Latest / What Bitcoin Did / The Bitcoin Treasury Machine | Harry Sudock & Rory Murray

Transcript

The Bitcoin Treasury Machine | Harry Sudock & Rory Murray · What Bitcoin Did

• 0:00
  Bitcoin mining and AI are both technological waves that are running into like atoms problems.
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  Bitcoin has always existed at the edges. It adapts to the new era and the new narrative
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  and the new thing. What you have with Bitcoin is you have a liquid global permissionless asset
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  that trades 24-7 that has upside optionality. You use that appreciating currency to borrow
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  in a depreciating currency.
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  You use that depreciating currency
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  to go get assets that are going to appreciate.
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  We've been through multiple liquidation cycles.
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  We have institutional trading infrastructure.
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  We have banks that are getting involved.
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  The liquidity profile
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  of the collateral liquidation mechanism
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  is as close to seamless and lossless
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  as we've ever seen any market for credit ever.
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  We're back together.
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  The band is back together.
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  Rory, you've not been on What Bitcoin Did Before.
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  I have not.
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  It's my first time.
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  I appreciate you having me.
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  We did the Patreon in New York.
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  That was pure gold.
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  Still to this day, one of my favorite tapes.
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  It's no longer available because we don't have a Patreon,
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  but I think that might be one of the favorite things
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  we've ever recorded.
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  I mean, it was just four dudes just having a good time.
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  Thigh to thigh.
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  We were very much thigh to thigh.
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  I need to dig that out and release it again.
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  That is an option.
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  I should do that.
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  Not doing that is also an option.
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  Rory, introduce yourself because people won't know exactly who you are.
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  Yeah, again, thanks for having me on.
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  I know that we've been kind of talking for years.
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  We've been in the same spaces and I really appreciate what you've built and what you bring to the space.
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  So I'm Rory Murray.
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  I'm the VP of Digital Asset Management at CleanSpark.
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  What that means is basically anything that touches the Bitcoin treasury is kind of in our mandate and our group.
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  so you know we manage everything from kind of the custody relationships day-to-day movements
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  any bitcoin payments that we make but it's also we we manage our spot sales program so obviously
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  we have you know called 500 to 600 bitcoin a month that we produce we might sell some or all
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  of that depending on what kind of our posture is on opex and capex needs we manage that we manage
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  that we run a derivatives overlay on that we split across kind of two different strategies what we
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  call our spot plus, which is meant to enhance the total returns on that spot sales program.
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  And then the yield program, which is meant to generate what we expect to be reasonably
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  durable ongoing yield from our hodl by taking advantage of volatility in the derivatives
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  markets.
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  And then kind of anything, if we do our Bitcoin back lines of credit, we tend to run the RFPs
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  and manage that process.
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  Obviously, that will go upstairs.
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  And all of this stuff, to be clear, will go upstairs.
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  But on the day-to-day side, that's kind of what we do.
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  So I want to get into all of that like treasury management side.
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  But before we do that, everyone I speak to now when mining comes up wants to know what's happening with AI.
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  Because so many of the Bitcoin miners, the big public companies in this country, have moved either entirely to AI or at least making that part of their stack.
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  Like maybe tell me from your perspective how you see the market changing.
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  Maybe, Harry, you start.
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  So the reason that you're seeing a proliferation of AI as part of the mining strategy is because
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  there are actually megawatts that are better suited for AI compute workloads.
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  And there are other megawatts that are better suited for mining.
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  And there are a third category of megawatts that I think deserve to have a combination
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  of both workloads installed against them.
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  So that's from a very operational perspective, how I think the sector is thinking about it.
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  The other is that from a durability of cash flow and therefore multiple expansion, the market is willing to value equities that have AI revenues at a significantly higher premium than mining revenues.
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  And that's the most interesting part to me because we've seen what happens.
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  Iron share price has gone crazy.
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  And they have not even just added AI to their stack.
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  They're trying to move entirely away from Bitcoin.
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  And it's the first time that I remember in the last, like, I don't know, seven, eight, nine, ten years, however long, that Bitcoin mining hasn't been like the exciting new thing in energy.
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  And does that have any impact on Bitcoin mining?
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  Any negative impact?
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  Well, I just think it's wrong.
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  Like, I don't think AI is competing for the same energy story that Bitcoin mining is.
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  I think that they rhyme.
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  Even on a narrative basis?
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  this? Well, the way I would characterize the AI energy story is that we are not generating
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  enough power. The way that I would characterize the Bitcoin mining story is that we are not
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  consuming power nearly as efficiently as we could be. And to me, those are similar in that they both
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  represent a higher utilization and higher production of electrons. But the operationalization
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  of each of those strategies looks quite different.
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  But so there were people, like Bob Burnett is a perfect example, who is skeptical of
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  the big public Bitcoin miners taking too much hash rate, centralizing hash rate.
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  You're telling me that Bitcoiners are skeptical?
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  Is this actually a really bullish thing?
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  Is this going to help decentralize hash rate?
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  Yeah, for sure.
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  I think that the concentration of hash rate, forget what corporate structure it lives in,
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  But the concentration of hash rate geographically will get decentralized because the large concentration of energy-backed compute is going to get pushed through an AI workload because it's the highest enterprise value activity for that megawatt concentration.
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  And then there's very likely to be a squishy layer of Bitcoin mining attached to it to make it flexible and responsive.
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  And then you're also going to see mining move deeper across the geographic frontier, the interruptible frontier, and the cost frontier, which in a lot of cases looks like jurisdictional arbitrage.
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  But it also looks like geographical and runtime arbitrage as well.
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  I mean, the entire history of Bitcoin is Bitcoin, quite frankly, being a honey badger or more succinctly, quite frankly, a cockroach.
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  And I think that, if anything, this AI story is one of, one, I believe, continued American dominance across energy and financial and capital markets.
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  And secondly, again, just to your point, is that they are two completely different spaces.
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  Particularly for the training side, you want these big mega campuses.
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  You're sucking down lots of power.
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  You want to be 100 miles outside of an NFL city.
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  You want that great transmission.
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  Bitcoin has always existed at the edges.
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  And I think the criticism of Bitcoin often has been, oh, the narrative changes and evolves.
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  And that's been the transformational part of it over time is that it adapts to the new era and the new narrative and the new thing.
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  And so now it's going to move back, I think, from a decentralization perspective.
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  Whether it's public miners, I think we're finding some – we would call them smaller sites now as we're kind of scaling up.
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  But to us five years ago, three years ago, they would have been midsize or kind of regular size sites.
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  And so you're moving to this kind of hub.
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  Not only do you have that squishy layer kind of around the mega campuses, but you're going to move to this hub and spoke model where smaller campuses in kind of less dense jurisdictions with less built out transmission necessarily into population centers are going to be fantastic places to continue to do Bitcoin mining because those are going to be competitive power prices.
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  And then you're going to have this other part.
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  So, again, I just think it's going to be a more is more story.
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  And part of it is also like Bitcoin mining and AI are both technological waves that are running into like atoms problems.
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  100%.
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  And so when you live in the physical world, you just run into a different set of constraints than a software company would run into.
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  So like you find a pocket of power that's really well developed, but it's going to take two to three years for fiber to get run out to it.
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  We've run triple digit megawatts against a Starlink mining.
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  very successfully. And so great. Because you need no bandwidth.
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  You need so much less bandwidth than AI. Yeah. You know, when you think about it,
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  you need multiple fiber runs, redundancies, all the spine and fabric that's required.
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  Just talk about the inter data center networking and kind of all of the what's going on there,
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  all the competition there. I mean, this is crazy, right? Versus this again, which is just you're
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  out in the middle of North Dakota or Wyoming, you know?
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  And so what you find is that this power is a great utilization for revenue on a short
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  to medium term basis while infrastructure catches up and, you know, it's going to take
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  time to get that fiber laid out there.
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  And so we as a miner who has significant AI ambition, but also mining prowess and appetite
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  for growth or portfolio reconstruction, we are able to be the player that takes advantage
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  of that time arbitrage on the physical infrastructure. So great. We're thrilled to
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  run mining for X number of years while the catch up is happening. We'll run it against the Starlink.
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  We put in modular deployments. We're able to put down and pick up and not cannibalize the
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  electrical infrastructure because if it's great for mining, we have every opportunity to build AI
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  behind it. And so we're able to take advantage of some of those build out waves that lets us
• 9:19
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• 12:05
  So are the Bitcoin miners that have cropped up over the last five years or whatever,
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  are they positioned in a way that they'll benefit the most from this AI?
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  Because like, what I want to know is the differences.
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  Because I think for Bitcoin mining,
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  I'm going to bastardize this,
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  but you can essentially just like throw a shed up
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  and put a big fan in and turn it on.
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  I would never tell any of our technology
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  or operations people
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  that that's how we would characterize it.
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  But you get what I'm saying.
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  Like, it's not that far off.
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  Relative to AI, that is correct.
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  So is there a challenge for you guys
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  to build out an actual AI data center?
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  Or is it like, can you reconfigure the sites
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  you already have just to run AI if you want to?
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  Yeah, so one of the things that we believe
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  pretty strongly is that retrofitting a mining building for AI workloads is not the way to
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  efficiently develop customer-centric solutions. So I would take us to Sandersville as a good case
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  study for us on how we're thinking about this. Two plots of land, 50 acres where we've got 250
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  megawatts of Bitcoin mining operational. We've got 122 acres right around next to it. That's
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  going to be a greenfield AI development plot. And so when the time comes for that AI workload to
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  be ready for service, we're going to cut the power over to that new plot and then be able to shift
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  the power, the monetization, the utilization of that power contract over to what looks
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  operationally like a greenfield development, even though it sits directly next to what would be
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  mining infrastructure that's been fully deployed for years.
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  So what is it that makes Bitcoin miners well positioned here? Because if you have to do a
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  whole new refit, you have to, well, a whole new build out of the infrastructure, like,
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  is it the power agreements that you already have? Like, what is it that gives you an advantage?
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  So I think it's important to take a step back and understand what is the AI playbook, right?
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  There's four steps that's required to be successful building, operating, monetizing power through an AI lens.
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  The first step is the acquisition of power and land.
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  It's what CleanSpark is phenomenal at.
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  It's what the sector has been phenomenal at historically.
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  The second is the leasing activity.
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  So how do you come to a commercial agreement with somebody who wants to take advantage of that rack space and bring, you know, in our case, bring their own GPUs,
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  but sign a lease for the infrastructure to be able to power that compute workload.
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  The third is how do you pay for it? The capital intensity of AI data centers is dramatically higher
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  than Bitcoin mining infrastructure build out. And so we're seeing a lot of activity in the debt
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  markets. We're seeing a lot of activity in the capital markets more broadly because the how do
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  you pay for it marries very directly into the lease. Because when you think about the
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  collateralization of these projects, there's actually a few components to it. The first is
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  the land and the power that gets contributed into the collateral package. The second is all of the
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  CapEx spend that goes into the development of these much higher dollar value data center environments.
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  And then the last is the revenue associated with it, which is the firm lease agreement with the
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  tenant. And so you take those three pieces of collateral. Those are super underwritable because
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  at the end of the day, what is the bond market betting? The bond market is taking the position
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  that power and land is going to continue to be valuable. Well-built data centers are going to
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  continue to be valuable. And grade A investment grade tenants are going to pay their bills on time.
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  Let's double click on that just a little bit more though, because I think the other two,
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  and not to like underplay them, but are somewhat more easy to understand. Okay, great. You got to
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  go get the land and power. And one piece that I would put there is that one of the things grid did
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  really well and CleanSpark has done really well is there's a social license that goes along with
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  And that's a very, very important component of this.
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  That's something that we have a muscle in that I think is a differentiating factor.
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  But the how you pay for it, it's not just about the total dollars that you're able to throw at the project.
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  It's all of those things.
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  And I think this is super underappreciated is do you do it within an SPV?
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  Who's underwriting it?
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  Are there warrants that could potentially be dilutive on the other side of that?
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  Is this going to be a bridge loan that's going to eventually be taken out?
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  Is that bridge loan going to be refinanced with debt or you're going to expect to go back to the ATM market?
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  What's been your dilution kind of story up to that point?
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  And so, again, I'm obviously kind of the markets guy, so that's what I think.
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  But I think there was three or four years ago, there was just a lot of criticism of the Bitcoin miners of, oh, we're going to diversify different business models.
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  And I think it took the industry a while to get there.
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  And you're now seeing under the surface just wildly divergent approaches, not just to power and land acquisition, not just to kind of lease negotiation, but to financing packages.
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  And I think it's going to be really interesting to see that develop and people start to kind of understand that more.
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  From like a financial perspective, when this started becoming, you know, it was clear that CleanSpark and all these other companies were going to move into AI.
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  Were you like, thank God, because like Bitcoin mining is a brutal business.
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  Like it's a race to zero, essentially.
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  Were you very glad to see AI come into this picture?
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  It's not like doing hard things at 10x the scale over 3x to 5x the timeline is necessarily
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  that much easier, is what I would say.
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  I don think you trip fall and land in Bitcoin mining energy and power asset generation all of these things I think you have to have a little bit of a mindset of wanting to be at the tip of the spear from capital digital asset technology and energy infrastructure in
• 17:29
  the US. I mean, I'm going to kick that back to you, I guess. But these are hard things at a larger
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  scale. And so, yeah, I think what it does is that it's a potential opportunity to engage with a
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  different segment in the market of more of this kind of investment grade. But to me, it's a
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  maturation of who you're dealing with. And it's always where we were going to go as Bitcoin miners,
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  because Bitcoin is going to be somewhere at the base layer of the settlement layer for monetary
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  technology in the United States and globally. And that means that if it's going to be backed by
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  energy, then you're going to expand into the energy market. So I just think it's a maturation.
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  I mean, I'm eight years into mining professionally.
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  You know how brutal it is.
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  And my fun fact is that I've mined through three halving epochs at this point, which is brutally, brutally hard.
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  The competitive environment that Bitcoin mining pushes up against corporate strategy is very, very intense.
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  It requires a lot of discipline and long-range thinking.
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  It also requires getting a lot of things right because each thing you can get wrong is disproportionately painful and punitive.
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  So I think when you look at our story coming from Grid and then integrating into CleanSpark, when you look at CleanSpark's heritage of how we built our power portfolio and our mining business, it's required a tremendous amount of non-consensus viewpoints and counter-cyclical investment.
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  And so that meant when Bitcoin went from 20 to 60, saying this is too rich and exiting some of the Bitcoin position in favor for more hash rate and more infrastructure.
• 19:29
  It also meant taking a view on having a more distributed portfolio of smaller sites in order to grow faster during that period of time.
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  Then it also required the intellectual flexibility to say, OK, this smaller site profile is not as attractive to the AI client base as the larger concentrated site profile.
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  So we reacted appropriately.
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  We added a 285 megawatt site to the portfolio.
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  We added a site with capacity up to 600 megawatts, 50 miles away from it.
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  And so, you know, what you've seen from us and I think why we've been successful and had real durability is because we've had the appetite to invest counter cyclically.
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  We've also had a tremendous amount of mental flexibility, which is that when you get new information, it's very appropriate to make new decisions.
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  And so having that as a cultural touchstone for how we develop and enact strategy as a corporation is something that I think our shareholders and the industry at large has come to expect from us and really value about us.
• 20:33
  But there's, you know, not because we're here to show the company, but just because there's a tremendous amount of satisfaction that I get from working in an intellectually stimulating environment where the stakes are high, the dollars are big, and the impact that we get to have on the market broadly is very, very large.
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  because if we are able to play a critical role in enabling some of these AI players to be
• 21:01
  successful, the American economy is going to thrive. And we as professionals and our shareholders
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  that come along with us, our employees that come along with us, they're going to thrive along with
• 21:10
  us. And that is very, very motivating and very interesting. It lets all of the time and the hard
• 21:16
  work that's required to be successful. We have stamina to do it because of how exciting and
• 21:22
  valuable that work is. So I just want to address it head on a little bit as well, which is that
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  you have not heard the words pivot from us. You've heard the words expansion. And that is very,
• 21:34
  very distinct, I think, in our business strategy, capital strategy, operating strategy,
• 21:41
  and approach to this market. So we were sitting in the basement of this resort, hotel and casino
• 21:48
  about two months ago at our executive leadership retreat.
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  And we've made no bones about this expansion to AIHBC.
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  And while my background is in Bitcoin, my passion is that, my role as Bitcoin treasury,
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  I felt like it was my role to really, in that room, make sure to really challenge our priors
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  and make sure that what we're doing, that just because we've done something in the past,
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  doesn't mean we should carry that in the future, again, with that intellectual flexibility,
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  if it's not going to serve the business, the shareholders, and ultimately, and we believe
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  this, the stakeholders in the American economy. And so, you know, we challenge, okay, great.
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  We've been Bitcoin miners. That's been our access to land and power. That's funded our business.
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  That has driven shareholder value.
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  That's created the opportunity set to continue to grow and expand into this kind of adjacent
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  energy market that has this entirely new kind of profile.
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  So why do we want to stay dedicated to Bitcoin?
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  Well, one, it's that we've seen a lot of others that have wound down, perhaps maybe a little
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  bit prematurely, their Bitcoin mining operations and are going to be in this very long middle
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  where there's two or three years between when revenue starts to kind of come in from the AIHPC
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  side. And so I can understand kind of bringing in capital ahead of time. And maybe your operations
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  are not as profitable as you kind of paint them. And so you don't want that drag. And maybe it's
• 23:20
  management cycles, but fine. But they've wound that down. So we have a profitable scaled mining
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  operation that can fund us during that expansion period, right? But the second piece is why hold
• 23:33
  Bitcoin on the balance sheet. Okay, great. So you hold USD on the balance sheet or you hold,
• 23:38
  you know, kind of classic kind of, you know, you look at the revenue lines, what's your current
• 23:43
  assets? What are your total assets on you pull up a 10k or 10q? Great. You can borrow against that,
• 23:48
  you can go tap the markets, etc. But particularly for people still in this kind of nascent space,
• 23:54
  the scaled access to those capital markets is not as mature as it's going to be once we kind
• 24:00
  of start to face off against some of these IG counterparties. And so what you have with Bitcoin
• 24:04
  is you have a liquid global permissionless asset that trades 24-7 that has upside optionality
• 24:13
  that you can borrow dollars against. So you take an asset that we agree maybe over one week or
• 24:20
  even a month or a year might have some volatility in it, but we believe is going to go up this kind
• 24:24
  of technology adoption curve. We think number goes up over time. So we think that that has
• 24:30
  upside optionality. It's an appreciating currency. You use that appreciating currency to borrow in a
• 24:35
  depreciating currency. You use that depreciating currency to go get assets that are going to
• 24:40
  appreciate. Those assets that are going to appreciate are going to bring revenues back
• 24:43
  back onto that balance sheet and kind of give you that flywheel. So one, it's upside optionality.
• 24:48
  It's the ability to borrow in an – use an appreciating asset, to borrow in a depreciating
• 24:54
  asset. And then it's kind of what we touched on originally, which is that the Bitcoin doesn't
• 24:57
  just come in and get immediately monetized into USD. What we're really pioneering here is how do
• 25:02
  we take that and drive incremental margin out of that Bitcoin, whether we're turning it into dollars
• 25:08
  or whether we're kind of turning it into additional Bitcoin on that balance sheet,
• 25:12
  again, to drive that flywheel. And I'm happy to get into the specifics of that. But this is a game
• 25:17
  of inches, right? And so, no, I'm not scared. I'm actually not. I'm happy about the expansion
• 25:23
  because we always had this view that energy is the critical underlying asset of the critical
• 25:29
  settlement asset of the greatest economy in the world. And I think we're seeing that really be
• 25:34
  realized. But what I think it is, is that the difficulty adjustment, if you're at the top of
• 25:39
  the difficulty adjustment, if you have the most efficient machines and globally competitive power
• 25:45
  prices, the rise in difficulty doesn't scare you because it's going to knock off kind of less
• 25:49
  efficient operators. And so to me, it's the same thing with what we're expanding into on the digital
• 25:54
  asset management side is that if we can drive five or 10% more revenue per Bitcoin per kilowatt
• 26:01
  hour out of that Bitcoin that we turn into, that's a competitive advantage that compounds in almost
• 26:06
  unfathomable ways over three or five years. And I would be curious if you think that's fair or
• 26:13
  you have anything to kind of expand or? Yeah. I mean, I think that it, it, the way that I would
• 26:19
  digest a lot of what you're saying, cause I agree with all of it is that we have a philosophy of
• 26:24
  organizational design around why we've built the business in a way that's able to realize
• 26:30
  full or, or the vast majority of that value, but also the value across the rest of the things that
• 26:35
  we do, which is that we didn't wake up as a big Bitcoin mining company. We have a strong and deep
• 26:44
  heritage across energy markets. We were building microgrids long before we ever realized what an
• 26:49
  ASIC was at CleanSpark. And so we spent a lot of time developing energy native expertise.
• 26:56
  That meant building microgrids at military bases. It meant building the software that ran demand
• 27:02
  response protocols. It meant getting called out to Atlanta, Georgia, to a data center on a sales
• 27:07
  call. That was where we found our first Bitcoin mine, was a sales call to sell them a microgrid
• 27:12
  to help them drive down energy costs. We saw that opportunity. And rather than sell them our product,
• 27:18
  we bought their data center. And that started this cascade of scaling our Bitcoin mining,
• 27:23
  scaling our direct energy and land ownership profile. That was 2019, 2020. We bought that
• 27:29
  asset at the end of 2020.
• 27:31
  And that kicked off what was really a five-year hyper growth
• 27:34
  cycle to become the largest domestic producer of hash rate.
• 27:37
  And so over the course of that scaling journey,
• 27:41
  we became great at power and land acquisition, not just
• 27:44
  energy development and management.
• 27:46
  And over that period of time as we scaled,
• 27:48
  we also realized that the electron
• 27:50
  is going to have more utility across more types of compute
• 27:54
  than we'd anticipated 5, 6, 7, 10 years ago.
• 27:58
  That brought us directly to the crux of this opportunity
• 28:01
  to expand into a secondary form of compute
• 28:04
  that is likely to grow to be the majority of our business
• 28:06
  over time from a revenue perspective,
• 28:08
  but not from a strategic footprint.
• 28:10
  So talk about the organizational design.
• 28:13
  We think that we're going to be great at developing
• 28:15
  digital infrastructure for AI use cases.
• 28:17
  We think we're going to be great at integrating Bitcoin mining
• 28:20
  into energy systems, some of which are going to be
• 28:22
  in the data center, some of which are going
• 28:23
  to be at the utility level.
• 28:25
  We also think that interacting with energy more directly is going to be something that we're going to be good at into the future as well.
• 28:32
  Maybe that means behind the meter generation.
• 28:34
  Maybe that means more intelligent power sourcing on the power markets.
• 28:39
  We don't know what that's going to look like yet, but we know that we have a thesis about how energy management generation and consumption is an opportunity for us to drive shareholder value in the business.
• 28:48
  And then the last category, which is what Rory's covered a lot of, is CleanSpark Capital is a concept that we've been kicking around for many, many, many, many months.
• 28:57
  Are we soft rolling it?
• 28:58
  We soft rolling it?
• 29:00
  So very softly.
• 29:01
  And so the first step towards that is by taking a fundamentally differentiated view on treasury management.
• 29:08
  We are not a debt, but we hold a lot of Bitcoin and we do so in a variety of productive ways.
• 29:13
  What's really important about that productivity is it's not just about what are we able to extract from our holdings or our balance sheet. It's how does our capital activities integrate into a scaled operating business to make the operating business stronger and open the door to more types of opportunities across our balance sheet utilization and management profile.
• 29:35
  And so, you know, I think of companies like, you know, GE, where GE Capital was a huge component of what they did that had nothing to do with how they built turbines or washers and dryers or all these other types of hard asset activities.
• 29:48
  It had to do with the financialization layer of everything that they did as well.
• 29:53
  I also look back to things like Berkshire Hathaway, where they took a position where they bought out Geico and utilized the Geico insurance premium model to take front of the locomotive capital engine and drive the incremental float from those insurance products to be able to unlock a bunch of different operating businesses elsewhere across their portfolio.
• 30:14
  And so the marriage of operating business in the physical world and the financial business in the markets world marry together to create differentiated and huge, huge, hugely outsized outcomes.
• 30:27
  So that's like 100 IQ points higher than a take that I've had for a long time, which is on these treasury companies, like you need an operating business.
• 30:34
  Like 100%.
• 30:35
  I mean, I don't think it needs, you need, I don't think you don't need that much IQ.
• 30:39
  But the explanation was 100 IQ points.
• 30:41
  I just, and to me, this is the biggest, it's the biggest misnomer.
• 30:46
  It's we have, we're one of the top 10 corporate holders of Bitcoin in the world.
• 30:50
  We're one of the, we're the largest domestic hash rate producer.
• 30:54
  And it's been really hard to talk about that in certain ways because we are a company with
• 30:59
  13,500 Bitcoin on our, on our balance sheet, but we are not in our treasury, but we are
• 31:05
  not a Bitcoin treasury company.
• 31:07
  Right.
• 31:07
  And we generate yield on our Bitcoin, but we don't generate whatever the BTC yield metric is.
• 31:16
  Sats per share.
• 31:17
  That's not how we measure ourselves.
• 31:19
  We measure ourselves on shareholder return.
• 31:21
  We measure ourselves on stakeholder return.
• 31:23
  We measure ourselves on total capital assets that we drive over time.
• 31:27
  And so I just think it's exactly right.
• 31:30
  But yes, not to jump in too much again.
• 31:32
  No, I want to get into this.
• 31:33
  But just quickly before we do, with Bitcoin mining, it's like it's energy in, Bitcoin out.
• 31:38
  And as you move to AI, it's energy in like tokens out, I guess.
• 31:42
  And that's going to be paid to you in dollars.
• 31:45
  Will you be turning dollars into Bitcoin in this treasury?
• 31:48
  So this is a critical piece.
• 31:51
  We believe that our obligation is to take the productivity of our business lines and drive them into the highest growth, highest value return opportunity in front of us.
• 32:01
  So let's say that we were able to take a lot of dollars in from our first AI deployment.
• 32:07
  I think that right now, the biggest opportunity in front of us would be to plow those dollars
• 32:12
  into the next AI deployment.
• 32:14
  I think over time, as businesses move from their hyper growth phase into more of a cash
• 32:21
  flow and compounding phase, the opportunity to think more about the opportunity cost of
• 32:27
  each incremental net income dollar is going to get more competitive. But right now, it's about
• 32:33
  growing to become a significant player in the AI compute world in the same way that we had to grow
• 32:40
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• 34:59
  Okay, so let's talk about how you actually deal with the treasury and you're gonna have to keep
• 35:03
  this a little bit simple for me. Like you said, you're generating yield. Like let's start with
• 35:08
  the easy one. Where does the yield come from? Yeah. Uh, if you don't know where the yield comes
• 35:12
  from, you are the yield. Um, no. And, and let's be very clear. And this has been a, a point of
• 35:20
  frustration for me because, and again, I'm not, not, not here to wear my arm out, patting ourselves
• 35:25
  on, on the back necessarily, but you know, we, we take it very seriously to be very transparent
• 35:31
  about our strategies and what we do, be very specific about what is possible, what isn't
• 35:38
  possible, what are the risks and possibilities there, and to take diligence and analytical rigor
• 35:46
  to everything that we do. So where does the yield come from? Well, we talked about, let's just,
• 35:51
  you know, first and foremost is you can't generate sustainable, yield is just return on
• 35:58
  capital. You can't generate sustainable return on capital unless you have some type of operating
• 36:05
  business. And maybe that operating business is an investment business, but that would mean you
• 36:08
  have to have a process. You have to have controls. You have to have a view. You have to have risk
• 36:14
  management. So the return on capital that we generate starts with thinking about what is the
• 36:22
  operating profile of our core business? And our core businesses has been Bitcoin mining.
• 36:28
  Traditionally, obviously, we're going to be expanding into, we'll talk about how we're kind of driving capital from the digital asset management side into the AI HPC kind of an energy expansion side.
• 36:37
  But the first thing that we did in December of 2024 was start with a 60 to 90 day process to really decompose our entire business across what are the drivers, what are the risks, where are the expenses, where's the cost of capital, where's the cost of power, what is the timing of those cash flows?
• 37:00
  because this is a really underappreciated point, is that you might be doing something that makes a
• 37:07
  lot of sense in the aggregate, but it doesn't make a lot of sense when you get upside down
• 37:11
  versus timing and asset liability mismatches. So that took us maybe 30 to 60 days to kind of get
• 37:17
  settled and kind of really think through that. It took us another 30 to 60 days to really kind of
• 37:22
  design the philosophy around that. And what we came to was essentially a two-pronged approach.
• 37:27
  So the first approach is that we're generating around 600 Bitcoin a month right now.
• 37:32
  That can go up and down kind of depending on difficulty, operational hash rate, you know, kind of what we're doing.
• 37:37
  But let's call it kind of 500 to 600 Bitcoin a month.
• 37:40
  So, you know, we know what our OPEX component of that is going to be.
• 37:45
  And the other thing that you can do is you can start to think about what are going to be your CAPEX needs.
• 37:49
  So you can look out to September or December of this year or into next year and go, OK, well, I need 35% of that right now.
• 37:59
  For every dollar adjusted Bitcoin that comes in that's worth a USD, maybe 35% of that could go to OPEX kind of on an ongoing basis.
• 38:10
  And maybe somewhere between another 35% to the other kind of 65% of it might go into these CapEx opportunities right now, quite frankly, because there's so much opportunity to build out in this space.
• 38:22
  So that's on a monthly basis.
• 38:23
  And the second part is that we have the Bitcoin.
• 38:26
  And look, I really do give Saylor a lot of credit in this.
• 38:29
  Like volatility is vitality in the sense that you are taking an asset that the other thing is that yield on any asset comes from moving it around.
• 38:40
  Right. Moving it into hands where it's going to be, it might be inert on your balance sheet, but at, you know, it might be at rest on your balance sheet, but at movement on somebody else's, maybe they will pay you for the opportunity to do that. That's what interest rates are. They go, okay, I've accrued some capital. You know, Vanya has a great opportunity to build out a new AIHPC data center. He thinks he's going to get a 9% return on equity. He'll pay me 5% for the opportunity of using my capital in the meantime.
• 39:08
  that's a good risk adjusted return for me. I underwrite him and he gets his return. And
• 39:12
  that's what yield is, right? It's not this like thing in the ethereal kind of out there that just
• 39:20
  comes from diluting down your business with no cash flows coming in and pushing that back onto
• 39:28
  a capital stack that doesn't have kind of a self-reinforcing engine, right? So going back to
• 39:34
  how we split it, we have the spot plus program, which is what we can do is we can take, because
• 39:39
  we have 500 to 600 Bitcoin coming in a month, because that is our core operating business,
• 39:44
  because it maps onto our exact needs and we need to monetize some portion of that. Look,
• 39:48
  we want to hodl as much Bitcoin as possible, but at the end of the day, we still have to pay
• 39:52
  salaries and insurance and power bills, all of these kinds of things. So some version of that
• 39:59
  is going to get converted into dollars. So I could do that in the spot market. We could go to the
• 40:03
  spot market and we can either do a market order or a limit order. Right. And I'm not trying to like,
• 40:08
  I'll be simplistic in a certain way. But I don't want to speak down to anybody who kind of
• 40:13
  understands these concepts at a core. No, please do. But essentially, you can just sell it market,
• 40:18
  which just says, hey, I'm going to go take whatever the price is right now. I got 100
• 40:22
  Bitcoin to sell. It's going to go down in the centralized limit order book, probably down about
• 40:26
  two levels. And I'm going to get, you know, an average price of I'm going to I'm going to get
• 40:30
  done within a couple cents or a couple cents, right? You could do a limit order. You say, hey,
• 40:35
  I'm going to sit here. I think that the natural volatility, what we've done is we've looked at
• 40:39
  kind of Bitcoin vol on a daily basis. It moves up or down. It might go up 1.5% and down 1.5%
• 40:44
  a day. That means you're going to have kind of a 3% range. I'm just going to set kind of
• 40:48
  consistent limit orders up 1.25% because eventually kind of on a daily basis, it's going to pop up
• 40:54
  and I'm going to get taken out. That's one way to kind of try to outperform spot, right? And it's
• 40:58
  a very simple kind of way to do it. Obviously, the risks are if you're in a downtrending market,
• 41:02
  if it doesn't do that, if volatility compresses. So let's be clear eyed about what that is. But
• 41:07
  that's one way to kind of think about how to manage some of the risk on the book.
• 41:10
  The other way is to go to the derivatives market and go, okay, so it's kind of like when I go to
• 41:15
  Delta, and I click on flexible dates, right? We don't really, we know that we have to meet salaries.
• 41:22
  And we talk about understanding the timing of cash flows. Salaries are on the 7th and the 22nd,
• 41:27
  Right. So somewhere between that. So I have, you know, 14 days in between that to come up with the dollars to do that.
• 41:34
  So I go, I don't really care if I sell Tuesday, Wednesday, Thursday or next Monday.
• 41:38
  But what I can do is I can get paid for that optionality by the market.
• 41:43
  So there's there is volatility within Bitcoin.
• 41:47
  Bitcoin is it is is does not have an organic interest rate.
• 41:50
  But what you can find is that you can find that people will either, you know, want to take it on their balance sheet for trade financing or to do or to collateralization.
• 41:57
  or to borrow or just for kind of any of these other uses.
• 42:03
  So there's a natural volatility in that market.
• 42:05
  So we'll sell basically short-dated covered calls.
• 42:08
  Again, simple, not easy.
• 42:10
  And that's our whole philosophy.
• 42:11
  This should be extremely simple to understand.
• 42:13
  It should not be that complicated.
• 42:15
  The risk should be completely decomposed and understood.
• 42:18
  But it's hard to do it because of the institutional risk management
• 42:22
  and the kind of consistency and the way that it maps onto operating business.
• 42:26
  So we just sell short-dated covered calls, right?
• 42:28
  And so what's interesting about short-dated covered calls is, yeah, even as volatility has compressed, the kind of total all-in cash-on-cash or sats-on-stats return you're getting is incredibly attractive, right?
• 42:42
  And so what we found is that by managing this in the way – and I can't give away kind of the whole kit and caboodle on kind of how we do it specifically.
• 42:49
  but we have a strategy where we go out X amount of days
• 42:54
  kind of knowing that we're going to have to meet these obligations.
• 42:57
  As we get closer to that, we will increase what's known as our delta exposure.
• 43:01
  And that delta exposure means, you can think of delta ads.
• 43:04
  If I'm selling a 20 delta call, that means one out of five times,
• 43:07
  about 20% of the time, on average, you can expect to get taken out.
• 43:10
  Now, there's going to be a lot of derivative heads listening to this
• 43:14
  who are going to talk about, you know, can you really take,
• 43:18
  a standard, you know, kind of a standard kind of curve on that. And what are the real stochastic
• 43:24
  returns? And should we use a jump diffusion index instead of a Black Skulls Merton model,
• 43:29
  kind of all that. But like, long story short, you can essentially think that if you're selling
• 43:33
  a 20 Delta option, about 20% of the time, you expect to get called on that. What that means is
• 43:37
  I'm selling a covered call that says that I have committed to selling you Bitcoin at $100,000 in
• 43:44
  seven days. If Bitcoin goes to $107,000, you pay me $100,000. But you're paying me $1,000 in the
• 43:50
  meantime for the right, but not the obligation to buy that from me. Bitcoin goes to $107,000. Great.
• 43:56
  You're in the money. You buy the Bitcoin from me at $100,000. You go sell back at $7,000. You're
• 44:01
  net up $6,000 in that $1,000 you paid me. All good. For me- Can I ask you a question? So in the
• 44:07
  80% of the time that that works, great. In the 20%, it doesn't. Does that cause any issues for
• 44:11
  the business. Well, and so it's hard to know what you want, right? Because the 80% of the time it
• 44:17
  works, we keep the money. But that also means Bitcoin didn't get to that level that maybe we
• 44:21
  wanted to sell it at. So you have this entire non-stationary thing. And so this is what we've
• 44:26
  been titrating and really kind of, really kind of, quite frankly, innovating on, right? And so
• 44:32
  we've innovated on how far out we go, what deltas we use, how often we will essentially rewrite those
• 44:38
  deltas. So most people that, that in most of, most of the kind of other people in the space,
• 44:43
  they'll come in and they'll say, Hey, I want to generate yield on my Bitcoin. I'm going to sell
• 44:47
  a thousand calls six months out. And they're basically really, really in the money or really
• 44:52
  out of the money. And what we do is we build what's known as kind of an option tree, right?
• 44:56
  And so we build, we're basically DCA into these positions all the time that kind of reduces our
• 45:00
  kind of, it, it, it marries our, our, our, our, our, our outcomes are, are, are, are, are realized
• 45:07
  outcomes more to what you would be kind of an expected outcome in the market, just because you
• 45:11
  have more kind of data points to go through rather than kind of having these chunky.
• 45:16
  I just want to hit on one point as to why I'm not as worried about, because at the end of the day,
• 45:22
  you want to keep the Bitcoin on your balance sheet because the upside appreciation of the
• 45:27
  technology diffusion is where a lot of the value sits. So let's say that we are selling,
• 45:33
  I'm going to use round numbers, 500 Bitcoin a month in order to pay for our expenses and make
• 45:39
  investments in CapEx. And we've got laddered out across the big tree, a number of different
• 45:44
  durations, a number of different levels, et cetera, a thousand Bitcoin that are out there
• 45:47
  that could be called away. And Bitcoin goes parabolic, which it has done from time to time.
• 45:51
  And we get called away on all thousand. Typically, you'd say, oh, well, that's really challenging
• 45:56
  because now our treasury position has been reduced. Well, this is the beauty of having
• 46:01
  an operating business that prints revenue in Bitcoin. Because now we've got two months where
• 46:05
  we don't need to monetize any of that future production. We're able to replace it onto the
• 46:10
  balance sheet. So I love the- Oh no, I sold a thousand Bitcoin up 30% in a month. And now I
• 46:16
  just have to sit on my hands for two months and just pause our strategy and make it all back.
• 46:20
  And so- So does this only work when you're actually generating Bitcoin as a company?
• 46:24
  Exactly. The specific way we're doing this is- Yes. This is the key, which is that what we're
• 46:30
  not doing is selling equity or raising debt to go purchase Bitcoin to create our treasury position.
• 46:36
  We have an operating business that puts us in a treasury accretive position. And so because of
• 46:43
  that, the doors for what we are able to do open up. Okay, I need to go back a bit then. So with
• 46:49
  the expansion to AI that you're going to do, will there also be expansion in the Bitcoin side of the
• 46:54
  business alongside that? So what my vision and what our collective vision for the future looks
• 47:00
  like is that Bitcoin mining as a percentage of revenue is going to be dramatically smaller.
• 47:04
  Okay. And we could still see our Bitcoin mining revenue expand because our AI is just going to
• 47:09
  grow faster than our Bitcoin lag. So when you're set up, like, I understand now where you said
• 47:13
  clean spot capital, because this seems like a whole different business almost within the business.
• 47:17
  And the reason that it works is that we are in a high capital intensity business.
• 47:21
  And so having a tool and a flywheel that works this way becomes a funding mechanism for all of the growth that we want to engage in.
• 47:29
  I really want to emphasize that CleanSpark Capital or whatever that may or may not be over time and digital asset management in its current form is not meant to be some internal hedge fund or thing that sits off in the corner.
• 47:42
  And this is I've heard a lot of our –
• 47:44
  So what is it meant to be?
• 47:46
  It is meant to sit, and this is the whole point is that the risks, we are able to take risks that are outsized in a vacuum because they are hedged out by the operating business and they generate additional margins for the mining business and ultimately the operating business and ultimately the capital.
• 48:08
  So it's meant to feed and enhance the profitability of mining.
• 48:13
  It's meant to fund expansion.
• 48:15
  And it's meant to maximize the potential of the Bitcoin huddle.
• 48:19
  And so I've heard a lot of other people that try to do this.
• 48:22
  And it's, oh, you know, the most important part of this is that Gary Vecchiarelli, our CFO and president, had this idea for this trading desk four, five years ago.
• 48:33
  And, you know, when you have really mean this, you have to have a management team that is fully on board with what you're doing.
• 48:43
  You have to have a strategy and philosophy that maps directly onto your operating profile.
• 48:48
  And you have to have a team that can implement this in an institutional, rigorous and risk managed way.
• 48:58
  And so does that answer your questions or concerns?
• 49:04
  I mean, push back.
• 49:05
  I mean, it's not that I have concerns.
• 49:06
  It's just like, do you need the Bitcoin side of the business to continue to grow to allow this arm of the business to continue to grow?
• 49:12
  I mean, can I address some of the thoughts around that?
• 49:15
  I mean, I just think that there are, look, I don't want to shock you guys.
• 49:23
  but in about two years the bitcoin block subsidy is going to go down by 50 percent why do you know
• 49:30
  so in about a hundred years there's going to be no more bitcoin to mine no other than on the fees
• 49:39
  and transaction side there's no subsidy the block subsidies correct okay right so this is always a
• 49:45
  game of running as fast as you can to get as much bitcoin on the balance sheet as you can
• 49:50
  to ride that adoption curve up and then to diversify both your digital asset management
• 49:56
  side in order to figure out how to kind of drive incremental returns and to expand into,
• 50:01
  like we touched on some other Bitcoin-denominated revenue generating things, which we are exploring
• 50:09
  very, very deeply. So the idea is always going to be, hey, how do we maximize the value of every
• 50:16
  kilowatt hour that we're expending? How do we take other complementary Bitcoin-denominated
• 50:22
  businesses, because we believe that Bitcoin is going to be a core capital asset in the US economy,
• 50:27
  and how do we take the float that that generates, maximize the margin on that on the digital asset
• 50:32
  management side, and then turn that into an origination machine, which can then drive back
• 50:36
  into the float? And that origination machine might be kind of AIHBC revenues, it might be
• 50:41
  structured products, it might be a whole bunch of different stuff. And that's kind of, I think,
• 50:44
  kind of TBD, but things that we think very, very deeply and granularly about.
• 50:49
  And there's a fundamental piece in the data center side that I think is important to talk
• 50:54
  about in this context, which is that the data center deployment capital life cycle is incredibly
• 51:00
  intense. And so if you are able to drive down your cost of capital on your data center deployment,
• 51:06
  you're able to realize significant margin expansion across that profile because you're
• 51:13
  borrowing dollars to build a data center, you're getting paid dollars for access to that data
• 51:16
  center, and the spread between those two numbers ends up being really material to the business.
• 51:22
  And so if you're able to expand that spread, you're able to give a lot of shareholder value
• 51:26
  back because you're doing it in a way that other people who are running exactly the same type of
• 51:32
  data center strategy are not able to enact because we've got these other components to the business
• 51:37
  that makes us a differentiated player, even when we're engaging in a similar activity.
• 51:42
  So tell me a bit about how the market views Bitcoin in this, because like me as an all
• 51:47
  Bitcoiner, if I go out to a lead and try and get a loan, I'm going to be paying like high
• 51:51
  single figure, low double digits.
• 51:55
  Is that the same for you when you doing this at such large scale I mean like no I want to know though like how you see that maturing because we probably think
• 52:06
  or would all agree
• 52:07
  that Bitcoin is the best form of collateral.
• 52:09
  Like when will the market wake up to that?
• 52:10
  I mean, totally.
• 52:11
  And this has been my argument for a long time,
• 52:12
  which is that ironically,
• 52:14
  if you look back, you know,
• 52:15
  even a year, but definitely two years,
• 52:17
  you were, you're 200%
• 52:20
  kind of over collateralized on a loan.
• 52:22
  You're paying nine to 11,
• 52:24
  sometimes higher percentages than that.
• 52:26
  And, you know, it's just an upside down market.
• 52:30
  Like our view on this is the price of a Bitcoin secured loan
• 52:35
  should trade below the comparable,
• 52:39
  call it corporate credit market necessarily.
• 52:41
  I think you might say treasuries,
• 52:42
  but I would say corporate credit market.
• 52:44
  Yeah.
• 52:45
  With the idea being that if I'm giving you-
• 52:48
  What numbers are they?
• 52:49
  So-
• 52:50
  What are we in the market with?
• 52:52
  No, I don't necessarily mean you if you can't share that.
• 52:54
  We're in the market around software plus 3.55% is the most recent paper that we've printed.
• 53:01
  Spreads have come in another 150 basis points from there.
• 53:05
  So you're talking – we're seeing indications in the kind of 6% range at the institutional scale.
• 53:13
  I think depending on how you structure things for really kind of like really like overnight style paper where you're kind of doing trade finance,
• 53:22
  what looks kind of like traditional repo, you might even be able to improve a little bit from
• 53:26
  there. I think for term financing, you might be able to go a little bit up because the lender's
• 53:31
  taking a little bit more of kind of a, there's a little bit of a term premium that's built into
• 53:35
  that. But we're talking about compression of 500 basis points over about a year, right?
• 53:38
  So even though they are taking like a longer timeframe in that, there's no risk to them.
• 53:45
  Correct. So the reason that there's a premium on those dollars is because the price is not purely
• 53:52
  There's always risk, but yeah.
• 53:53
  Yeah, there's always risk.
• 53:54
  There's always risk.
• 53:55
  Let me be clear.
• 53:55
  But the price of the dollars is not a function of the risk profile of the collateral.
• 54:00
  It's the competitiveness by which other people want those dollars as well.
• 54:04
  Okay.
• 54:05
  And so if all of us are saying, we all want to go buy a house, but our mortgage broker
• 54:09
  only has enough money for one house, they're going to have all of us bid on it.
• 54:13
  Yeah.
• 54:13
  Even though they're never going to lose money because the house is like super cheap or whatever.
• 54:17
  Yeah.
• 54:17
  But so there's two dynamics.
• 54:19
  One is how likely do they think they are to lose the money?
• 54:23
  The second is how competitive is the market to get those dollars?
• 54:27
  And what are we willing to bid it up to amongst the three of us as we go out to the housing market?
• 54:31
  Can you explain why you think the interest rate should be lower than treasuries?
• 54:34
  Because like when I hear that as a Bitcoin, I'm like, fuck yeah.
• 54:37
  But like, why do you actually think that?
• 54:39
  Yeah, because it's like not impossible to lose money on a over collateralized.
• 54:43
  It's always possible to lose money if you try hard enough.
• 54:45
  But on a relative basis, the likelihood that you lose money on a Bitcoin collateralized loan as the lender is about as low as you can possibly get.
• 54:57
  Because you're saying, you know, let's walk through the mechanics of what the lender is doing.
• 55:03
  I'm the borrower.
• 55:04
  I give the bank a million dollars of Bitcoin.
• 55:08
  The bank gives me $700,000 of dollars.
• 55:12
  the minute that the Bitcoin goes down to being worth $750,000, they have a $50,000 cushion still,
• 55:18
  they automatically liquidate that Bitcoin and extinguish the loan. Yeah. And Bitcoin trades
• 55:24
  between 40 and $80 billion a year, 24 seven. Yeah, you can do it on Friday night, you can do it on
• 55:29
  Sunday morning, you can do it on New Year's Eve, there is no limit to the market availability,
• 55:34
  because I think, you know, one of the risks is that, you know, you go to the overnight repo
• 55:38
  market, which Rory mentioned earlier, which is the relationship that banks have with the Fed.
• 55:42
  The reason they call it the overnight market is because you give them the dollars in the afternoon
• 55:47
  and you get the paper back the next morning. It's overnight because there's a gap in the trading
• 55:53
  window. And so Bitcoin doesn't have that time gap. And so because of that, the liquidity profile
• 56:00
  of the collateral liquidation mechanism is not seamless, not lossless, but as close to seamless
• 56:08
  and lossless as we've ever seen any market for credit ever.
• 56:12
  And look, I mean, this is still super underappreciated.
• 56:14
  Like Bitcoin's a teenager.
• 56:16
  It just got its driver's license, right?
• 56:17
  Like it's 16 years old, right?
• 56:19
  And it's a terror on the road sometimes.
• 56:22
  But like the point is we've been through multiple cycles,
• 56:27
  multiple liquidation cycles.
• 56:28
  We have institutional trading infrastructure.
• 56:30
  We have OTC deaths that can quote risk.
• 56:33
  We have credit facilities.
• 56:35
  We have banks that are getting involved.
• 56:36
  I mean, this is not untrodden territory anymore. And so the argument essentially for kind of why there's been that compression is one is that I think the people that were long dollars knew that they were getting paid more than they should on a risk adjusted basis to make these loans.
• 56:55
  And they're probably getting down to, we're getting within horseshoes and hand grenades territory of probably properly risk capital.
• 57:03
  But yeah, I mean, if you're going to ask for over collateralization in an asset that trades that is one of the most liquid assets in the world and one of the few assets that trades truly 24-7, then that to me commands a lower risk premium than kind of almost anything else.
• 57:23
  If Bitcoin is this turbocharger on your balance sheet,
• 57:26
  do you think other businesses will start doing similar things to you,
• 57:29
  even if they're outside of the Bitcoin space?
• 57:31
  I mean, and this is my point, is that I can sit here
• 57:34
  and I could literally open up our book.
• 57:36
  I could show you exactly what our positions are.
• 57:39
  I could tell you exactly how I think about it,
• 57:41
  and you still can't do it because you don't have our operating business.
• 57:44
  No, no, it's not about expertise.
• 57:45
  So let's say I pick you out of CleanSpark
• 57:47
  and I put you into just a regular company
• 57:49
  that's not doing anything in Bitcoin.
• 57:50
  Do you still think Bitcoin should be on their balance sheet
• 57:52
  so you can do this?
• 57:53
  this sort of thing? I mean, my argument would be yes, because I think that there, again,
• 57:58
  and I'm not saying it should be 100% necessarily. Again, I would do the same process that we ran
• 58:03
  through here. I would decompose what is our risk tolerances? What is our expertise? What is the
• 58:09
  timing of cash flows? What are our needs? What's our margins? What are our current assets? And I
• 58:15
  would think about this. But yeah, I mean, the argument is it should be some portion of this,
• 58:19
  because there is upside optionality on the asset. There's the ability to borrow against it while you
• 58:25
  hold on to that upside optionality. And there's the ability to drive incremental returns from it
• 58:30
  while you're doing that in the meantime. So, I mean, I just, to me, it's an obvious yes,
• 58:34
  but I understand why it's taken a long time. And what you're describing is that, you know,
• 58:40
  all of these businesses out there have a long lineage in traditional corporate treasury management,
• 58:45
  which is if you're running any version of a business, whether it's a very small mom and pop
• 58:51
  business or a very large conglomerate, is that you have cash on the balance sheet, you have timings
• 58:56
  of cash flow. And so how do you take the cash on your balance sheet and utilize it as constructively
• 59:02
  as possible for the operating business's needs in the interim? And I'll wind you up, which is that
• 59:11
  you're good at that. Like they're like they're you don't necessarily need to take Bitcoin exposure
• 59:16
  to utilize a Bitcoin treasury approach, which is like if you're and I'll pick someone who has a,
• 59:24
  you know, pick a pick a company that has a big cash position. Apple. Apple. Why isn't Apple just
• 59:30
  banging the Bitcoin basis trade? Well, the thing is, a lot of people have and that's why there's
• 59:35
  been compression in this space. So, um, and, and, and what we talked about is, and is part of our,
• 59:41
  kind of part of our original presentations, we showed this essentially flywheel and it showed
• 59:45
  kind of a, it showed kind of a flow chart of all the different things you start with, you know,
• 59:49
  it starts with a Bitcoin coming in. Then do you sell a covered call? You sell a covered call,
• 59:53
  you get, you get called away. It turns back into cash or turns into cash. That cash either goes in
• 59:57
  the operating business. You can write a put to get back, back into that Bitcoin. You could do,
• 1:00:01
  you could put a basis trade on and kind of, you look at all the different flows and how they all,
• 1:00:05
  how they all go into shows. So yeah, people banged the basis. I think that like the word got out,
• 1:00:10
  they got that. What is the basis trade? Basis trade is just the difference between the spot
• 1:00:14
  market and the futures market, the spot market and the forward market. And so there's a reason
• 1:00:18
  that the forward market kind of trades generally at a premium essentially. And so backwardation
• 1:00:23
  means that the price of the spot asset is lower, is higher than the price of the future asset.
• 1:00:28
  And the reason that you would be generally in backwardation, like let's say oil,
• 1:00:32
  maybe not in the last kind of 30, 60, 90 days,
• 1:00:36
  but oil tends to trade in backwardation.
• 1:00:38
  And the reason is that if you,
• 1:00:40
  you might need that barrel of oil now,
• 1:00:43
  but if you only need it in three months,
• 1:00:45
  well, you're going to have to pay storage costs.
• 1:00:47
  You have to do routing.
• 1:00:48
  There's kind of all these-
• 1:00:49
  This is like why it went negative
• 1:00:50
  and not like COVID time.
• 1:00:51
  Yeah, and so your point about the basis,
• 1:00:53
  I do think it will come back
• 1:00:55
  because I think that human psychology
• 1:00:58
  is one of the most things,
• 1:01:00
  that is one of the things you can bank on in financial markets.
• 1:01:03
  And the reason that the basis has been so persistent,
• 1:01:05
  it's down to about 3% right now.
• 1:01:07
  And so what you're at is it's basically been compressed
• 1:01:10
  to essentially the cost of institutional capital.
• 1:01:14
  We've been able to actually, quite frankly,
• 1:01:16
  to put on the basis trade at above market rates
• 1:01:19
  because of the relationships that we have
• 1:01:20
  with some of our counterparties.
• 1:01:21
  Some of the things we understand
• 1:01:22
  about some of their balance sheet needs,
• 1:01:24
  they might, and so they know that we have capital.
• 1:01:26
  And for a very small portion of kind of our balance sheet,
• 1:01:28
  We're willing to essentially put some Bitcoin on their balance sheet.
• 1:01:31
  They're willing to pay above market rates for that.
• 1:01:33
  They give that back to us on the basis.
• 1:01:35
  So that's kind of another one of the sort of side benefits of this institutional desk that we have.
• 1:01:39
  But the point being that why would the basis trade in Bitcoin trade higher, what's known as contango?
• 1:01:44
  So the future price of Bitcoin is higher than the spot price of Bitcoin.
• 1:01:48
  So Bitcoin is $100,000 today.
• 1:01:50
  In three months, it's three months, it's 103 based on kind of this forward curve.
• 1:01:55
  There's a couple of reasons.
• 1:01:56
  One is leverage, right?
• 1:01:57
  So you're a hedge fund, you're a retail trader, you're whatever.
• 1:02:01
  If you go put a forward on, you only have to put up $35 for every $100 of exposure that you get in Bitcoin.
• 1:02:09
  So there's a demand for that.
• 1:02:10
  That's an interest.
• 1:02:11
  That demand is everything.
• 1:02:14
  You know how everything computer, okay?
• 1:02:17
  Everything interest rates, right?
• 1:02:18
  It's always cost of capital.
• 1:02:20
  And so you're willing to pay a percentage on that because you think you're going to make 10% over three months
• 1:02:27
  and you're willing to pay 3% for that or whatever, right?
• 1:02:30
  And so that's kind of where that comes from.
• 1:02:32
  And so when you see Bitcoin go into a bull market,
• 1:02:36
  when you see kind of those outsized returns,
• 1:02:38
  and this is the other beauty of what we do, right?
• 1:02:40
  That's when, so we're getting,
• 1:02:41
  we might be getting called out of some of our coin.
• 1:02:44
  Now, what are we doing?
• 1:02:45
  We're holding dollars, okay?
• 1:02:46
  We're holding dollars at a time
• 1:02:47
  when demand for Bitcoin and the forwards
• 1:02:50
  and expressing that view via the forwards
• 1:02:53
  and the futures market has gone absolutely bananas.
• 1:02:56
  So we've seen these brief spikes, right? So even during this period of compression, we've seen these periods of brief spikes to kind of 9% to 12%. So now I've sold Bitcoin up 30% in a month. I'm holding dollars. And I can plow that back into Bitcoin basis trade in a delta neutral way at 9% to 12%. And so that's the flywheel that we're talking about.
• 1:03:17
  And so I think people – and again, I say simple, not easy.
• 1:03:22
  Yes, all we're doing is selling covered calls.
• 1:03:24
  All we're doing is banging the bases.
• 1:03:25
  All we're doing is doing this.
• 1:03:26
  All we're doing is doing that.
• 1:03:27
  But it's the way that we map it onto our business.
• 1:03:29
  It's the way that we've thought about this as it decomposes like across the kind of demand cycle that Bitcoin goes through.
• 1:03:38
  And it's about the way that we express those trades in institutional ways, manage them in a higher velocity than other people in the industry do, and quite frankly, build deep relationships that are personal and human with our counterparty.
• 1:03:55
  So, yes, they can check our credit report.
• 1:03:57
  They can read our SEC 10K or 10Q.
• 1:04:00
  We exchange financials.
• 1:04:01
  We do everything via ISDA.
• 1:04:03
  We have one of the kind of strongest kind of 360-degree views that we take to every relationship with just legal, internal controls, tax, accounting, risk, all of this stuff.
• 1:04:11
  But we also build deep personal relationships, which, quite frankly, Danny, is why we're sitting around this table, right?
• 1:04:16
  Like I've known Harry for many years now.
• 1:04:19
  We became friends because we sidled up to the same bar at Hill Country in NYC at an unchained pop-up on February 20th of 2020.
• 1:04:29
  I don't remember that just because it was right after Valentine's Day and I kind of love the guy.
• 1:04:37
  But I remember it because it was during a period where we were going into a very challenging period for Bitcoin.
• 1:04:43
  We became fast friends.
• 1:04:44
  We were ideologically and philosophically and temperamentally and psychologically and all of that kind of aligned.
• 1:04:50
  And we talked for years before he hired me.
• 1:04:53
  And then we went through Grid.
• 1:04:55
  And that was had its ups, had its downs, had its ups again.
• 1:04:57
  And now we're here.
• 1:04:58
  And so we've built these relationships in this space over cycles and over times.
• 1:05:02
  And we take that at CleanSpark.
• 1:05:04
  We take that view to our community relations.
• 1:05:06
  We take that to our counterparties.
• 1:05:07
  We take that to kind of the people we talk to in the space.
• 1:05:10
  And, yeah, we're not here to be kind of showbo baggins for CleanSpark.
• 1:05:13
  But what I think that we have here, and if I could just, if you'd mind, if I just, right, but is that you have to have, if you want to do great things, and this is one thing that I've quite frankly matured on, I think over the years, is that there's such an individualistic streak in this space.
• 1:05:29
  And I really believe in that.
• 1:05:31
  But if you want to do great things, you have to do it together.
• 1:05:33
  You have to have an organizing principle and an organization around that.
• 1:05:37
  And so I really do think that CleanSpark to me is the enunciation of that organizing principle. I think it's where our skill sets have been best matched over time. We've tried to figure out how to work best together over many years, and it feels like we're expressing it in this space.
• 1:05:53
  The people that we work with are very complimentary of that.
• 1:05:56
  Our management from Matt Schultz and Gary Vecchiarelli all the way down is very empowering of that.
• 1:06:02
  And the opportunity set in front of us is incredibly fertile.
• 1:06:07
  And the groundwork and foundation that we've laid is ready for that.
• 1:06:13
  And you know what?
• 1:06:13
  That only took about eight or ten years of really, really, really, really, really effing hard work, right?
• 1:06:19
  So I just – I believe in what we're doing.
• 1:06:22
  I really do.
• 1:06:23
  My only addition is that like all the value in any compounding environment happens in the out years.
• 1:06:29
  And so the trick in every overnight success is that it takes between 10 and 20 years to get there.
• 1:06:34
  So if you have the viewpoint and the temperament to figure out how to do something exciting and important,
• 1:06:45
  you've got to stick with it for a very long period of time before the more tangible value gets realized.
• 1:06:51
  but it's about having the mindset and approach
• 1:06:56
  that lets you get there before you,
• 1:07:00
  you're always gonna be tempted to dump out
• 1:07:02
  like 30 times along the way.
• 1:07:04
  Don't.
• 1:07:04
  That's all.
• 1:07:05
  Just keep going.
• 1:07:06
  You've got to go, right?
• 1:07:08
  I do, I do.
• 1:07:08
  Let me ask one more question to finish.
• 1:07:10
  This is obviously,
• 1:07:10
  you're doing like novel,
• 1:07:11
  interesting things with Bitcoin on the balance sheet.
• 1:07:13
  Do you think this is actually the start
• 1:07:15
  of a corporate finance revolution with Bitcoin?
• 1:07:18
  I really do.
• 1:07:20
  I really do.
• 1:07:20
  We sit in a really unique and interesting space where, again, it's not anything that I did individually.
• 1:07:28
  It is the DNA that CleanSpark built many years before I got there.
• 1:07:33
  It is the hard work of Bitcoiners from the cypherpunks on up that have set the stage for this.
• 1:07:38
  It is the people that have been willing to push things forward, like everybody at Square who's pushed things forward on kind of payments and infrastructure rails.
• 1:07:46
  But we are sitting in a seat where we are fortunate enough to see a lot of, let's call it deal flow opportunities.
• 1:07:53
  Thank you, Siri.
• 1:07:54
  Deal flow opportunities, things that are developing.
• 1:07:58
  We really do want to be on the tip of the sphere developing that because we believe that our approach to this is going to be the most institutional risk management, transparent, high integrity ways to do it that are going to be good for all of our stakeholders.
• 1:08:10
  But yes, we are seeing this across.
• 1:08:12
  I mean, it is truly a Cambrian explosion of products.
• 1:08:16
  And like I said, there's been a lot of criticism in the past of yield and credit.
• 1:08:23
  Yield is productive return on capital.
• 1:08:26
  Bitcoin forces you to find what the true cost of money is and allocate it in the most productive
• 1:08:32
  ways possible.
• 1:08:33
  That's not a bad word, particularly when it comes to digitally native, scarce, hard money.
• 1:08:39
  And the second thing is credit has traditionally been a really bad word.
• 1:08:42
  But again, that's the exact same idea.
• 1:08:44
  it's how do we allocate this credit
• 1:08:46
  in the most productive way
• 1:08:47
  and so I think we're seeing that happen right now
• 1:08:49
  and I mean it's truly the honor of my career
• 1:08:51
  I mean it's an actual
• 1:08:53
  I'm a total nerd
• 1:08:53
  but it's an actual dream
• 1:08:55
  to be at the forefront of an industry
• 1:08:57
  that's developing these
• 1:08:58
  that is awesome
• 1:08:59
  right we've got to go
• 1:09:01
  we've got stuff to do
• 1:09:01
  thank you so much guys
• 1:09:02
  this has been fun
• 1:09:03
  thank you Danny
• 1:09:14
  Thank you.