Salman Khan on Marathon Digital's Bitcoin strategy heading into 2024

0:00I'm ashon Addison from the Crypto Coin Show and today on blockchain interviews we have Salman KH the CFO of marathon digital Holdings Salman welcome to the show and thank you for taking the time thank you Ashton great to be here likewise a lot of exciting topics to dive into with regards to bitcoin Bitcoin mining the ETF the market has been hot with Bitcoin this week in

0:23the near end of October here and hopefully that trend is continuing I'm excited to dive into a little bit on what you and the team at Marathon digital Holdings are are working on I know you have a lot of your sleeve but I'd love to start off our conversation with a little bit on yourself personally your background and how you got involved in all of

0:42this yeah great great to be here Ashton and this is a great day because because the price has been doing very well today as as both of us know look it's been my background and experiences in traditional energy and renewable energy if you like and in my prior life I've done done m&a merges and Acquisitions and run Financial operations and also also U establish

1:07renewable energy businesses which means solar wind geothermal and some of the other Technologies out there and certainly all that experiences all of those experiences coming together from commodity exposed Industries like oil and renewable energy and Technology all those things coming together certainly makes me very excited about Bitcoin mining space

1:32because this is this reminds me of all those Industries coming together technology entrepreneurships entrepreneurialship spirit and also the commodity risk in the industry in the sense that you we are price takers we're not price makers and also we need to be efficient operationally and invest in operations that are that focus on

1:57renewable energy and also create value for our stockholders I love that you're also focused on the renewable side of it I think a lot of people they have misunderstandings around Bitcoin right now on just how renewable it is I would love to dive into that a little bit later on and I feel like overall people they know they see the price of Bitcoin that's the

2:17first thing they know and they know a little bit about that it's a digital currency but the mining side unless you're specifically interested in it's it can be a whole another world I'd love for you to explain a little bit more about the scope and the size of marathon's operations a little bit more exactly on what you guys are doing yeah look in Bitcoin mining as

2:37you know you can you can you can produce Bitcoin anywhere in the world and wherever it's legal and it's a the bottom line is that you need to be more efficient the more efficient machines that you have the more cost operating cost that you have the more value that you can create for the company so from an industry perspective

3:04what matters is that you have the most efficient machines and also you operate in a lowcost environment so the lowest lowest cost producer or the lowest tier cost producer would would would be the winner in this space and what Marathon has been doing has been reducing its debt we reduced our debt by 56% or so and

3:28we are preparing for the have we are we also are focused on machines being very efficient we are one of the most efficient machines in the in the in the industry and we continue to Aspire to be most the most efficient in the space in the near future so that's all of that combined together and U and operating cost synergies where we can bring in

3:54renewable energy and other sources to reduce our costs certainly helps us Drive Drive the value that you can extract out of the Bitcoin mining that's a great point and to do with the renewable energy as well you know electricity costs can vary country by country but if you can find some kind of ways to subsidize that or use the renewable energy to lower those average

4:17costs I feel like that can get the company a huge Advantage yeah absolutely so to give you some perspective marathon is a global minor we operate in not only in United States and multiple States but also internationally in particular we partnered with Abu Dhabi government and The Sovereign wealth fund there to establish Bitcoin mining one of the

4:42largest in the GCC countries or in that region and we energize that in a very difficult environment 55 degre C temperature and 100% humidity almost and that is the most difficult operating condition in the world and the technologies that we use and the and the way our operating structure is

5:10structured in a way that we can we can take the U take we can solve the problem in a manner in a much more smaller scale to a larger scale and dispersed in different countries and around the world which puts us in a unique position MH yeah it's very cool to be able to mine Bitcoin some of the toughest conditions and still turn a profit it is awesome especially because

5:35Bitcoin is going up right now and I want to talk a little bit about that side because I know that marathon is one of the largest public companies hold like holding the largest amount of Bitcoin as a public company in America and there's obviously a huge treasury management sort of risks involved with that when when you mine you get Bitcoin but then when do you sell it or do you

5:58hold it and hopes it doubles but also you have to pay operational costs can you talk a little bit about that mindset and the treasury management for Bitcoin yeah great question Ashton we've got almost a half a billion worth of bitcoin and cash on the balance sheet and are it's it's we're the largest hodler in the Bitcoin mining public company space

6:24and we're proud of that and we are long on the pricing long-term pricing of Bitcoin so that's that's a fact that we're proud of and we continue to engage we continue to invest in Bitcoin from an investment perspective but also also creating value by producing and selling Bitcoin along the way so the process for us has been pretty

6:49streamlined we meet once a month as management team we look at how much Bitcoin do we need to sell to fund the operations so we sell the Bitcoin up to the extent that we need to pay our bills and the rest of it is all retained on our balance sheet for growth Capital we usually go out and access Equity markets because we being a public company we do have

7:13access to equity Capital markets and that's that's what we believe is the most best use of our investment and I feel like a lot of institutions that you know they weren't they're not involved with mining directly or you know they've been on the sidelines but watching Bitcoin Clos ly this second half of this year with the ETF discussions and now it seems

7:35like the percentage of a chance of the ETF approval is getting higher and higher sounds like it's right around the door although it hasn't happened yet it's getting a lot of traction and that's also in turn raised the price of Bitcoin quite a bit in throughout October here what are your insights into what's happening in the market right

7:54now yeah it's a it's a it's a phenomenal situation to be in look this industry as it matures the regulation matures and the reg Regulators understand the value that this industry can create and for its investors and participants the rule making becomes much more mature and that's what we're seeing with fbe's new rules coming in and sec's

8:24views on the Bitcoin Bitcoin mining specifically Bitcoin out of the cryptocurrencies so certainly it's a big win for the bit Bitcoin mining Bitcoin space across the board the ETFs obviously look ETFs are not a new phenomena in other Industries they exist in Gold oil and other Commodities and certainly it's a it's a it's a it's a huge welcome news

8:47for this space because as they as they become as as they as they float these ETFs they will likely be an uptake in demand and as we know the supply is lied that's the difference between oil and gold where you could go out and drill additional Wells and prove more oil in different parts of the world and in case of gold the same thing but in case in case of

9:15Bitcoin it's we know it's mathematically restricted and that puts us in a unique position that in the short run we expect to see uptick U because of the demand and Supply so certainly a welcome move ETFs coming into play the fby rules and the investor confidence going up certainly it helps it helps Drive the value of the Bitcoin to the direction

9:39where it's expected to be it's very interesting also with regards to these other different Commodities that have ETFs I know you mentioned gold there I've seen quite a lot of discussion recently even from those like Larry Fink and black rock and other public company heads talking about you know a flight to Quality assets and it seems like Bitcoin

10:05is at the top of that list but we're also seeing increases in gold price and movement of wealth into different asset classes what do you think where do you think Bitcoin sort of ranks in this flight to Quality and do you think people are starting to shift that perspective that hey you know Bitcoin is actually intrinsically worth a lot more than I thought it was

10:28before yeah it's a it's it's an investment allocation question if I am an investor and again this is not an investment advice everyone should look into their own circumstances to invest and talk to their advisers to invest based on their own circumstances but if I am investing my own money I would look at different categories so you've got equities you've got gold

10:52you've got bonds you've got now this is a newer category that is coming in which which is very interesting and given the limited production and limited supply of Bitcoin and the value proposition is pretty huge here and allocating if investment advisers start allocating a small portion of portfolios into Bitcoin other than you know bonds and

11:22Golds and gold and equities of the world then you will you will start to see that huge uptick and demand in this space right and as we know with the limited limited Supply that can drive the price pretty significantly I think the key the key here sorry Ashton the key here is that this is a this is another asset category and that's how that's how

11:46the markets will view it no and I was just going to say that relatively you know people have seen that Bitcoin has risen a lot in the previous years being you know in the hundreds to low thousands now sitting around 34,000 American however when you look at the market cap of Bitcoin currently even all of crypto altogether you're looking at you know a$1 trillion

12:09do market cap comparing that to something like gold at at 78 trillion and the stock market at you know much much significantly more I feel like there's potentially a lot of growth still to happen to equate to some of these other Commodities yeah absolutely long-term look this is at at it's stage as as I would I if you have to think about it this is the internet in the '90s where

12:36where Facebook didn't exist Meta Meta didn't exist you know Google didn't even exist at that time and nobody knew what was going on e-commerce and rules were not defined but as the as the space matured and newer Technologies came in the trillions of dollars worth of business has been established on the internet and as as we as we as this industry moves

13:02forward and matures from all aspects you will see more technological advancements you will see more use cases you will see a wider adoption in multiple faces and spaces and that will certainly Drive the price and bring bring the valuation closer to larger than where it is right now right now it's a very small space as you

13:27mentioned not not too small but at the same time it has room to room to grow to catch up with other categories I feel like part of it is about the education of Bitcoin as a new asset class you know even traditional economists they all wrote it off at the beginning because it's different and new and when something comes in that's not already in the books they have to change

13:50the equations and I feel like there's a little bit of getting over on that side but also on the production of Bitcoin as you guys are focused on that the mining of it understanding the operational efficiency and also just the energy cost and having a background in energy and renewable energies I feel like there's a misconception right now around how much

14:12energy does it actually take to create Bitcoin or how much energy does it use or how much can it create I'd love to get some of your insights into into the energy side of Bitcoin mining yeah look this is a as as as you rightly mentioned energy is an important component to Mining and the lower the cost the better the outcome for our stockholders

14:38and our company in terms of in terms of renewable energy look there's solar if you think about solar and batteries for example because of because of so much investment in solar and wind the there something called duck curve which means that the there's so much electricity being produced during a certain number of hours during

15:03the daytime and then it Dives down very very quickly towards the end of the day as the sun sets or gets closer to the Sunset and so the so the intermittent nature of that solar and wind renewable energy that some of that could be addressed by batteries which is which which is a store of electricity but fortunately the

15:29batteries are still very expensive despite the costs coming down over the years and they drain very quickly they can run between 2 to four hours so it doesn't solve the 24hour base load problem of energy demand so where where somebody like us or mining company comes into play Bitcoin mining company comes into play is that we that we can we can be that company that

15:54takes that power when there's excess production where they don't know where to put that power for use and then when they need to curtail or they need more energy during the evening times we can curtail and we can stop so it's like a switch on and off without impacting our operations so it's it's like an energy Arbitrage which helps the communities locally not to rely on

16:22more expensive sources of energy and non-renewable sources of energy and at the same time being able to utilize the existing infrastructure that exists it's an it's it's a it's a it's a it's an amazing secret that not everyone knows and as as people get to know this quality of energy Arbitrage if you like in this space utilities and

16:45and solar and wind providers they will start tapping on Technologies like bit Bitcoin mining where where this could be achieved mhm wow that's very interesting and hopefully the I'm assuming the advancements in the efficiency of solar and Renewables will hopefully only get better if at all incrementally at you know a little bit out of time but understanding

17:09that point about Bitcoin from from what I understand you're saying you can actually it's sort of the opposite people think it uses a lot of energy but you're actually able to power communities with the Bitcoin excess energy and the energy that's produced so sort of like subsidizing cheap energy costs from the production of Bitcoin yeah you can view it that way because

17:32because as as the sun sets you know at that point in time you have to go back to the grid and the grid is or the demand for the grid increases people go home they switch on their lights electricity it's prime time switch on the TV air conditioning is running and the demand goes up at that point in time and there's no solar at that time so what that does is it

17:57it provides us the opportunity for a solar provider or the grid to actually ask us to hey can you guys shut down during this period of time we shut down during that period of time but when we when there's Excess power out there we go out and consume that power so helping out any excesses in the in the grid system so it certainly certainly helps in balancing the grid

18:20but I want to point out to one more thing since we were talking about ashon the cost of Mining and our energy cost look we believe zero cost energy so Marathon wants to focus on our cost to be close to zero how do we achieve that and there are multiple ways of doing that and that is entering into attractive ppas with renewable energy companies and

18:45helping providing that Arbitrage that we just talked about a few moments ago we also are looking into other Technologies that for example energy capture I'm sorry excuse me for that this is the heat capture and what that does is the machines produce heat and if you can capture that heat to produce something

19:11else then it creates value for reduces your cost as a result of that right generates more revenues so for example we have we are piloting a u a program that will that will Farm shrimp so we're farming shrimps and that is using purely heat captured from our machines so that's that's a that's a pretty attractive way of reducing our

19:38costs and increasing our revenues and creating solutions to the problem out there in the marketplace we also have other opportunities like you know U methane capture for example using the trash to convert into value there's a lot of trash in this country and across the globe and converting that trash into energy is something which is very valuable and that can be

20:05done because of our modular approach of Bitcoin mining because we have those modules containers that we can plug and play Anywhere you don't have to have expensive buildings and construction materials to install something we can just ship the machines ship the container and plug it in and get it running very quickly and that provides us that opportunity to go

20:29out and Target these these landfill sites that are remote that are away from any interconnection or civilization and usually they are out of civilization because nobody wants trash in your backyard so that helps generate clean base load electricity reduce methane emissions which is which is significantly more harmful than carbon emissions so

20:55certainly U there are lots of low hanging fruits out there that are teams have been working very diligently and thoughtfully and more to expect on that MH wow very interesting Salman and especially about the Bitcoin powered shrimp I think I might pay a premium for shrimp that was grown with Bitcoin power that's that's actually super cool and thanks for all

21:19these insights into the renewable side of it I'm curious within the US and you know the Biden Administration they've been talking a lot about renewable energies and moving away from fall fuels and trying to get more renewable energy sources do you see this having a positive or negative impact on bitcoin or is it sort of more neutral as Bitcoin shifts to just trying to use different

21:41renewable energy sources I think look renewable energy focus and push towards that some states and it's it's it's it's all over the place if you look at the map some of the states like California Texas they have exceeded the expectations of on Renewables their their grids have been impacted so the pipeline of work has been humongous in that

22:06direction whereas the others there are certain other states who are lagging behind but in terms of benefiting from Bitcoin perspective look consuming renewable energy certainly is helpful for the environment and also reduces our cost and certainly is a welcome move from our perspective we evaluate those opportunities as they arise and certainly we have

22:34our ears open towards any any kind of renewable energy related legislation that will help us drive more value for our stockholders and certainly more investment in that in that area will will drive more value for us for the reasons that I mentioned earlier and moving forward into 20124 there's two one at least for sure maybe two very important Events first

22:59one obviously with regards to Bitcoin mining is the Bitcoin having event where the supply of new Bitcoin gets cut cut in half and the second potential probable event is the Bitcoin ETF approval maybe in sometime in January maybe sometime in March maybe it won't happen but those are two significant events that I see coming up and I know at least one of them is very

23:23specific to what Marathon digital Holdings is working on can you talk about those events and how you and your team would prepare for the at least the Bitcoin having coming up next year yeah Ashton the having happens every four years as you said and it what that means for your listeners it's it reduces the coins earned or per block half of what

23:52you used to earn just yesterday so that happens every four years what that means is that you're you need to become more efficient and more efficient means you need to have more efficient machines for example the last time around the having the efficiencies of the machines was as measured in Junes for terahash it was close to 90 I think it was 88 to 90 or so Jewels per terahash

24:20and now it's it's expected to be in the 30s low 30s or so and so the Improvement has happen over this period of time technology has improved from an efficiency standpoint on the other hand the cost has to be better than than what it was previously and that's where the zero cost strategy that marathon is focused on investing in

24:47ancillary but related businesses to Bitcoin mining certainly helps us drive that value and reduce our cost in terms of preparation for having look this is business as usual for us we are a public company we have a great management team and we focus on these events these are these events can be planned ahead and we plan we

25:10we protect ourselves for the worst but also plan for the best so that so that the U somebody told me the other day hope is never a good strategy our hope would be that the price doubles and does the way it has done in the past but the reality the data shows us that bitcoin price is not much correlated to having and it's more correlated to macroeconomic

25:37conditions and the last few future in the near-term pricing and for that we have to be prepared for the near time and that's

26:05why we have reduced our debt we have we have almost half a billion dollars worth of Bitcoin and cash on the balance sheet it puts us in a very strong and unique position amongst our peers and the rest of the industry and look there will be companies who will bleed during this period of time there are companies who are bleeding as of now even with

26:29the price that was at $25,000 range there are companies who are bleeding money at that time so the question is how long can they bleed and is that sustainable or not will there be consol more consolidation that may happen at that point in time especially the smaller players especially the folks who have inefficient machines so certain things may become attractive at

26:51that time so that would be an opportunity opportunity for a company like us who have a strong balance sheet to protect our interests and at the same time position ourselves for a very long success MH wow yeah there's a lot of factors going into it and I'm excited to see how it all plays out with the Bitcoin price and the macroeconomic environment and how

27:15much the Bitcoin having event actually does play into the price or what the price of Bitcoin will be just after that so it's very exciting and Salman what is the best way for viewers to learn more about the mining operation and what marathon is working on and just follow along leading up to at least that event yeah visit our website mar.com

27:38m.com we have some interesting statistics around our operations and our production by location and what we do and we certainly are very invested in Bitcoin mining that has been our sole focus and we believe that bringing success to bitcoin is going to be primary for our company well thank you so much for

28:04taking the time Salman all the best with marathon and everything moving forward and high hopes for Bitcoin moving forward as well and let's definitely follow up in the near future thank you as great to be here