was, you know, the odds of recession are increasing. You have these dynamics that you can't draw parallels to in bitcoin's past. Right. That you have to take into account. But when you look at charts and things, you, you have to, I think, feel somewhat constructive on a year's timeline. That's. That's what I think. Colin, toss it over to you.
- [86:06]
Colin
Well, to loosely quote Pink Floyd here and seesaw a. A song on one of their lesser known early albums. She goes up while he goes down. Gold goes up while bitcoin goes down. And with that, we will end it. Thank you all so much for joining in today. Long stream. Appreciate y' all holding in there. And Matt, thank you again for joining. We will be back next week, Monday, Wednesday, Friday, bright and early, 9am PT, 12pm ET for another set of live streams. Have a good weekend, y'.
- [86:41]
Asher Ganut
All.
- [86:41]
Colin
Go touch grass. Enjoy spring. It's beautiful out there.