Bitcoin on track for third worst week of 2024. Here's why.

Bitcoin (BTC-USD) is headed for its third worst week of the year as the crypto market is under pressure. Marathon Digital Holdings (MARA) CEO Fred Thiel joins Catalysts to discuss bitcoin's movement and how Marathon Digital Holdings handles the cryptocurrency's volatility.

Thiel points to several issues facing bitcoin that are causing an increased supply in the market. First, Germany's criminal bureau is selling about 50,000 BTC. Japanese bitcoin exchange Mt. Gox is set to distribute a large volume of bitcoin in July as part of its bankruptcy. In addition, miners are selling large amounts of bitcoin to continue to fund and expand their operations.

Thiel states that "bitcoin is historically very volatile," adding that Marathon Digital Holdings has a "very strong balance sheet" to deal with the cryptocurrency's swings. He explains that Marathon is focused on diversifying the business, starting a technology division to focus on areas getting a boost from bitcoin mining and the AI race, such as liquid cooling. He adds that the business is also focused on energy harvesting, leveraging bitcoin mining to generate new revenue streams. Thiel points to Marathon's recent initiative in Finland to heat 11,000 homes with the heat from its data center.

For more expert insight and the latest market action, click here to watch this full episode of Catalysts.

This post was written by Melanie Riehl

Video transcript

Z in now on another big story we're watching, which is Bitcoin already in the third worst week of the year here.

You can see that is down a little over 4.5%.

I want to take a look at Bitcoin the year to date.

So obviously having a lot of success up 38%.

You can see though in the month of June, a little bit of capitulation heading towards that trend line similar to the kind of dip that we saw in early May.

It will be a big question mark as to whether or not Bitcoin is going to pass that threshold given some of the downward pressure that we've seen as of late, we already know that the start of this week for Bitcoin in the broader crypto market has been rough as well.

So investors keenly watching this digital asset to see what the moves might look like moving forward.

And for more on exactly that, with regards to crypto markets, we're gonna bring in Fred Marathon Digital Holding, Ceo Fred.

Thanks so much for being here as always, really appreciate it.

Talk to me about this downward pressure that we are seeing in Bitcoin.

I'm curious from your perspective.

Is this being driven by a demand issue or is it being driven by macro questions about what might be coming next for the Federal Reserve?

Well, it's a couple of things going on.

One is you have the German government.

Uh The Criminal Bureau is selling supposedly about 50,000 BT C. They've already sold a few 1000 of those Bitcoin.

Uh So that creates a bit of a supply shock.

Then you have Mount Gox bankruptcy, supposedly will be distributing the Bitcoin in that bankruptcy, which is a very large volume of Bitcoin starting in July.

Um You have macro expectations impacting generally the risk off assets.

And so Bitcoin has been very correlated to risk on uh as of late.

So there's a lot of things going on as well.

Post having you have miners selling a large proportion of their um Bitcoin that they're mining as a way to continue to fund operations and uh their tents at expansion.

But we are seeing uh hash rates starting to come off.

The uh difficulty rate will likely have a um significant downward adjustment uh here in the next uh at the next update.

But I think right now what we're seeing is just basically a lot of supply in the market.

And uh you know, we've seen about $1.2 billion of outflows from the ETF S. So generally demand is kind of waiting, some analysts have predicted that Bitcoin could drop down to about 57 as a support level.

Uh We'll have to see but clearly, um you know, Bitcoin right now is challenged at getting up beyond that kind of 68 69,000 level.

And one thing that's interesting for you as CEO is that the performance of this asset directly plays into the performance of your company stock given the interconnectedness of the two for our viewers some context marathon digital engaging in mining digital assets, focusing on the Bitcoin ecosystem in particular, how do you navigate that as a company executive?

What is your thinking on being so heavily impacted by the performance of this digital currency that does have a history of being really volatile?

Yes, Bitcoin is historically very volatile.

Uh You deal with it by having a very strong balance sheet, we have amongst the strongest balance sheets in the industry with, you know, over a billion and a half dollars of Bitcoin and cash available to us and uh not too much debt.

At the same time, we focus on diversifying our business.

Uh We started a portion of the business which is a technology division which focuses on selling digital infrastructure technology, uh especially liquid cooling technology, which is applicable to the A I space just as much as it is to the mining of Bitcoin.

We have a full software stack uh for the Bitcoin mining industry as well.

Uh that we've begun selling and um have announced some recent partnerships around and then we have a part of the business called energy harvesting uh which focuses on leveraging um Bitcoin mining and digital asset compute as a way to essentially generate revenues through alternative means.

An example of that is last week.

Uh We announced that we have started a heating project in Finland.

So we're heating 11,000 homes with the heat from our data center.

And in that way, we can subsidize the cost of our electricity, essentially lowering the cost for us to mine Bitcoin by being paid for heat offtake.

Um The same token, we are generating Bitcoin using methane gas off of landfills which lowers our cost to mine Bitcoin.

So as that business begins to build over the next few years, we expect it to contribute significantly to lowering our cost to mine Bitcoin.

Whilst most other miners are just paying for electrical fees off of the grid which whose prices aren't going to go down.

Uh However, through this energy harvesting model, we can essentially subsidize our cost to mine Bitcoin.

Well, Fred, it's a great point on being defensive and also I know you're working to diversify your revenue streams as well.

I'm not going to ask you to comment directly on your competitors, but I am curious about a competitor of yours that's buying NVIDIA H 100 computers diversifying by renting those out to clients.

I just wanna get a sense of your thinking on that move?

And do you think that that's something that you would prioritize moving forward as A I starts to and has really been driving the success of this market and individual companies within the market.

I mean, it's a great question.

So a number of our colleagues in the industry think that Bitcoin mining and HPC or A I cloud uh have similarities, they do, they both require a lot of power, but I'll give you an example of where those similarities end.

If you have 200 megawatts of power and you're going to build that out for A I cloud compute the infrastructure, the buildings basically that you need to build are about $800 million.

And the uh NVIDIA equipment is about $3.2 billion that's $4 billion in total to use that 200 megawatts for Bitcoin mining will cost you about $200 million.

So there's a very big difference in the amount of capital you have to have.

And as you can see, the companies that really have gotten into this space are having to receive large capital injections from their customers core, we've, you know, did a deal with core scientific uh where they're essentially financing the infrastructure build out and they're providing the compute.

Um you know, Hudak recently today I think, announced 100 and $50 million capital injection from a core, we've affiliated entity.

So what we're seeing is people trying to get into this business.

But just look at Nvidia's product announcements and think about technology obsolescence here.

If the NVIDIA equipment is gonna get four times more powerful at a similar power load, meaning the power required isn't going to go up by four times.

Then why would you be buying machines today?

If within 24 months, you'll be four times behind the power curve.

And so I don't believe today it would be prudent for our shareholders, for us to be investing capital equipment, Capex roller um in buying a bunch of NVIDIA machines only to have them obsolete within 24 months.

That being said, providing the equipment for the infrastructure, the picks and shovels if you would for A I compute are very interesting.

And that's what our technology division is focused on doing with our liquid cooling infrastructure because you need immersion cooling technology to keep these A I rigs cool, especially the next generations of NVIDIA machines and other machines that we expect to see coming.

The other thing that is much more interesting I believe is the inference part of A I, you have essentially the learning models that you need to train.

And then you have the inference inference is where the user really interacts with.

Uh A is if you think about chat GP T, when you ask a question, it's running an inference query, that's where the real volume will be and that will be at the edge of the network in very different types of data centers, running different types of machines.

And that's an area we're very interested in.