Bitcoin Miners Are Stressed Out

have fallen from their record highs. They have been bankruptcies and warnings of potential bankruptcy, billions of dollars and losses, forced sales of equipment, Regulatory uncertainty in states like New York, increased criticism of the energy consumption associated with the sector. The list goes on. One minor even tried to change its name to minimize its association with the sector. Counterintuitive,

you bet. The company formerly known as Riot Blockchain changed its name to Riot Platform off to seeing its share price full around eighty five in twenty two. So what hope is there for bitcoin miners? In three to break down the latest, I'm joined by Bloomberg report to David Pan it will be less likely for somebody who haven't been involved in bitcoin mining come to a foreign country

and to a mind bitcoin and by Mason Jappa. If your state or your country pushes out a moratorium or bands mining as we've seen happen, not just in China, tapped in Sweden and Norway. It puts you out of business right. Mason is the CEO and founder of Blockwear Solutions, a company that specializes in mining services. David, Welcome back to the podcast. Mason, Welcome to the podcast. Why don't you introduce yourself to our listeners. No, thanks for having

me on today. Excited to talk called things bitcoin, mining, energy markets. It's a really interesting time and that's taking place. So I'm missed In Jappa, the CEO and founder of Blockwear Solutions. I started Blockwear Solutions in twenty seventeen. Prior to that, I got into bitcoin in and began mining

um at a small industrial scale. In part of the thesis of why I founded blockwere was I wanted to bring bitcoin and bitcoin mining to North America at the time of twenty seventeen, and you saw upwards of seventy even greater than eight percent of mining centralized in China. So we saw the need of decentralizing hash right, decentralizing bitcoin and bringing that to other areas of the world, and that was a goal of mine um when I

founded the company. So this being a podcast about crypto, I think we're at the point in the cycle where most of our listeners do know what bitcoin is, but I'm still not sure that most people understand what bitcoin mining is. What is your kind of really short explan asia and of exactly what it is the bitcoin miners do.

So think of mining as the backbone of the network, where the infrastructure we're monetizing energy using servers and systems, and and think about it just like the back end of artificial intelligence or the back end of your your phone. It requires data. So miners are minting the new currency through a block subsidy, and that's simply you know, every ten minutes the new block is released, miners are minting the new subsidy. And as well, we're processing the transactions.

And so when Mason sends one bitcoin to David, someone has to say, yes, this bitcoin existed here and transfer and mint the transaction on the blockchain. So the miners are the one that are minting the new transactions on the ledger and minting the new currency. Now what's interesting and perhaps challenging for the market about that is, as Mason has described it, bitcoin transactions could not exist if

miners don't exist. And yet, David, so much of your reporting who has been about the existential crisis facing bitcoin miners, at least from a financial perspective. Right now, what's been happening in the market. So the bitcoin miners they realized they overleveraged throughout the whole two They borrowed billions of dollars from debt financing equity sales, and now they realized that they can't fulfill the debt obligations to pay the

interest payments every month. We've seen some mining companies filing for bankruptcy. As some of these other mining companies they are renegotiating their long terms with the lenders and selling new shares. So they're coping with the situation. They're trying to survive. IF two it was like the golden year for early it was a golden year of bitcoin mining. But now I think they're in the survival mode A Maason functionally speaking, like, what does survival mode really mean?

Building off David's point, I think we, you know, it's important to look an event in in June. That's when we saw the Chinese, you know, officially banned mining, So you saw an opportunity and in an arbitrage for many people to reap high bitcoin rewards. So the players that we're remining, then we're seeing revenues of increases of a hundred, two hundred and fifty percent, so that there was a golden age from June until I'd say, like early you know,

like a golden wind, Yeah, exactly. Um, but beyond that, what we're seeing now is an opportunity for for players to have another chance of re entrance. Right you're seeing distress assets hit the marketplace. So right now, um, a lot of these people that over leveraged, and that being some of the largest miners, some small miners, some medium sized miners, they're unable to pay their interest. There was

two problems with the over leverage. The first problem is a lot of these miners collateralized the underlying asset, which was the mining rig itself, at points when the the rig itself was trading at ten times the amount that is value that is worth. Now, so you said something that that's really important, which is like the mining rig

which is basically a fancy computer. Correct, Okay, we call them a six, So just think of a six as you know, purpose built and designed servers high compute servers that are purpose built to mind bitcoin, they cannot be repurposed. There's other type of miners that mine all coins that can be repurposed, and those could be used for AI

intelligence other things. So no repurposing. And what happened was they locked in their interest loans or their or their loans or clatter wized loans at a time when the rigs were worth a lot of money and our industry was naturally also viewed as risky. So some of the interest rates percentages that they locked in could range anywhere from fifteen to So if you locked in a high strike point of ten times the value of of its worth.

Now with a high interest rate, you would need bitcoin to be a hundred thousand dollars for you to be profitable, and bitcoin right now is dollars. Yeah, yes, correct, So a lot of those players are trying to unwine. What we're seeing is interesting. Um there there's bid sales, there's creditors, they're taking repossession of their miners and renegotiating loans. There's bankruptcies. But with that, you're seeing a lot of distress assets available.

So not only the mining rings, but these are power purchase agreements and energy contracts. These are buildings, these are transformers and switch gears. This is high powered electrical infrastructure that is used to power America. So you're seeing the opportunity to buy these assets at pennies on the dollar. Now, David, my question for you is who's out there to buy any of this? That's actually a million dollar question for all the sellers because there aren't many buyers out there

right now. If you look at the mining racks market, it's a glut of like it's flawded the market last year. There are just so many used the machines that and at the same time, the manufacturer a bit man, they keep producing new machines as well. So like this like a massive demand that cannot be you know, digested by all of these Is anything good happening in this industry? Yes? So hash rates, so looking at the reverse hash rate is at an all time high rate. So um that

is the total network compute. So that's a summary of every single Bitcoin server in existence, and in fact it's near all time high. We're expected to go up another ten percent, so that means that the network is more secure than ever. And if you can trace where the hash rate is coming from our computational power. It's all over the world, So we actually succeeded into centralization. We succeeded in hash rate growing to a level where the network is more secure than ever and and less vulnerable

against attacks. It would literally take you two to three years to accumulate the on a hash rate. You need to attack Bitcoin, which requires a fifty one percent control of computational power. So it's one particular kind of attack on one and you're not You can't rewrite bitcoin. And that's what I love about it. It's monetary policies dictated by code and no one can change that code, and

and the transactions are permanently minted on the Ledger. So something that David was asked, you know the million dollar answer. You know who's buying these assets? Well, actually, I've been seeing a re emergence of Chinese um a lot of them. You know, we're forced out and left the markets and sold all their machines. But a lot of the people I've been transacting with on both sides are the Chinese.

So they took their exit. They actually sold you know, not at the worst time compared today's market, So they have money and they're buying these assets and building in the in the United States or in Canada or where these distressed assets are. So that's actually who I'm seeing on the buy side. The cell side is all these large over leveraged players. Up next, more from Mason, Joppa and d good Pan on what the new year could

mean for crypto mining will be right back. And David, you've reported a lot on you know, Chinese companies or folks who were formally at companies in China setting up shop in places like Texas. What are some of the other, if any hubs that are emerging in the United States.

Definitely UM, Oklahoma and Georgia in all these southern states that have similar you know characteristics as Texas in terms of regulations and energy sources, which is to say, a relatively lenient regulatory structure and relatively inexpensive energy, relatively cheaper energy, you know, UM because their neighboring states, and and they's also easier for the miners to travel across and to

see the sides and to build out infrastructure. So what Mason just said is in terms of who is buying right now, is he's seeing interest from you know, Chinese companies or folks who are affiliated with Chinese companies. Are these the same people who had fled China after the first crackdown in or is this kind of another generation.

I would say the majority of them used to be minors in China, and then I think it will be less likely for somebody who haven't been involved in bitcoin mining come to a foreign country and to a mind bitcoin. So a lot of the Chinese miners that they really do not want to abandon all of their like the expertise they they've accumulated over the years when they were mining bitcoin in China. The majority of them used to

be minors in China as well. In contrast to what we were seeing in some of the states that you mentioned, we have places like New York right which has now said that at least for the next couple of years that any miners that rely on fossil fuels to power their operations aren't going to be welcomed with open arms

or at all in the state. There are a couple of tensions that we're seeing here, which is one, is it actually possible for a bitcoin miner to be environmentally friendly and to our folks eventually going to run out of states to kind of go to. So Mason, I'd like you to tackle the state's question, which is outside of the Texas is the Kentucky's, the Oklahoma is like who else might emerge as a hub for bitcoin miners.

It's a great question. And Kentucky is actually the only state in the United States that has a House and Senate built passed to incentivized miners to mine there. My company is working close with West Virginia UM and they're looking to push policy and incentives to lure miners there.

And so you see, if there's a lot of states that have you know, there were coal states that they had large manufacturing plants, like West Virginia, that have all these unused infrastructure assets that can be repurposed for miners. I think we'll see states push back the New York there's some counties in the state of Washington that are putting moratoriums against you know, certain counties to push out miners. A lot of miners are flocking to the cheapest center

g right. So when you have really strong grids and you have the ability to produce energy, whether it's a nuclear plan or in Texas, a lot of it's you know, natural gas and wind or solar um. If that's present, then you're gonna have cheaper energy. Of cost associated with mining is energy. So California is just out of the question because it's so expensive and the largest nuclear plan almost just went under there. You know, I can't imagine

the repercussions if that took place. So I'd say that, you know, the Midwest seems to be a good place to be and they're they're looking to attract and including Texas. UM. Other than that, you know, it's it's you know, wherever you can find the cheaper't energy. Oh one thing I missed two is Pennsylvania. There's a lot of miners that are setting up shop in Pennsylvania. Pennsylvania was really heavily reliant on natural gas, and we saw the spikes from

the trade wars between China of natural gas price. So it's that finally started taper down. So if that goes down a little bit, I think that that will be another really Emergencetate and David, are there other types of initiatives that might help address some of the criticisms that you hear from folks like the ones in New York. I think one of the possible solutions will be trying

to find more renewable energy sources like hydro power. Back in the days when China was still allowing bitcoin mining, actually especially in the rainy season in the summer, like the majority of the energy sources for bitcoin mining it was hydro like, you know, like a small bitcoin mining size built along the river bank of you know, in

South China. And then I think one of the transverse thing is like there's early rich hydro power in South America right now, in Paraguay and even in Argentina and in Brazil they are massive, massive dams that generate a lot of electricity. Some of these bitcoin mining farms they are located close to the dams and similar model to

what the Chinese miners had been doing back in the days. Mason, if someone were listening to this podcast on the off chains, I'm thinking, oh, maybe I should get into bitcoin mining. What what's your number one piece of advice for them? Number one piece of advice right now, I would first off, go to a location that has low cost energy um

and tied directly to number one is political risk. You know that existential risk that if your state or your country pushes out a moratorium or bands mining as we've seen happen not just in China, It's happened in Sweden and Norway in different counties. It puts you out of business, right, so you need to focus on cheap energy tied with good politics. And as long as you have that, you know,

the rest is prevalence. You can find your miners, you can find the infrastructure you need at you know, pays on the dollar. And David, just as a closing note, what are some of the trends you expect to be reporting. One, I don't want to tap off my competitors, uh, but we will continue to will continue to monitor all the

dead that the miners have. And also you know, as we get close to the halving, like we really need to re exam the implications of that event because that will cut minor revenue for miners in half, you know, very short period of time. So like we need to re exam the implications of data as well. Right, thank you both for coming on the show. Thanks a lot. Thank you. That was mess and Joppa, CEO and founder

of Blockwear Solutions, and Bloomberg reporter David Patton. You can find more of David's reporting on the Bloomberg Terminal and on Bloomberg dot com. And for more, be sure to check out our twice weekly newsletter, which is also called Bloomberg Crypto. This is Bloomberg Crypto, a daily podcast from Bloomberg and I Heeart Radio. For more shows from I Heart Radio, visit the i Heart Radio app, Apple Podcasts,

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