← Blockspace: AI & Bitcoin
Blockspace: AI & Bitcoin
IREN’s $2.3B Note Offering, STRC Comes to DeFi, KEEL’s Q1 2026 Earnings
01:05:26
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- [00:00]
A
Foreign. What is going on y'? All? Welcome back to Block Space Live. We're coming at y' all fresh as daisies on this beautiful Monday morning. Hope everyone had a great Mother's Day by the way. So we've got a few interesting items on the docket today. We will be opening up with Iron issuing or planning to issue a convertible note for total consideration of 2.3 billion. This is coming off of the heels of Iron announcing a partnership with Nvidia to develop an AI site for the premier GPU fabricator and also agreeing to use Nvidia machines for their 5 gigawatt AI buildout. After that we have got Jay Patel, CEO of Ligos Finance, on to talk about what else but stretch but not stretch, specifically synthetic derivatives built on top of stretch in Defi and what that could actually mean for systemic risk to the stretch and strategy ecosystem, if anything at all. After that we will be diving into also what else but Quantum computing, specifically Project 11's most recent paper on quantum computing, threat to Bitcoin and a reaction from BitGo CEO Mike Belch. We will then move on to Kiel's Q1 performance as the Bitcoin miners saw a fall off in revenue as it wound down its Passo pay center last year in Paraguay, selling it to Hive. And then we will close out on a little bit of Hopium with the Morgan Stanley Bitcoin ETF launch rather the last month of trading, the first full month for the ETF in which it saw zero outflows. Now the volume itself is not the story here, but the fact that nobody actually sold the positions over the last month.
- [01:46]
B
Block Space goes live Monday, Wednesday, Friday at noon Eastern featuring quick hits on the latest in Bitcoin mining, AI and emerging tech. Make sure to hit subscribe Hit that little bell notification on YouTube so you get the push notification on your phone and if you like the stream and you miss it, it turns into a podcast shortly after we wrap up. You can find it on RSS feeds, Spotify, Apple and other places including our website BlockSpace Media. If you like the live stream, you will love Our Newsletter Newsletter blockspacemedia.com Every Friday we do a deeper dive on interesting topics. Last week I covered MicroStrategy, but we cover all sorts of things Bitcoin tech, mining, mining equities and occasionally some deep dive investigative reporting whenever the stars align. This show is brought to you by CleanSpark ticker CLSK on NASDAQ. More on them later on the show. Colin, let's kick it off. I hope you Had a good, a good Mother's Day shout out to all the moms out there, did I?
- [02:52]
A
Mother's Day.
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B
Yeah.
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A
I wasn't paying attention to the news at all, which is nice.
- [02:56]
B
Yeah, I had my phone off so we had to get up to speed this morning and last week was a doozy for deals like.
- [03:03]
A
Yeah, and it seemed, and it seems like we're just going right into week two with that, specifically with this Iron deal which we'll get up on the stage right now. Iron is proposing a $2 billion convertible note notes due 2033. There is an extension option on these notes for an extra 300 million within 13 days of issuance and a few notes on this again maturity for 12-01-2033. Interest will be paid semi annually. The exact rate is tbd. The notes have not been priced yet. So we will know the interest rate once those get priced. I'm assuming within the next few weeks. Holders can convert to cash, ordinary shares or a mix, but IRON has the choice. So they will have the final say over that. IRON can redeem for cash starting June 6, 2030, but only if the share price exceeds 130% of the conversion price. And in the event of a major corporate event like an acquisition, going private, etc. Or fundamental change to Iron's business, the holders can force Iron to buy back the notes at par plus accrued interest. Now some quick context for this and I'll throw it to you Charlie, for second thoughts before I look at get into the meat of the converts that IRON currently has. If y' all recall from our live stream last week, this is coming on the heels of IRON partnering with Nvidia, a massive deal in which Iron is committing itself to using Nvidia architecture and GPUs for its AI fleet, which it projects will be 5 gigawatts from 2028 on. So 2028 plus is when iron thinks it's going to get to that 5 gigawatt number. According to their forward guidance, as a part of this deal, IRON is going to host a 60 megawatt cluster for Nvidia in a contract valued at 3.4 billion over five years. This deal also has a pretty interesting component in terms of giving Nvidia warrants for Iron shares 30 million shares at a price of $70 million should they. Of $70. Excuse me, per share should they choose to exercise those warrants over the next five years. Charlie, kicking it to you for any second thoughts before I bust out the 10Q and show where debt currently stands.
- [05:17]
B
Yeah, so what's interesting is that a lot of like right now money is still flooding through, flooding into AI. There's infinite money and, but, but like a lot of people have been critical, like well, where's the money coming from? Because in a lot of these cases Nvidia has financed the counterparties to whom they're selling to. And so there's this criticism of like well it's just kind of this big circular loop or well, the money it keeps going in a circle. And we've seen, you know, Nvidia do this with other major hyperscalers. But I think this is maybe the first one where they've done it in like into an AI data, AI HPC builder kind of in our little circle which is the former Bitcoin miners now pivoted to AIHPC factory. So pretty interesting. I guess this is not a non dilutive offering. It's kind of like a time delayed, it could be dilutive in the future.
- [06:21]
A
Well it's interesting because they actually have this capped call component to it. So when a company will issue convertible notes, what they'll often do is they'll also engage in a capped call transaction. I think like the average is anywhere from like roughly 7 to 9% of the raised amount that you know, it could be more or less than that. But the idea is if you're getting, if you're getting that percentage of the raise, then you can take out a cap call transaction that should be able to hedge that dilution risk. What these cap calls are is basically the company will go to a bank and then enter a call option with the bank. And should that option be in the money, then they can exercise it. They get cash from the bank and they use that to pay off note holders. In some cases they might just get shares directly from the bank and then pay off the note holders in those shares instead of issuing new ones. But there's a cap on it. So like if, you know, let's say a convert is being issued for $50 for, with a $50 share strike price, then that company enters into a cap call for like $80, there might be a cap on it at 100 to where if it goes, if the stock, you know, if iron stock in this case were to go to 100, then that is the absolute ceiling that they can, that, that's the ceiling for the cap call. They can't actually reap any profits above that. It's a way to protect the bank's downside. So with, with this, with this deal or sorry, with this note Iron has said that it will be entering into cap call transactions. We don't know the size or the scale of that. It did not say that it was going to be retiring old notes. We saw them do that, I believe this year, with an earlier convert as well. That's often quite common. If a company finds a better deal, they're going to take that debt and they're going to retire old debt with it.
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C
Right.
- [08:09]
A
I mean, it's just basic refinancing stuff. So that will be the mechanism that helps them keep this from being dilutive. Now, to your point, Charlie, it's not necessarily dilutive. Even without that, if you, if Iron decides to pay back the notes in cash now, obviously the question is where they're going to get that cash. They're going to have a lot of money coming in from this AI build in the next few years, assuming they pull it off successfully. But one last thing I wanted to hone in on is the idea of this kind of circular economy with an AI where it's basically just the same regurgitated funds going from one company to the next and slushing around. That's often one of the primary criticisms from AI naysayers. And you know, maybe there is a case to be made for that. I saw Matthew Siegel have a take on it a while back where he was saying there, there's so much, there's so much regulatory red tape when it comes to these deals that oftentimes the only way to actually cement something is to create a kind of shared incentive structure where companies are investing in each other. And so it seems like all of the money is stuck in this loop. The other question I would have is I don't know what people expect when there are so few players who can actually execute at this scale. For something like this, you would expect the money to be switching hands between a few very well run firms. Right?
- [09:26]
B
Yeah. I actually have a little bit of insight on this because I was listening to a Dwarkesh podcast on this and they, and the guest was saying that it's really interesting that Nvidia does not appear to be playing kingmaker, because they could be playing kingmaker across the industry right now with who they do deals with and their counterparties. But that also increases risk. You become increasingly reliant upon sole deals and vendors and execution risk. And then I'll also mention, as I kind of watch this happen, it does feel reminiscent of deals in the oil patch because in the really cyclical boom bust cycles of oil and gas, you have companies who Come and drill wells, you and, you know, producers who raise a lot of money and drillers who go and they drill the wells. But the companies who go and service these wells, they provide the casing, the cement, the oil field service companies, those companies will often actually do kind of what Nvidia does. They'll, they'll take on many different counterparts. They'll take equity stakes in these companies. And then what we've seen multiple times now is the drillers go bust and, and the oilfield service companies remain solvent and survive to the next cycle and grow. So it's actually kind of interesting that this type of strategy works well. And you can see this. Halliburton's done this. Slumber day's on this. The various Baker Hughes spin offs have done this. So that's my oil field analogy to the silicone industry. I'm going to throw it back to you to go deeper into the numbers. I think.
- [11:05]
A
Yeah, I always love a good oil field analogy for compute and bitcoin mining, especially for bitcoin mining, it seems like it's really one of the better industrial or, sorry, industry analogies you can pull out. All right, hopping over to Iron's recent 10Q, just to give you all a quick rundown of where their slew of convertible notes stands. Currently they have $3.687 billion of outstanding convertible notes. None of these have any. None of these have payments that will be due, I assume, outside of interest within the next year. There's a 2030 convertible note, a 2029 convertible note, a 2031 convertible note, a 2032 convertible note, and a 2033 convertible note. And if we were curious as to where iron's interest rate might land for this most recent convertible note, we can scroll down here. We can see right now, the most expensive note that Iron has to date is the 2029 convertible note at 3.5% interest. And the remaining principal is $233.389 million on that. The rest of them have lower interest rates. There's one due 2030 that has 3.25. But man, this 2031 convertible note, this was in earlier days before these bitcoin miners ran really started juicing on AI. This one's crazy. For the 2031 note, it's a billion dollars in principle, zero percent interest rate. And the initial conversion price on the note was $11.67 or $0.68 per share. So that note is way in the money. It's really interesting to see some of these older ones a Lot of these older convertible notes. I would love to have someone who is well versed in the bond market to explain this to me. A lot of the older ones before these started ripping because of AI, were like Mark or had 0% coupons more or less or very low. And it seems like, you know, bondholders are not willing to take that risk anymore because you just don't see those interest rates with bitcoin miners going into AI or even, you could say strategy and some of the other bitcoin companies that trade publicly. But overall, I just wanted to highlight that point. You know, Iron, this will add another 2 billion, maybe 2.3 billion onto iron's debt load. Right now it's sitting at 3.687 billion. And they're going to need every single penny of that because Iron is not only building the power shells, the actual infrastructure for these AI builds, they are also buying the GPUs and running them, building clusters for their clients. So they are a proper. They're a burgeoning neo cloud. Whereas most of these other miners have decided to go the infrastructure route and just manage power and location. Iron is going two feet into the deep end rather than one foot in the shallow end with this one. So that's all I have to say, Charlie.
- [13:58]
B
If, I mean, that was their success, you know, during the down market, was 2ft in the deep end and bought bar knee deep, you might say, into the. Into the hpc, which turned out to work very well for them. Minted a lot of very wealthy C suite folks who bought some very nice homes, if you remember, in 20, 24 or 5. Okay, let's. Let's keep going. We've got our first. We've got our guest of the day. We got Jay back on the show. Let me get him up here. Jay, welcome back to Block Space.
- [14:36]
C
How you guys doing?
- [14:38]
A
Doing great, man. Great to see you. It was awesome catching up in Consensus. Thank you for taking part in that.
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C
And we were talking conference.
- [14:48]
A
Yeah, the suits conference.
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B
Jay.
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A
We were talking before we got on, and I'm happy that we discussed the consensus thing because you mentioned that you had a few takeaways from consensus this year. It really felt like a different consensus or even different crypto conference than years past. What were some of your biggest takeaways from this year's consensus conference in Miami?
- [15:06]
C
Yeah, so I'd say in years past, consensus always had a good bit of shitcoinery, for lack of a better term. Like there was, you know, random new L1s with Lamborghinis. And cybertrucks rolling around. And there was a lot less of that and a lot more of like the traditional infrastructure providers and financial institutions. Which really got me thinking that bitcoin and I'd say the bitcoin community is really like the last bastion of people who still care about the freedom money concept. It seems as much as Vitalik and the EF and other folks like to say that we're building incredibly neutral, censorship resistant platforms, most other chains are realizing the product market fit is in tradfi basically like Solana, Ethereum and all these other chains are tokenized stocks and tokenized RWAs and doing stablecoin payments between businesses and all of these things, which is great. But with that comes all of the compliance and regulatory oversight and non keywords. Yeah, it's like okay, it's not on a database, it's on a blockchain. But it's not censorship resistance, it's not just code. Right. It feels very much like whether it's the corporate chains, like there was a bunch of I saw all the Tempo and Canton and circles chain or even if it's just the L1s, everyone's kind of catering towards that same audience. Which is interesting. And I guess from my perspective it's like I feel like bitcoin really in the bitcoin community is seemingly one of the last groups of people that still cares about really something kind of like not under the control of governments.
- [17:05]
A
I'm glad that you brought that up because that was one of my biggest takeaways from the exhibitor space this year. I saw like a dozen companies seemingly offering the same product. This vague stablecoin financial platform and service. And so I guess as a follow on question to this conferences obviously follow the money. Right. Like if you went to a conference circa 2023 or 2024, probably would have seen a lot of ordinals booths. I know you certainly did at the bitcoin conference in Nashville.
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C
Right.
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A
And so I'm wondering if we look at this and it's like, well this is where the money is coming in, this is where the sponsorship dollars are flowing. There's an argument to be made that maybe the stablecoin stuff is like a more buttoned up and real world use case. But I mean how much of this, how much room do you think there is for all of these different kind of tradfi meets crypto competitors building out these financial platforms?
- [18:04]
C
My sense is the opportunity is big, but you're not going to have 500 companies offering the same thing. I'm even thinking on the payments chain side of things, everyone's building a new L1 for stablecoins and I don't know, from my perspective, it seems unlikely that we're going to have 30 different L1s for stablecoins. If we're all using a different L1 for stablecoins we might as well just use a non corporate chain. We're gonna have an interop layer for stripes chain and circles chain and I don't know when Visa comes out with a chain and then we're gonna use Bitcoin or maybe they're gonna say they're gonna use Ethereum to connect all the chains. This feels, I don't know, I think the money going in the space makes sense because the opportunity is big. But I agree with you. There was like dozens of booths with all the same vague words about payment infrastructure with stablecoins and you know, traditional finance meets crypto. And I think it's a lot of it's probably marketing. I mean a lot of it's. There's probably an opportunity there, but I don't see it as like, you know, there's not going to be 500 competitors in that space. There's a reason there's only like everyone likes to shit on the card processors, but there's a reason there's a limited number of credit card networks. If we had like 800 credit card networks, like, oh, you go to the coffee shop and you can't use your card because they want you to use someone else's chain or something like, I don't know. That's why I like Bitcoin. There's just Bitcoin. There's no, like I have a different Bitcoin than you,
- [19:34]
A
depending on who you ask, I guess.
- [19:37]
C
Well, for the time being there's one Bitcoin.
- [19:42]
A
Well, in extrapolating that question out further, I wonder that with all of the stablecoin competitors you've seen come up recently and sounds like every single company and their grandmother tried fi crypto, not exclusive. It's. They're all launching stablecoins and that to me makes no sense. The market's already converged on Tether and usdc and I don't know why those network effects would position anything else to be able to gain that market share. Unless you have some edge that I'm not seeing.
- [20:08]
C
Yeah, the only thing I could think about is like if you already have some sort of captive audience, like the edge you're talking about, maybe if you are, Amazon could have your own stablecoin you know, people spend it within the Amazon ecosystem and that way you get some distribution. But like I agree, you know, most folks, you're either comfortable with USDC or in USDT or you're not. I don't think someone who's not willing to use stablecoins today will use them because JP Morgan issues a stablecoin seems relatively unlikely.
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B
So Jay, we have, we wanted to talk a bit about this emerging tokenized synthetic stretch trend we're seeing. I mean maybe you saw boredown in Miami. I got wind of a couple of these new interesting products while I was in Vegas. A various like stablecoin backed by stretch type thing and I and it seems that this is becoming a trend across the defi industry. Are you seeing this? Can you explain what people are trying to do here and does it make sense to you?
- [21:19]
C
Yeah, it's so. And I'll say none of what I'm about to say is a knock on stretch. You know, I think you guys had a great piece last week about it
- [21:26]
B
and like in general, Brad's had a really good. Everybody should go back and watch that. Some really good take on it.
- [21:32]
C
Yeah, I think a lot of the criticism from the naysayers is kind of unfounded and there's probably some middle ground where like the stretch shells, for lack of a better term, are turning a blind eye to some of it. But overall I think there's a demand for it. People are buying stretch now, this whole tokenized stretch or stablecoin stretch where basically crypto is always after more yield. And so stablecoins, traditional stablecoins, usdc, USDT don't pay you a lot. So there's usde, which was doing well for a while, which was Athena's stablecoin that was backed by kind of like the perps trade. There's an AI GPU financing Stablecoin called USD AI. And I think this latest wave, whether it's tokenized stretch or stretch back stablecoins, the idea is like, oh, it's a dollar and then on the back end they hold a bunch of stretch and you're getting an 11, 11 and a half percent yield. And the benefit versus using your brokerage account to buy this stretch is you can use it on defi. I think some of them do kind of like streamed yield. So instead of getting paid out every two weeks they have some mechanism where maybe you get paid a little bit less, but they're kind of streaming you the yield every day or something. My concern here is that crypto degens will do what Crypto degens do, which is I see an 11% yield, maybe I can go loop it on some lending market and for every $10 I put in, I can get exposure to $100 of stretch because I'm taking 10x leverage or probably crazier than that. And when that unwind happens, I think there's a lot of things that you know, are outside of microstrategy's control that could have negative knock on effects.
- [23:12]
A
So, Jay, that leads into my next question. And correct me if I'm wrong about understanding how these, these defi stretch loan, you know, contracts work, because I look, I just learned of this and I'm kind of, I shouldn't be surprised. I'm not actually, but I'm just amazed at the ingenuity of the degens. So it's basically the idea is like you just, you lock up capital, usually a stable coin, in one of these lending protocols and then that protocol uses it to stretch and then they pay out dividends to the depositors. Right, and that's roughly how it works, right?
- [23:46]
C
Yeah, yeah. So if you think about a traditional stablecoin, you put in dollars and they go buy Treasuries with it. Here you put in dollars and they're buying stretch. And so Instead of yielding three and a half percent on treasuries, they're getting 11 and a half percent on stretch. The concern for me though is if you think about the looping trade, right, there's really no incentive to loop like normal USDC or USDT. Even if you're making the 3.5%, there's not enough of a spread to want to loop. But at 11.5%, people would love to get 10x leverage and get much more yield. The downside I'm thinking about is I don't think there's anything wrong with the underlying instrument of stretch, but we see blow ups and defi all the time. So if there's some blow up that causes all of this leverage to unwind, maybe rates skyrocket because there's a hack or something. There will be a bunch of people who are forced selling stretch and they only put in $10 of their capital and got like $100 of stretch. Right. And so the issuer of the stretch stablecoin is going to have to go sell stretch into the open market to make sure that they can facilitate redemptions. And that's kind of like the one flaw in this whole setup I see is basically now that microstrategy, the issue of stretch is kind of exposed to this issue where you have these people and you can't really stop them, who build this tokenized layer on top of stretch, allowing them to get a bunch of leverage. And if it dumps in the market, they're going to have to do something. If stretch deeps, maybe there's going to be enough retail demand to provide a bid and get it back up to 100. But you got to think about the fact that these loopers were very leveraged. They weren't putting up their own capital. Unlike normal brokerages, people have to put their own capital to buy these instruments. You might think the other thing is like, oh, maybe microstrategy would want to buy back stretch at a discount, but would they want to use their liquidity to do that? And would they sell some bitcoin to do that? Maybe that kind of links to what you guys were talking about last week. Maybe it makes sense to sell some bitcoin to buy back stretch at 95 cents on the dollar. But there's these weird edge cases now because people are building more products on top of stretch.
- [25:48]
A
So, Jay, just to zoom in on this, because you kind of answered my other question about this. The obvious question that comes up is like, what systemic risk could this pose to strategy? Should these especially loop trades unwind and just this whole thing come toppling down? And is the idea basically, if this gets big enough, you could actually see it materially hamper stretch. If these defi holders have to actually sell those positions, how much of a risk do you think this actually is to strategy?
- [26:20]
C
It? The magnitude of the risk, I think, depends on how what portion of stretch ends up in these products versus the hands of normal people who are just holding it and their, you know, Fidelity or Interactive brokers or Robinhood account. Right? If it's a small percentage, then there's not. Not a bunch of risk. My concern is basically that, you know, let's say me and Charlie and, you know, other folks put in $10 in our brokerage account by stretch. You know, we got $10 of stretch. Some dude on Solana puts in $10 and goes 10x or 50x leverage. Now he has like 5,000 or $500 or $5,000 of stretch. So you don't need a lot of capital to kind of tip the scales in the direction of the defi degens. And then the, you know, the risk is basically, if there's a big unwind and these protocols are forced to sell Stretch, your microstrategy has got to do something to get it back to the Peg because you know, everyone sees it as like a stable fixed income product. If all of a sudden it's occasionally trading at 90 or 85 cents on the dollar, there's going to be pretty negative consequences. And Saylor, to his credit, he's been pretty clear that the advantage of these perpetual products is they don't have to pay back the principal. Now if they de peg a lot and they have to buy them in the open market, that kind of changes the equation. They not only have to make sure they can pay the yield, but occasionally they might have to sell Bitcoin or free up liquidity to you know, buy back enough stretch to get it back to 100 cents on the dollar. And you know, I don't know if there's like super clear guidance about what they would do in that scenario.
- [27:55]
B
So taking this back to Defi and a lot of this comes down to yield and you and I and Francis and we've had other guests on the show talk about the kelp dao hack and the knock on effects. The ecosystem is still kind of reeling and patching holes and there's money flowing out of AAVE and into other protocols. It kind of makes me think about yield in general. What are your thoughts on yield from Stretch now entering Defi in the context of the keltnao hack and the Defi ecosystem, like maybe repricing risk in general post kelp dao does stretch like, does it challenge any of the the base like yield assumptions? I'm curious your thoughts?
- [28:46]
C
Yeah, I think on the USD side like you know, you know my, my cynical take was they're all going to go levered long on the other side you might think that hey, all of these folks on Defi have been chasing somewhere around a 10% yield and the best way they could get it is to do a bunch of looping trades on assets that yield like 5% and kind of build up a bunch of systemic risk. And maybe the idea is that you get all these STRC based stablecoins or products on chain and people stop doing all of that and just hold this because you get 11%. But you don't need to do this kind of complex leveraged trade and you don't have systemic exposure to a bunch of protocols. So I do think there's an angle where some level of risk might get repriced because maybe there's a bar where the average trader on Defi is looking for something like a 10% return. And in some folks minds it might be that hey, I can hold a Stablecoin back by stretch. I take some issue or risk, but I don't take the risk of an AAVE type situation where there's a bunch of other collateral that you don't know about that's going to end up hurting you. And even in the kelp dao kind of situation now where it's like it's defi until things go wrong and now there's like court proceedings and they're making arguments that like, hey, this should only be going to the kelp dao victims and not victims of North Korean hacking in general. And I don't have a strong view either way. But that's all to say that there's a lot of risk that people are starting to realize. And I think the STRC side of things could kind of reprice that. Now the other side of things is like if people go levered long, you could see the same thing with strc. Let's say one of these stablecoins blows up and it ends up in a bankruptcy and they don't sell the stretch. But there's this looming kind of like market of the market knows that hey, there is this holder of a lot of stretch that might sell at some time. What does that do to demand for stretch?
- [30:40]
A
It's really interesting to play the tape forward and think that there is a non zero chance that strategy will be implementing circuit breaker provisions by getting involved in these defi platforms. Right.
- [30:53]
B
Michael Saylor has to now take a counter like defi position.
- [30:59]
A
Yeah, exactly.
- [31:02]
C
He's been pretty vocally supportive of or at least on Twitter he's always retweeting, name your new protocol that has stretch on chain. I guess good for them. Those are net buyers of Stretch. But yeah, it'd be interesting. Is MicroStrategy going to provide some backstop to some of these on chain stablecoins? I don't know.
- [31:25]
A
And if you want a glimpse maybe into management's minds here, I know Lynn Alden, not during the most recent earnings call, I don't think, but during their year end earnings call actually asked a question about exactly this. I'm not sure if she was talking about Tradfi derivatives or Defi derivatives for Stretch, but she basically asked the question, if people build products on top of this, what does that mean for the risk of stretch? And also how do you view that as managing this preferred?
- [31:55]
C
Yeah, no, I think Lyn has had some really good points all around about it. Even if you take out the defi piece, like you said, when you build a large derivatives market on an underlying asset, there's a chance that the underlying asset because of reasons outside of the spot holders, trades disconnected from reality. Like you know, you might think, oh, why would, why wouldn't people just buy up stretch if it's low? Well, you know, there's a bunch of other people who have concerns about balance sheets and exposures and things that you don't normally think of when you don't have a large urban market. And so, you know, yeah, the more layers you add, the more complex it gets.
- [32:30]
A
Mr. Patel, thank you so much for joining. Man, that was a great breakdown. I didn't think I'd have fun talking about DeFi today, but that was a good segment. So any, cheers, thanks for joining us man and we'll see you next week.
- [32:42]
B
Thanks, Jay. And now a word from our sponsor, CleanSpark.
- [32:47]
A
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. This is our proof of work. We are setting the standard for what's next. Learn more about the intersection of energy and bitcoin@cleanspark.com okay, so this next story
- [33:18]
B
we're going back to Quantum. Yes, it's not, it's not a week in bitcoin without a little quantum drama.
- [33:27]
A
So this is, this is your reality listener for the foreseeable future, if not for the next day, decade. This is going to be one of the only things that people want to talk about.
- [33:36]
B
Exactly. And obviously we're the only people you can trust. So you know, get all of your quantum news from us. But this time again as Collins has little page six. Because this week's quantum drama is brought to you by the CEO of BitGo. BitGo, the sixth largest custodian or so hard to actually directly value. They have about 471,000 bitcoin in custody, more than the US government puts them up there. The top handful of large Bitcoin custodians. CEO of Bitcoin BitGo tweeted, quote, this is from Mike Belshi, quote the companies whose business model depends on people freaking out about quantum computing is telling us to be freaked out about quantum computing. He says, you know what the report says about reading it? What does Mike Belshi mean? He is subtweeting this tweet from Coindesk which references the report from Project 11 that quantum, that bitcoin and crypto quantum research startup that we've had Alex, the CEO of on the Show. They put out a report 110 pages a week or two ago, just explaining the quantum risk. It was. It is a doozy of report. Great report. I think it's pretty good and comprehensive, so I strongly recommend people read it.
- [35:08]
A
Seems very seminal for the topic.
- [35:11]
B
Yeah, there's multiple seminal reports. This is in. This is one of them. This covers, like all crypto, but obviously focuses on bitcoin. But it basically tries to scope what do the experts think, what are the timelines, what are the options? And what happened is when Project 11 put this out and CoinDesk retweeted, Mike Belshee, CEO of BitGo, basically threw cold water on it. And I'm going to try to explain a couple things, a couple dynamics here. So one of the top talking points from the people who are concerned about quantum, like Alex Prudent, like Nick Carter, say that we could see a bitcoin, a cryptographically relevant quantum computer, one that can hack bitcoin accounts by 2029 or 2030. And that's why it's so urgent, because it takes a while for us to debate, for us to have a solution and then for us to migrate coins. And the whole point of that, of that report and the Project 11 CEOs mantra online is that this is a coordination problem that he says, and many people say there are solutions. We do know how to provide quantum safety to bitcoin, but it really is a. It's a problem to coordinate. And this is the classic case with all bitcoin software, really, bitcoin upgrades of any type is that there's a bunch of options out there. It's really a big task to get everyone to agree on them. We cover this a lot. This is kind of a focus of our content at Block Space. But Mike Belshee basically categorically pushes back and denies saying that this is even a risk. I think this is pretty significant because
- [37:12]
C
for those who are.
- [37:13]
A
Mike's comments are significant. As the CEO of one of the largest custodians in the world.
- [37:18]
B
And it's not just that bitcoin is the largest custodian. Look at the history of Bitgo. Bitgo is one of the more linchpin companies in the bitcoin ecosystem. They are the primary custodian of wbdc, the wrapped bitcoin product. They kind of helped bring that to market, which is like the bitcoin product of the, of the crypto ecosystem. And then they have a bit of. Because they're kind of an OG company. They're like an OG custodian company. They have a track record of kind of being the first people to do something. So they're very forward looking. Historically, they were the first company of their size to implement Taproot after the upgrade in 2022. And I can just say this kind of qualitatively that there exists kind of like a bitgo technical mafia around the bitcoin and crypto ecosystem. A lot of the folks who helped bitcoin build their existing products and technologies have gone off to be like CTOs at companies work for other larger custodians. And so there is quite like a network of technical talent and, and familiarity around this. So it's significant to me for Mike Belshee, BigGo CEO, to push back on this. Yeah, I'm not making, I'm not personally making a statement on what I think about this, but I'm going to throw it to you, Colin, for a take or some feedback.
- [38:54]
A
Yeah, just piggybacking on a few things there. I think it's really kind of funny to see Mike Valshi say, of course the company whose business model depends on quantum computing existing is going to tell you that it's a threat. I feel like this is the Spider man meme where everyone can kind of point to each other and say that they're just talking their own book here. Obviously Project 11 has a stake in quantum computing being successful in the sense that they are trying to usher in quantum solutions for crypto systems, specifically bitcoin. But there's, you know, people make bets where they think the bets are worth making. So, like, there's a reason they started building this company because they think it's an actual threat. And I do think that Alex is right to say you don't have to believe this timeline, but we should start working on it. As I said during my consensus fireside with him, it's like Pascal's Wager. If a quantum computer doesn't exist, you don't actually hurt anything necessarily by getting solutions in place. Some people will quibble with that and say we're losing developer time pushing through other things. And I would say, what other things? What else are we working on? Like, we can't agree to do anything. And that's the other part of the problem we'll get to in a second. But in the same way that just to play devil's advocate, because, like, I kind of fall, I think, like you do, Charlie, kind of squarely in the middle of this. Like, I don't really know how to price the risk of this. I don't understand quantum computers, I don't understand quantum mechanics. There are a lot of smart people on both sides saying that this is happening and this is nonsense. But in the same way that Mike can say that Alex talking his book, you could argue that Mike in some ways is wanting to make sure that all the people who store their money in Bitgo and who use Bitgo aren't going to be freaked out by something that he has no control over.
- [40:35]
C
Right.
- [40:36]
A
Mike has no control over whether or not we get post quantum addresses in the future or whether or not a quantum computer is built. A few other notes as well. Just going back to the whole coordination problem. I think that this is a big disconnect between people who have spent time around developers who have seen the open source process for pushing a software through Bitcoin and those who haven't. I covered the Taproot release when I was at Coindesk and I was in IRC a lot. And everything, I mean, changing like a word from a lowercase to a capital within the document specs was argued over. I mean, these developers argue over everything. And so I don't think a lot of people are appreciating just how glacially slow Bitcoin develop development can be. And there's almost like this torpor that has kind of seeped into the developer community recently where we can't really even move towards consensus on anything, let alone implementing something. We can't talk about what's worth implementing. And so I think that really we've hashed it out a lot on this, but that's one of the things that keeps coming up time and time again when I have discussions with developers or stakeholders on this topic. We had a panel at Bitcoin 2026 with Paul Storks, Nick Hansen of Luxor and Mike Casey, formerly of mara. And the topic was actually on, you know, what happens when the block subsidy runs out. You know, how is bitcoin mining going to survive? But we ended up talking about quantum just because it finds itself in every conversation these days. And Mike and Nick pointed out, and Paul Taproot from like iteration to implementation took like roughly like four to six years, maybe even longer than that.
- [42:26]
B
It was being talked about a decade prior to it. It was that active work wasn't there wasn't like a, you know, a roadmap to let's okay, now we have the go signal, let's start work on. Then it took four to six years.
- [42:40]
A
Right. And so when I think about this argument, I almost see there it's kind of a kaleidoscope because you can see different Colors depending on which angle you look at it. But to me, people are almost arguing past themselves because one side is saying, quantum computing is bullshit, we don't need to worry about this. Some people on the other side are saying, it's not. We need to worry about this. And then there's a messy middle that says, well, this might be a problem, so why don't we just start doing something now? If we get the ball rolling on a solution, we can maybe beat this thing if the most optimistic, you know, if the most optimistic projections for when a quantum computer will be viable will come out.
- [43:22]
B
So, and, and that does actually get into my. One of the most interesting sections from the Project 11 report that is referenced in this quantum drama of the week, which is here on, I believe, page 19. I've always wondered, like, what do the experts actually think? Like, I can see what one expert thinks, but I didn't really see like a survey across all experts. And here we have a chart from Project 11's own report showing the average of 20, 25 experts estimates of the likelihood of a quantum computer able to break bitcoin. So this is last year, and we have an average of optimistic and pessimistic scenarios across a survey of experts. And we see here, if you're listening, among the experts who are asked, will a quantum computer that can break bitcoin appear in five years? An optimistic scenario of the average of them say about there's a 15% chance that that will happen. And a pessimistic scenario, the average of them said there's a 5% chance. To me, both of those are really, really low. And that actually I would say probably supports why there is a pretty dismissive approach from everyone who's like, five years is way too. You're pushing too much fud. Even the experts really don't believe this. But then I'll point out that when the timeline is extended to 10 years, the optimistic scenario for experts, quantum Experts jumps to 49%. So about 50% likelihood according to, you know, experts prediction predictions in an optimistic scenario and a pessimistic scenario, 28%. So like there has been this again meme or joke that quantum experts always think quantum is 10 or 15 years in the future. And this was a support that meme. However, we approach near certainty 20 to 30 years out, 80 to 93% likelihood, according to experts, that we find a quantum computer. Somebody builds a quantum computer, they can break bitcoin. So this is actually really, I think, novel and helpful research and a survey. This chart alone is really, really revealing. I think what you do with this chart and how you interpret what the action should be with this chart and survey among quantum experts is probably the next dividing line because this comes into this, this, this introduces well, how long does a court a potential coordination challenge take? How long does it take us to upgrade Bitcoin? Because if we think there's like a 30 to 50% chance that a quantum computer could show up in 10 years and you look at the taproot timeline of 4 to 6 to sometime by some metrics, 10 years of work on that, then we should be working on it pretty much immediately. So this does present, what do you call the images, the splotches where you see what Rorschach. It's a Rorschach test almost of, of like of your existing biases about bitcoin. So this is your quantum drama of the week brought to you by Bitcoin. I know. Final thoughts.
- [46:49]
A
Colin, you know, I think that you kind of nailed it with that. And the one thing I'll mention just as a closing thought, there was a comment underneath the Coindesk article where it's like this is embarrassing. If we get a quantum computer, all of the, like your bank account like military encryption, all this other stuff is broken too. And that's often been a retort. The problem is all of those institutions are moving towards a quantum proof roadmap where I think Google, it's like 2029 is when they're trying to have post quantum encryption in place. And so those don't have the same coordination problem. And I'm just like a play through the conversation in your head that you're going to have with your father in law that you convinced to buy the bitcoin ETF two years ago or one of your friends asking about quantum computing when the headlines start hitting you can tell them oh yeah, we have a solution but you're probably not going to tell them the second part. But no one's moving towards a solution because no one can agree on what the actual timeline is. And I will be curious to see if this chart ends up being canonized as a road map for certain people. Right. Like you said, this could be one of those charts where it's like okay, like deadline that here guys. Because this is the percentage chance.
- [47:57]
B
Yeah, I mean there's even more takes I could have which is like yeah, your dad's like well blackrock upgraded years ago. And I used to actually share that retort to the quantum. I did too because it makes sense. But I now understand it differently. These other entities do not have the coordination problem and now they understand this a little bit better. I understand why Bitcoin is Bitcoin. Other crypto ecosystems are a little more uniquely vulnerable to this. And then I'll also point out, go back five years ago and see what people were saying about AI. Even the experts, they were not predicting. It was most people were not predicting this current wild AI world that we live in today, which dominates every single waking thought and all business inversions as we currently observe them. Enough about that. Let's get on to the next stories, but not before a word from our sponsor, Luxor.
- [49:02]
A
This episode is brought to you by Luxor's Commander Bitcoin miner management software built for enterprise operations. Commander gives you real time fleet monitoring bulk remote commands across your fleet and Intelligent Miner. Intelligent Miner is an automated profitability engine that runs every five minutes, adjusting power settings to live hash rated energy markets. ERCOT Backtests show over 10% more profitability with Intelligent Mining versus Binary Mining. Commander Pro is a hundred dollars per megawatt or a 25 basis point pool fee adder, which is roughly half the price of competitors. But you can try it free for 60 days if you want to get started. Go to Luxor Tech forward slash Commander to learn more. And with that we will move on right along. We are in the throes of earnings season and we had Keel release their results today. And it's about what you would expect if you've been keeping track of Keel as a company. Now this is Keel, formerly Bit Farms. They re domiciled to the US this year and also completed a brand revamp in April. And they had a shortfall in revenue this year, a reduction of about 22% to 37 million. That is down from 47.65 million in Q1 2025. And that loss is almost totally attributable outside of Bitcoin's difficulty, obviously and hash price going down. That loss is almost entirely attributable to the fact that bitfarm sold, or Keough rather formerly, bitfarms sold their Paso pay site in Paraguay to HIVE last year. So Keel's hash rate has fallen about a quarter since that sale. They peaked at 9.5 exahashes. They were operating 14.8 exahashes as of the end of the year. They haven't updated any numbers for their hash rate. They're like most miners, they're not really keeping track of that metric anymore because it's all about AI and hpc. And as A result of selling that Pass Opay site with their hash rate decreasing that we have that revenue shortfall. They also had A net loss of 145.4 million compared to 55.6 million in Q1 2025. Their operating loss was 98 million versus 35 million last year. The vast majority of that though comes from a $41 million change in their Bitcoin holdings. No surprise there. Bitcoin puked in February. All of these bitcoin miners who have bitcoin on their balance sheet had to change the fair value of that bitcoin and it shows up poorly in the accounting. But that's not a cash loss, right? None of they didn't sell all of that bitcoin. They sold a little bit over the quarter. They sold 206 or sorry they sold a little bit so far this year 269 for 20 million. But they're not actually realizing a loss on those holdings. And the rest of it the 28 million or not the rest of it but another big chunk came from depreciation. Another really interesting point. The thing to point out part of the loss is also attributable to an increase in power rates. I'm assuming that their Paso pay site Paraguay had much more favorable rates than what they are currently operating at in their US sites. But their average all in cost or rather average direct cost for mining Bitcoin is 58 cents for 5.8 cents per kilowatt hour versus 4.7 a year ago. Last thing I'll say Charlie before tossing it to you. Obviously top of mind with any bit farms investor and with anyone keeping track of these stocks is Bitfarms AI and HPC. Pivot Bitfarms currently has three sites, one in Moses Lake, Washington State. Its near term capacity is 18 megawatts but it has a full build out potential of 190 megawatts. And it's targeting H1 2027 for for energization. But all that being said, Bitfarms currently does not have a tenant signed at one of these sites. There might be something in the works if we look at their stock price. I'll pull that up here in a second. But they also have their two coal fire plants that they purchased from from Stronghold. The Sharon site in Western Pennsylvania currently at 30 megawatts scaling to 110 first AI revenue target H2 2027 and then there's Panther Creek which has 50 megawatts currently. That's the end of or sorry that's the end of 2026 target scale up to 350 megawatts and potentially up to 500 plus megawatts targeting H2 2027 for first revenue on that site.
- [53:32]
B
So yeah the Panther Creek site looks pretty, pretty special. I mean already operating 50 megawatts scale to what is it, 350 perhaps up to beyond 500 megawatts. Yeah, it seems to me like a pretty ideal, you know, big, big AI HPC hyperscaler tenant option.
- [54:02]
A
Yeah. Those sites are super interesting because you have the coal fire plants on site. Sorry Keel can roll its own power so to speak.
- [54:10]
B
Exactly. And also especially when in the context of new interconnects and in front of the meter or you know post meter pushback from from data center haters behind the meter one with with power generation on site is pretty significant I think. Yeah, absolutely. Because like because the big headwinds right now I would say are like mostly regulatory and social pushback because like it almost seems to me like the meta. If you're one of these big boys, these big data center companies, you now have to almost like not just you have money flowing in, they have just make sure that the public doesn't hate you which is probably a bigger and more difficult task than you realize. And then they also have you mentioned their power rate went up from 4.7 to 5.8 cents per kilowatt hour which back of the napkin math unless you're running the newest AS six at this profitability like you're not making money. So yeah put that on especially now
- [55:21]
A
when you factor in other overhead and and speaking of money. Just a few more notes before I pull up bit farm stock Keel stock price. I'm so sorry Ben gag but they have $533 million on their balance sheet for liquidity. The CFO said that this they won't need to raise capital soon and that will cover development costs at their sites and GNA through 2028. I have a hard time believing that I don't know what they're all in cost will be for erecting these centers. Now obviously they're not buying the GPUs like we mentioned with iron so that'll be much cheaper. But I would imagine they would need maybe a little more cushion than that. I could be totally wrong but that's something I'm going to keep an eye on. And just last note on this. There might be a deal cooking because you know they, they had a net loss on their Q1 earnings and farms is up almost 30% over the last five days. It's actually been a sleeper this year. It's up 81% over the last month and year to date it's up 63 and a quarter percent.
- [56:29]
B
A paper loss of 145 million and you're up 30%. Yeah, something's happening.
- [56:35]
A
Something might be happening. And I think, Keel, if you're on the sidelines of all the AI stuff, not financial advice, I'm not a broker, don't sue me. But there are a handful of bitcoin miners turned AI companies that have not really signed landmark deals yet and bitfarms is one of them. So I think they're going to be one to keep an eye on and just a hat tip to them for getting out of the limbo of a $2 stock price because like there was a time for like two or three years in a row where Bit Farms would just trade, give or take $0.50 around 2 for the longest time. So. But all that said, you know, I think just to put a cap on it, Bit Farms definitely want to watch for a deal over the next quarter. I would imagine that they're obviously working on it. I would imagine that they might be getting close to announcing something here sometime soon if stock price is any indication.
- [57:29]
B
Yeah, if I were like a Jim Kramer, I do whatever the buy button is. It'd be like that is a buy. Exactly. But obviously disclaimer just we're not gonna.
- [57:40]
A
Yeah, yeah, we're not gonna do that. We don't want to inverse. Kramer. Keel.
- [57:43]
B
Yeah. Shout out Bit Farms now.
- [57:49]
C
Keel.
- [57:51]
B
The ticker is still bitf, right?
- [57:53]
A
No, it's Keel.
- [57:54]
B
Okay. K E E L. Okay, we need to update our priors anyway. We've got one more story on Morgan Stanley but not before a word from our sponsor. Lygos.
- [58:11]
A
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- [58:59]
B
All right, last news item of the day. Morgan Stanley coming in hot. This is your bull opium. This is your bull fuel for the week. The boomers are buying. The boomers, the wealthy boomers are buying
- [59:14]
A
are going to save us. Hopefully maybe not. They're probably all going to sell it if Bitcoin doubles anyway. So those of you who've listened to the POD over the last few months know and who've been paying attention to the news, Morgan Stanley launched its Bitcoin ETF last month, MSBT. This was heralded as a landmark ETF specifically because Morgan Stanley has a network of 16,000 financial advisors that manage 9.3 trillion in assets. The really interesting thing about this though is so far all of the inflows for MSBT have been from self directed clients. None of it has come from the advisor side of things. So that is still a liquidity pool that has not been tapped into and something we should look be on the lookout for. But just a few top line items for this MSBT accumulated 193.6 million in cumulative net inflows and 239.6 million in net assets by May 7th. I assume the difference there is Smorgan Stanley just accumulating a little extra to give himself a little cushion starting from zero at its launch on April 8, impressively the fund recorded 17 days of positive inflows and five days of flat flows with no daily net outflows over the entire period. I just want to zoom in on that one more time. There were no net outflows of MSBT from its launch over the last month, which is pretty incredible especially when you consider the environment at the time. You know there was there were a few days like on May 7th for instance where the broader Spot Bitcoin ETF market was bleeding. There were back to back outflows of 277.5 million 145.7 million on May 7 and May 8. That being said though, this was a very positive period overall over the last six weeks. So MSBT launched into a favorable environment. There were over the 13 US spot Bitcoin ETFs. There were 3 billion in net inflows over six weeks through May 8th. So that being said, they were launching into a very strong market and the the top line figure for this is not that impressive. I guess when you like consider the grand scheme of things. Nearly 200 million over a month. All Bitcoin ETFs represent 106.6 billion as at the time of recording like almost 7% of Bitcoin's market cap. So it's a drop in the bucket. But I just think what's really fascinating about this is again no one sold during that time frame. And to put it into context with prior Bitcoin ETF launches and I'll toss it to you Charlie. When they first launched the first month of trading in January 2024, the new Bitcoin ETFs added an average 125 million worth of Bitcoin per day. Over the first four weeks excluding GBTC, the new Bitcoin ETFs accumulated over 11 billion worth in one month. 11 million worth of Bitcoin BlackRock's IBIT alone secured almost 5 billion in AUM and Fidelity's was just shy of 4 billion at the end of the first month of trading in 2024. So launching obviously into a much more saturated market. But again no outflows and we have not tapped into any of the Morgan Stanley Advisor network clients. All of this was self directed people actually wanting going out and buying it themselves. Their advisors were not advising them to add it to their portfolio.
- [62:45]
B
I'm calling it the K shaped ETF inflow outflow recovery where Morgan Stanley those folks are buying, everyone else is experiencing outflows. The thing is there's just really not as much volume as there was across the board really as it was in like 24 and most of 25. So I don't know if it makes a, it's really not a huge story because we're not even talking about much volume overall. So I do think as you said Colin, like the Morgan Stanley the, the client profile is a little bit different. I think we had someone on the show a while ago kind of explain this. Like Morgan Stanley tends to skew towards more like high net worth, individ higher net worth individuals like wealth management. So you know if Morgan's, it's, it's kind of interesting that we could see the typical client base of each ETF and financial institution behave a little bit differently. And then we, and then we can kind of get an idea of who's buying. It's like the new type of on chain analytics where you just look at which is BlackRock buying, is Fidelity buying, is Morgan Stanley buying and we can probably glean a little bit of information about the types of people and wealth that's flowing into Bitcoin or out of Bitcoin So.
- [64:13]
A
Yeah. Right. And just to put a cap on it about, you know, it's the volume itself is unimpressing. But the real story I think is the fact that none of this is coming from any of the advisor accounts yet.
- [64:24]
B
Yeah.
- [64:25]
A
And they haven't even begun recommending a 1% however much they're going to recommend, if at all for portfolios into the etf. So definitely one to keep an eye on overall. Maybe not the top line number, the most impressive but the stickiness of this ETF and no outflows for the first month, very impressive. So I'll leave it there.
- [64:46]
B
Yep. And that wraps up our stream for the week. Much love. If you want to tune in, we are live on Wednesday and Friday this week, noon Eastern. We have some great guests booked for this week. We have Pio Vincenzo on Wednesday. We have some mining analysts. We have Luxor back on on Friday and I believe we may have Yogi from Mezzo in addition to other potential interviewees. Thank you all. Catch you all next.