Bitcoin Mining in the U.S. Will Become 'a Lot More Decentralized': Core Scientific CEO

I almost feel like people got burned out in 2021 and 2022. You know, 2021 was I, I don't want to call it irrational exuberance, but people were really excited in 2021. Uh 2022 is a big moment where people who invested at 50 or 60,000 suddenly saw trades in the teens asking themselves, oh my gosh, I've never seen something go down 75%. You know where we are today now, you know, we're right back at, at the highs and I feel like people are still feeling the angst, the general population is still feeling a little bit of the angst from 2022. Good morning. Happy Monday. It's April 15th, 2024. And you're listening to Markets Daily. A show where we get into the minds of some of the smartest and most experienced investors, traders, analysts, CEO S professors, economists, and anyone who has a hot or smart take on what's going on in the crypto markets. I'm Jen Sani. Before we get into our discussion today, let's take a look at what's going on in markets this morning. We're, we're recovering from a decline. We saw over the weekend that was caused by profit taking ahead of the Bitcoin having in some macroeconomic tremors we saw come to fruition over the weekend, over $2 billion were liquidated in futures positions and a drop in open interest as bets were closed this morning, prices are looking a little bit better than they were over the weekend. As of 8 a.m. Eastern time, Bitcoin was up almost 3% just over $66,000 either up almost 7% at 3244. And the coin desk 20 index was at 2301 points up over 6%. Ok. Speaking of the having, we're going to bring our next guest to comment on what's going on ahead of the having that is happening in just a few days. Core scientific CEO Adam Sullivan, welcome to Markets Daily. Thank you very much. Great to be on, excited to have you here. Now, everyone is excited this morning on some news out of Hong Kong. Uh some issuers are saying that a spot, Bitcoin and Spot Ether ETF have been approved. This came via announcements on wechat. Some of those announcements have been deleted. So things are feeling very similar to how they felt in the US back in January. But Adam uh I want to get your reaction here. What is the potential uh approval in Hong Kong? Mean for the industry? I think it would be really, really interesting, you know, what we've seen so far with the launch of the ETF S in the United States, we've seen a lot more volatility being introduced, but at the same time, we've actually seen a pretty good amount of stability in terms of Bitcoin pricing. So I hope, you know, as the Hong Kong ETF gets, you know, officially approved here, we'll say uh we'll have a uh a good opportunity. I don't necessarily think it's a, a big price catalyst in the short term, but over the long term, absolutely giving uh the the investors in Hong Kong the opportunity to invest in an ETF. Well, I think we'll open up institutions more broadly uh over overseas as well. And so that's, that's a huge positive uh for, for Bitcoin more broadly. Now, speaking of stability, we have the having coming up. Do you think that we're going to see, I guess price stability, stability in Bitcoin leading up to the h that's happening in just under a week and then post having, I'd say I'm almost surprised about how stable it's been. You know, we've been expecting a pretty high volatility moment going into the having and you know, I think we saw it uh over the weekend with the news around Iran, but, you know, we bounced back relatively quickly from that. So post having, I think what we're looking for is the big question mark which everyone's been asking which is, is the ETF the catalog for driving Bitcoin higher post having or did we already have that Bitcoin run up prior to having? You know, I'm, I'm optimistic here. I think we have a really good opportunity. I think investors are much more bullish on Bitcoin. And I don't think, you know, I haven't gotten enough messages from family members yet asking how to buy Bitcoin yet, but I don't think we're at that part of the cycle. Well, that's the big question, right? It's been really quiet. It's the market's just feeling really different than other bull markets. I've heard that from a lot of guests who have been on this uh show and just people who I talked to in the day to day and my mom has yet to contact me and ask me about what's happening with, with Bitcoin. So I just, I wonder if you want to share your, your personal views. Like, why do you think this is happening? You know, we're an interesting part of the cycle, right? Uh People, I almost feel like people got burned out in 2021 and 2022. You know, 2021 was I, I don't want to call it irrational exuberance, but people are really excited in 2021. Uh 2022 is a big moment where people who invested at 50 or 60,000 suddenly saw trades in the teens asking themselves, oh my gosh, I've never seen something go down 75% you know, where we are today now, you know, we're right back at, at the highs and I feel like people are still feeling the angst, the general population is still feeling a little bit of the angst from 2022. And so I think it takes a little bit of time for, for those people to come back to the market. But going forward, I mean, if we have another strong uh 2024 and if the having truly brings, you know, what previous cycles have brought or previous having cycles have brought, you know, we'll start, we'll start seeing those messages again, I think from family members. All right, let's, let's talk a little bit about core scientific specifically. We know that core scientific is coming out of a bankruptcy. Like I mentioned going into a having talk to me about your vision for the business moving forward. What's your growth strategy coming out of this next having? Uh let's, let's talk about the having more broadly quickly. 2022 was actually pretty much a having for, for public miners, you know, we nearly doubled our X hash the, the broad network hash rate and we had Bitcoin price trade down. So what we saw in 2022 is actually very similar to what we're going to see in just a few days here uh at this having and so for, for core scientific 2022 is a big watershed moment for us. You know, we had an understanding of what we did wrong during that time period and it was, uh you know, chapter 11 was a really difficult process for us. So it's, you know, I would like to say, we're uh we're an army that's been waiting in the winter. Uh now it's springtime and now we can finally move again. Um And so for us, you know, we're really excited coming up here, post having post having world, you know, we've been able to take about a year just redoing our entire company re redoing all of our processes. Uh You know, I think that shows in all of our numbers, right? You know, we buy more Bitcoin than any of the public miner so far in 2024 we, it was a lead, we held from 2021 to 2023 as well. So your strategy going forward maximize the value of our assets and drive shareholder value, right? You know, we have a number of sites, seven facilities across five states and we have a really good opportunity here to continue to optimize our Bitcoin mining business while also exploring other forms of compute at certain facilities that we have that match up really well with some of the trends going on right now in H BC and A I tell me a little bit about that. I know you recently signed a deal with Core Weve to provide data center services and the potential revenue on that. I read what could be up to $100 million. Talk to me a little bit more about diversifying outside of Bitcoin mining. What does that look like over at core scientific? Yeah. So when you sign power contracts and this is, it all comes down to power, right? And so when you sign power contracts, power contracts, the pricing does change over time. You know, let's say you sign a five year contract and then as that rolls off, you're subject to uh pricing risk when you go to redo your next PP A. Now for, for a company like ours having sites all of all over the country, it's given us a really good opportunity to say, ok, for some of our higher cost sites, what are better opportunities for certain sites so that we can make our Bitcoin mining business even stronger. So what we've done, we've taken a look across our asset base. So we have about 300 megawatts of existing infrastructure that we have operational today and said, you know, those are really good opportunities to execute on for HPC. And so we've been in uh many conversations with multiple counter parties uh about upgrading those facilities to uh really attack. I would say the new kind of A I market that we're currently in today, which is, you know, some of the largest GP U deployments in history are going on right now. Uh some largest supercomputer deployments are going on right now. You know, we're an interesting custom in this industry and the demand for power is insatiable across all industries right now. So the good part is we're power rich, uh we have access to a lot of power. And so we're just looking at how we can maximize the value of each of our sites on a go forward basis. And this is a great opportunity for core scientific. You know, we have one of the largest power allocations across the United States and we're going to maximize the value of that. You mentioned seven facilities across five states. Uh A and you know, when we look at Bitcoin mining over the years, the search for for cheap power continues. If you look, I don't know over to the next four years ahead of the next having after this one, where do you think miners are gonna are gonna end up? Do you think that this is going to be an industry that remains in the States or do you see this industry shifting to another region that maybe has cheaper power that's looking at um mining, maybe through a different lens. I think you're gonna see mining plus is what I've been calling it, essentially mining plus other things going on at those facilities. So, absolutely, we're gonna see mining going on in the United States. It's gonna look a lot more decentralized potentially than what we see today. You know, our entire focus is 2028. Right now. It's, if you're not prepared for 2024 having right now you're a little bit behind the ball. Um, but in 2028 we're gonna be in a much different environment. 2028 is gonna be a time period where you're gonna have sites in your facility where you might only have 60 or 70% of time, but you're gonna have very low power costs and you're gonna have other sites that, you know, might be 20 to 50 megawatt sites where you're essentially ring out some power strategy at a very small location. You know, you compare that to what the industry has been focused on for the past three years, which are all mega sites. And I think the future of Bitcoin money looks much more decentralized on a side by side basis and it's gonna be a lot more power strategy based, meaning companies are gonna be operating very strategic power strategies at each of their adjacent. We're talking about four years out, I guess between this having and the next having. What kind of consolidation do you expect to see in the industry? I think we're already starting to see it today. You know, we've seen a number of announcements uh for consolidation in this industry, you know, companies that haven't been able to raise capital, companies that don't have the full, full brunt of the infrastructure, whether it be you know, full operations team, full software teams, uh really strong energy management teams. If you don't have all three of those capability sets going into this having without a very strong uh competitive advantage, those companies are going to struggle. And so we're already seeing that today, a number of acquisitions have already occurred, but we're going to see that really speed up over the course of kind of 3 to 6 months post outing or we're going to see a lot more consolidation in this industry purely because smaller miners can't necessarily compete with what these larger miners and infrastructure they built. Do you have your sights set on any acquisition opportunities? You know, I think we're going to be really strategic post a right. Um We have a really strong opportunity here. Uh We have a, a really strong organic growth opportunity. However, within our existing footprint, uh we have about 372 megawatts of partially built infrastructure. And so that's something that we're going to continue to build on top of. But as we find opportunities that have, I would say very competitive power strategies, um you know, we may find interest in making some acquisitions post a Adam. Thanks so much for joining market staley today. Before I let you go, I have to ask you, this is a total off the cuff question, oddball question. But is there anything outside of Bitcoin outside of Bitcoin mining that you're watching that you think is particularly interesting or fascinating to you right now. I mean, I think it's gotta be the growth of A I, right. It's a, it's a, it's an industry changing event, not just for technology, um but really an industry changing event for power and so on the power side, it's, we're gonna see a lot more advanced power strategies, more advancements that we saw with Bitcoin mining. And you know what we're seeing right now is across the United States and across the globe A I is the next competitor for power. And so I, I think this is uh early aim right now and we're gonna see them eking out uh available power across the world over the coming years. And I think it's gonna be even more aggressive than Bitcoin mining was. And are you one of the people who are really bullish on the convergence of A I and Blockchain? I would say I'm more bullish on the infrastructure behind it that I am the actual conversion of A I and Blockchain. But Blockchain does enable a number of things in the A I space that I think will be catalyst for the growth of A I going forward. Adam. Thanks so much for joining the show. It was a pleasure.