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[upbeat music] Welcome back to Blockspace Live, brought to you by CleanSpark.

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For today's top story, the North Koreans are making everyone in crypto poor again after one of the most damning DeFi exploits to date that led to a thirteen-billion-dollar cascade of withdrawals from various DeFi protocols.

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For interviews today, we have Jay Patel of Lagos Finance on to talk about risk within crypto.

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A perfect, uh, very timely interview given that DeFi exploit, um, specifically as it relates to some of these lending protocols and also the Bitcoin digital credit instruments we've seen from MicroStrategy and Strive.

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We also have Hive CEO Aydin Kilic on to talk about their most recent convertible note and the state of some of the M&A that we're seeing in the Bitcoin mining landscape.

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And we'll also be doing a recap of our OpNext conference after the interviews. Charlie's gonna take that one away. We're going to be giving y'all the lowdown on the most important talks after our week in New York City.

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And for our final two stories, we will be covering how aluminum smelter and industrial company Alcoa is apparently looking at NYDIG to purchase one of its currently defunct aluminum smelting sites.

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And for our final story, Strategy and Bitmine are the only ones buying crypto right now.

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That's kind of an exaggeration, but they had two monster buys last week, and they were some of the f- only crypto treasury companies still actively hoarding coins right now. That's right.

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Uh, we talk about aluminum smelting on our Bitcoin show. Blockspace goes live Monday, Wednesday, Friday at noon Eastern, featuring quick hits on the latest in Bitcoin mining, AI, and emerging tech.

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Make sure to hit like and subscribe, especially if you're on YouTube. Hit that notification bell so you get the mobile push notifications when we go live.

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This is a podcast after we wrap up the live stream, so you can find that anywhere podcasts are found, Spotify, YouTube. Drop us a review if you're listening to this.

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And if you like what you hear, you will love our newsletter, newsletter.blockspacemedia.com. We just got back from our conference in New York City this past week. Make sure to pay attention to the OpNext YouTube channel.

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It's a different YouTube channel than the Blockspace one that this goes live on. We are posting the VODs and presentations from that conference. But yet it's Monday. We may be bleary-eyed, but we are here back at it.

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Colin, we may have been talking about Bitcoin technical stuff this past weekend in New York, but while we were doing that, holy smokes, DeFi just collapsed. Contagion ripping through the market.

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I think we're just gonna try to ham-fistedly explain what is going on. Before we do that, this show is brought to you by CleanSpark, ticker CLSK on Nasdaq. More on them later in the show. Let's kick it off. So,

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um, perhaps- We should have been talking about ETH stuff at the conference. I know. Honestly, we should have talked about ETH stuff. The Lord knows they need it. Um,

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I'm going to share a screen here, and let's put this weekend into context. So before we explain what the hack was, we're gonna comment on it with, uh, Jay here in a little bit.

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But before I explain what the hack was, let's put this into context, 'cause it's been a bad time for DeFi, especially ETH-related DeFi.

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This past hack, which has kind of created a bit of contagion through the ecosystem, um, was for over two hundred million, specifically, I believe, two hundred and ninety-three million.

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Um, biggest DeFi hack of twenty twenty-six. But it's not the only one. In this thread by JeremyBTC,

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um, it looks like there's over six hundred million stolen from DeFi protocols in the past two weeks across multiple protocols. Kelp Dao.

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We had the Drift protocol, which is again, North Korean hackers, uh, using, uh, very sophisticated social engineering, months of social engineering.

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We had Raya Finance, GrinEx, HyperBridge, um, a bunch of others in the, you know, median six-figure range.

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But-- And we had like a front-end, uh, issue with Cowswap, one of the privacy or one of the more like, uh, preferred non-MEV-inducing, uh, s- DEXs out there.

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But they had a front-end hi- uh, hijack where they basically were redirected to a hacker site. But it's been a bad time, and this is coming at like broader markets down.

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We're having a, a bunch of like pretty critical exploits across these protocols across a number of ways.

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It's not just like-- it's not just phishing, it's not just like a protocol exploit, it's kind of everything at the same time. And we're staring down, um, rumors of Claude Mythos coming in and exploiting, uh,

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things all across the internet, not just crypto. So okay, what happened? Uh, [chuckles] so let, let me try to explain what happened this week.

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So- With, with, with the alphabet soup of DeFi names that you're gonna have to go through. I hope you like letters because we have a lot of them.

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[chuckles] So, um, you have-- For those of you who just spend your time in Ethereum or in Bitcoin, I'm so sorry. I'm gonna have to throw a bunch of Campbell's alphabet soup at you. So you have Ethereum, right?

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And you can stake Ethereum instead of proof of work. Then what's happened over the past half decade has been that these staked ETH can get wrapped and reissued as liquid staking tokens.

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So you stake your ETH to secure the protocol, and you get liquid staking tokens.

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Then what happens is those liquid staking tokens, which have been rough- roughly trading like one to one for their ETH, like wrapped staked ETH, um, they go out and people start lending against them and doing DeFi things.

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Um, so that is the context here. One of these, uh, liquid staking tokens from Kelp Dao-Uh, so DAO, which issues the staked ETH, uh, has a

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token, staked ETH token called RS, little RS ETH, and that's used across ETH and other protocols, um, not on ETH. And you have this like

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people will, will argue whether it's a bridge or whether it's a layer zero, but basically,

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um, the, this, this Ethereum, this, this staked Ethereum, uh, is held by a custodian or bridge and, uh, put elsewhere across the crypto ecosystem.

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That particular communication between Kelp DAO and the, the interoperability layer called layer zero was the source of the exploit.

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So basically, the, uh, hacker or exploiter was able to create a bunch of this fake, uh, staked ETH that Kelp DAO, uh, issues and go to one of these real like core lending protocols, Aave in particular, and start trading that for a much more, uh, real asset, wrapped ETH, wETH.

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And so from that, you have pretty, uh, significant contagion across DeFi. You had, because... Yeah. What were you saying? I, I, I just...

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I wanna highlight this point 'cause I think that's what's really interesting about this.

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So, you know, so reportedly, this hack was, um, the Lazarus Group, North Korean syndicate, black hat hackers that work for the North Korean government. They've been all over the place recently.

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They were a part of the Drift hack. We covered them as part of the, uh, Telegram phishing scheme that is still going on right now, that is kind of, uh, spreading through crypto.

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But what they ended up doing, to build on what Charlie said, is they tricked the Kelp DAO into, uh, letting them withdraw staked ETH that they never deposited.

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It's like a hundred and sixteen thousand five hundred, which is worth roughly, uh, two hundred ninety-three million.

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And then, like Charlie was saying, they re- they redeposited that into other staking protocols, into other DeFi contracts, to then try to withdraw other current...

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uh, uh, to withdraw, um, other liquidity from those pools, and ended up, uh, like Aave had like a short, like a hundred and ninety-five million in bad debt because these, uh, these staked ETH that the Lazarus Group was depositing, you know, obviously they don't actually own them.

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They stole them from the protocol, and this led to widespread contagion, to the point where thirteen trillion dollars, thirteen point two one... Or sorry, thirteen- Billion...

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billion dollars was unwound from DeFi protocols over the last forty-eight hours over the weekend. Aave alone saw four point... eight point four five billion in exits as a result. Yeah.

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And so Aave is sitting here, Aave is sitting here with a bunch of basically bad debt. They let the, you know, uh, the hackers took out real assets, and Aave is- the Aave proto- is sitting there with, you know, what?

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Something, I forget, million, tens of millions of dollars of bad debt. And Aave has kind of a, a backstop for this. They have kind of a treasury. They call it the Umbrella Fund or something.

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And it's, you know, fifty to eighty million dollars, and so... But the, the debt exceeds their, like a bill- their, their, their, basically, their treasury backstop. And,

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um, because of this, the way DeFi pools work is you kinda have to have like one-to-one, depending on the pool, like asset A, asset B, and because they're, you know, the hacker was withdrawing asset B, WETH, uh, that meant that the pool utilization was hu- it, you know, a hundred percent, so that other people who have these real assets stuck in there, um, uh, can't get them a- out.

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So because Aave is kind of critical and a backbone of all the, the, the rest of the ecosystem, this is creating a lot of people who have, like, exposure to wrapped ETH, a, a lot of issues.

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Um, just for context, here is a post by Fishy Catphish, um, listing all the protocols that had to freeze their interop- that had to freeze because of this.

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And, and this says layer, this is, you know, layer zero, but layer zero is kinda like this quote-unquote "interoperability layer" to, uh, let the different protocols talk to each other.

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Um, so Athena, this is a big one, [clears throat] like that stablecoin, uh, algorithmic stablecoin, uh, or whatever you call it. Uh, Ether.fi, Tron DAO, major one, um, Curve Finance, again, stablecoin protocol.

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BitGo, wrapped Bitcoin, wrapped, uh, custo- you know, wrapped assets custodian. Again, wrapped Bitcoin. Uh, River dot Inc, not to be confused with [chuckles] River, the Bitcoin company. Um,

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uh, but like these, these are, uh, these are protocols which have generally proactively, uh, like, uh, just paused operations, and maybe not necessarily that they've been, they themselves have been exploited.

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So they just want... They saw like contagion ripping through the ecosystem. They want to make sure that their users aren't affected. But like it's bad, man. There's a lot going on.

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Um, there's d- there's multiple levels to this. I was reading about how, um, a lot of these, which you might call bridges or layer zeros, their struc- the structure of them is, uh,

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I would just say it's kinda laughable because it, there are, there, there's supposed to be these multisigs, where you have multiple parties who, like, as, like, as these stopgaps to have to sign and make sure that the assets exist and transfer.

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But, um, apparently a lot of these are actually not really multisigs in the, in the real spirit of the s- of the word. They're, like, really just one of one. You're telling me that the DeFi is not actually decentralized?

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[laughs] This is... Color me shocked. Well, there's... Yeah. I mean- There- The thing I got to say though is like, uh, uh, we'll, we'll leave it after this, uh, um, but,

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you know, at the end of the day, when something like this does happen, it's kinda actually nice that there's a little more control from these platforms because then you canStop bad things from happening, right?

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You can have these stopgap solutions to hopefully main- uh, you know, do some damage control with this. The, but the other thing I would just say that really b-blows my mind about this story is the contagion effect.

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Just to be very clear, Aave and these other platforms didn't have any vulnerabilities, but Kelp Dao's vulnerability is now their liability. Yeah. Because funds were stolen and then locked up in their pools.

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That creates, like Charlie said, bad debt, 'cause the ha-hackers don't actually own that money, and now they can use it to, uh, to leverage these other platforms to, uh, drain other user funds. So- Yeah.

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And it's wild, because it's, you know, a quarter billion dollars, which is a lot of money, but considering the overall TVL, the, the total value of all the DeFi assets out there for, uh, you know, significantly more.

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For, for, like, this amount to be able to start, like, kind of cause a mini contagion across the ecosystem is, is huge. And that's what we're gonna talk about with our guest Jay here in a second, because this, like...

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Well, I think we should just bring him up here, because we should- Yeah. Like, whose, whose risk is it? Yeah, we should- Yeah, we'll go ahead and bring Jay up. Okay, we're gonna bring on Jay.

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Jay, welcome back to the show. Hey, how you guys doing? Good, man. Fantastic. Always good to have you. So

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I, I wanna put a pin in this just really quickly, because I don't wanna get too out of order with the questions that I have for you. Uh, maybe it'd be cleaner to just jump right into it since we led with that.

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But I, I, I have to ask this, because while we were at OpNext last week, Bitcoin started ripping. Not saying it was because of OpNext, but, you know, uh, coincidences- Take it one to either... coincidences, who knows.

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That being said, we are seeing Bitcoin back above 75K for the first time since I believe we had the 25 liquidation event. Um, and a lot of this is with, you know, hopes of the Iran conflict ending.

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Been some mixed review- uh, mi-mixed signals on that. We're told the straight was open at the end of last week, now we're told it's closed again. Regardless though, it rallied pretty heavily.

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Are we back, Jay, or are you a little cautious here? I'm definitely still cautious, but I'd say we, you know...

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I, I, I wouldn't rule out another trip back towards 60K, but I think the big driver for the downward move, say, from, you know, 10:10, you know, late fall last year into February, I think that's kind of fallen to the side.

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Um, there were some good pieces about it where basically, you know, a lot of the, the sell pressure on Bitcoin was basically correlated portfolios that were taking off risk because they were, you know, long these SaaS equities, right?

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Like, you've seen all the charts where, like, IGV correlations to Bitcoin were basically at all-time highs. Um, and you know, historically Bitcoin trades like SaaS, so when SaaS sells off, Bitcoin sells off.

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I think we've kind of broken that correlation, and I don't think that'll come back because I think intuitively, like, um, uh, you know, SaaS companies can get displaced by AI.

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Like, Bitcoin probably does well in a world of, um, abundance where any kind of software or business model can be replicated with, you know, zero or low marginal cost. Um, so I think that pressure is gone, which is good.

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Um, you know, there could always be some sort of, like, idiosyncratic thing that pushes us back towards, towards 60K.

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But I feel like, you know, we're probably on an upward trajectory once again, especially with, you know, all the, the purchases from Saylor and MicroStrategy.

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Um, and you know, I think the Iran conflict, while it's not, like, resolved, um, there's some, like, quantum superposition there [laughs] where it's like the strait is both simultaneously open and closed.

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And, uh, you know, like, I think at this point, um, uh, the, you know, the, the... While there's not certainty, I think, like, the market does have a sense that, like, if things get really bad, Trump will,

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you know, reopen the strait or tweet that there's been some sort of negotiations with Iran. So there's, there's definitely this idea that the Trump put is in effect.

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Um, so I think that takes some downside risk off the table. Okay. Let's talk about DeFi. You put out this tweet, uh, shortly after the hack. I think this was April 18th.

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Um, you said, "There is way too much capital in DeFi that is completely risk insensitive. Quote, 'I think the acceptable return for most OC lending protocols is likely 12+%.'"

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I think this is a really interesting angle to take this, because we... Let... You know, we can put aside DeFi technical risk. What, what you have some interesting insight on is, like, composability risk. Uh,

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like, the DeFi rates might be mispriced. Explain this tweet. Yeah. So I think it, it links to what you guys had mentioned earlier, which is this Kelp Dao compromise.

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You know, I think one thing that's probably, you know, pretty interesting, and, you know, I'm, I'm by no means qualified to talk about it, but the, the, um, the complexity of this attack...

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Like, you know, we usually think that, like, oh, smart contract exploits where someone got access to the mint function and they just minted a bunch of tokens.

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This drift, all these past few compromises have been incredibly complex. Like, you know, multiple attack vectors.

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You know, we- everyone's talking about the mono sig, but if you look at LayerZero's report, some- they got- someone got access to the RPC endpoints that the LayerZero node uses, figured out which ones can be poisoned with malicious binaries, and DDOS'd the rest.

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Like, there is... You know, this is not the smart contract exploits of old.

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Um, but I think the, the, the, the, the mispricing of risk on DeFi is mainly that, you know, everyone thinks that, oh, I'm a depositor in these blue chip assets on Aave, you know, I'm lending USDT against wrapped Bitcoin, wrapped Eth, whatever.

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Um, what you don't realize is that, like, the only reason-That there's so much TVL in these protocols is because the c- the, the composability, like you mentioned. Like, the fact that I can take... And, and this is very,

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uh, you know, I, I like to say that, like, most of DeFi was built in, like, a zero interested environment. It's like building, like, a bridge for zero gravity, and now there's- Yeah... gravity and shit starts blowing up.

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Um, but you have, you know, just staked Eth, and now we want liquid staking. So we have, you know, liquid staking tokens, and now you wanna be able to re-stake your liquid staking tokens on EigenLayer for more yield.

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And now as if that's not enough, you wanna be able to borrow Eth against that, so there's a bunch of looping.

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And, you know, if that's not enough, there's liquidation venues that let you take this, you know, composed, borrowed, wrapped, liquid staked, liquid re-staked Eth.

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And like each one of these kind of interlocks each of these protocols, right?

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So, like, maybe Aave didn't have an issue, but the fact that Aave has a wrapped Eth market that allows people to borrow wrapped Eth against all these derivatives means that wrapped Eth is now exposed.

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But, you know, one of Aave's core designs, I think it's different than Morpho, but one of the reasons Aave has been so successful in terms of utilization is the fact that they have shared liquidity.

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So when I take my Eth and borrow against it on Aave, it goes into the wrapped Eth pool, which means that someone can borrow that wrapped Eth against their Kelp DAO Eth, RS Eth.

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And so now if I had a loan on Aave with Eth, I can't withdraw my Eth even if I repay the USDT loan. Um, and then what's even worse is,

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you know, as you mentioned, these attackers, right, they don't own these assets, so they're just trying to get out into something that they can use to fund whatever they do in North Korea.

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Um, so obviously they swapped it for Eth. But if you can't swap it for Eth anymore, if there's no Eth to withdraw, let me at least borrow some USDT against it. So now there's no USDT to withdraw.

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So now, if I'm a, just a lender of USDT, completely isolated from wrapped Eth, I had no idea I was even related to this market, I can't withdraw my USDT. Um,

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and now what if I, uh, you know, was lending USDT thinking that there's Bitcoin and Eth on the other side and I can't get out my assets? So there's this, like, contagion effect because, you know,

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uh, one of the nice things about DeFi is there's such little friction, so like we think that, oh, all these Legos, you know, we can stack them on top of each other and make something really cool.

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But it's very hard to break the pieces apart when, you know, one of the ones in the middle has an issue. So I, I wanna latch onto something really quickly that you said there, Jay.

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You're talking about, you know, people think that they're... I don't wanna put words in your mouth, um, but I'm gonna kind of just, uh, reformulate what I...

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I think you said that they're, they're more comfortable with some of the interest rates and the risk on some of these things 'cause they think they're, you know, uh, their liability is, like, a blue chip asset, right?

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Yeah. Or, or their deposit is a blue chip asset like, um, USDC or USDT. And m- I guess my question is, are, are we seeing rates priced based on the asset that is being deposited?

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Whereas if this were like, you know, sweet potato finance token or yam f- you know, like, back in the DeFi yield farming summer there were all these crazy yield farming tokens where you'd see the rates being much higher because the risk was greater because it was a, it was a, you know, a, a shitcoin, you know, just speaking very bluntly about it, versus this where, you know, you have USDC or USDT, you have these blue chip stable coins.

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What you're saying is, is, like, these things maybe right now, or at least the way that I'm hearing it, and tell me if this is wrong or right, they're being priced almost because of that rather than you said the composability risk behind the actual platforms that they're on.

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Like, people aren't ac- people are pricing in the risk for the asset maybe less so than the platform- Exactly... and, and the higher lending apparatus. Yeah. Yeah, I think exact- like, th- these...

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I'll say one thing is all of DeFi does a very poor job of surfacing risk to users, which is why you have this, um, in some cases, the incremental product on DeFi is pitching a slightly higher yield, and users are like, "I'm getting 3.5 or 4 or 4.5% instead of what I had before, and it seems pretty safe," and they're saying, "lending against blue chip assets, and, you know, I'm gonna go ahead and do that."

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What you don't realize is all of the composability underneath.

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You know, the, the Morpho issue a few weeks ago was the fact that, you know, curators automatically enable certain markets that are, um, tight on liquidity, which you might think is great.

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Like, "Oh, I'm putting in these dollars, and this curator is doing me a service," where if someone is paying 15% interest, they'll go ahead and lend into that market because, you know, it really needs liquidity.

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Well, what if they're paying 15% interest because someone hacked some, you know, stole some assets and they're borrowing it on that market and you don't actually wanna be a lender there?

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On, on the Aave side though, I think what you're pointing out is right, is if there were no technical risk, I think these, these rates make sense, right?

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Like, if you actually think about these protocols, if you look through the history and liquidations, I think, uh, you know, isolated from technical risk, mo- like I think Aave's had a couple hundred dollars in bad debt over the last year or two.

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Like, it's, it's, it's minuscule. The problem is, like, th- that is what these rates are priced on, and I don't think that's the primary risk that anyone on these platforms is taking.

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When I deposit into Aave, I'm not thinking, "Oh my God, Bitcoin might gap down 70% in a minute." Like, that's probably not why you're gonna lose money. Why you're gonna lose money is one of these

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far tail things that you can't foresee because everything is so interconnected. It's, it's like the, yeah, the default risk and the loan going bad isn't the risk here. Yeah.

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It's the fact that you might be frozen from withdrawing that loan because [laughs] someone deposited a bunch of junk that they stole from another DeFi platform, and now you're kind of like your hands are tied.

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Um- Exactly... I mean, that's just one example, but there, like you said, there are a number of these edge cases.

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And, and Charlie really laid out at the beginning it seems like they're getting, uh, I w- I won't say worse and worse, but it's been a very difficult year thus far for these exploits on DeFi. Um,

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I, I, I, unless you have... Do you have one more thing to add there, Jay? Otherwise, I'd like to shift gears and go into the land of digital credit. Um- Yeah.

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I think one, one piece to what Charlie mentioned is I think part of that is this-Um, increasing interconnectedness, right?

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So if you think about, like, the, the sweet potato BM Finance days of old, like, it was new yield farm pops up, they're printing some fake token out of thin air, and it's just who can rug each other faster, but it's kind of isolated.

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Most of these recent exploits are, you know, layers on layers on layers of interconnectedness, which is why I think it's much harder to foresee. Like, if, if there was a protocol that just said, "Hey, we have our own

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wrap-- you know, bridge Bitcoin token, and we have our own stablecoin, and we don't interoperate with anyone else," that'd be fine, but the problem is no one would use it.

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Like, people wanna loop and, you know, most of this TVL, um...

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You know, I think one of the things that was really exposed over this past weekend is, like, a lot of it is people who have levered up ten, 15 times with their wrapped Eth or, you know, random stablecoin derivatives.

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And so when it unwinds, it, it hurts, and it's not just one protocol, it's many. We have a comment in the chat from friend of the show, Matt Lastow, saying, "Refreshing that Bitcoin is unfazed."

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And I would agree, but I think let's talk about the credit side of Bitcoin- Yeah... which is ultimately- The hot button word, digital credit. Okay. So Jay, this will be our final question.

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Just, you know, take, take it wherever you want.

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But we saw recently, we covered this on Block Space, Strive has increased the regular divid-dividend from its preferred stock, Sata, from twelve point seven five to thirteen percent.

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Um, big numbers for anyone who knows anything about what high yields, high yield savings accounts are yielding right now, right?

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We also have seen Strategy increase its, uh, its dividend for its Stretch, which is its most popular preferred stock f- by, um, by...

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They, they've upped it seven times so far since July 2025, from an initial nine percent to about eleven point five percent. I believe it is now the last rise was in, was twenty-five bips in March. You, you...

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We were going back and forth before the show, and you were making the point that a lot of investors, and maybe, uh, some unsophisticated investors, will see this, and they'll think this is a great benefit to them.

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They're going to get a larger dividend on their prefers that they hold from these companies. But you were arguing that it's more of a risk. Can you unpack that for us? Yeah. I think...

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Look, if you're one of these holders of preferred equities, you love it, right? You were... You know, I think when STRC first started, you were getting nine percent, something like that.

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Now, you know, uh, Strive is paying thirteen percent on, on their preferred, so rates have definitely gone up for you.

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But if you're a common equity holder, if you're a MicroStrategy stockholder, or you're a Strive asset, uh, Strive stockholder, um, what, what's basically happening is the cost of capital for the company that you've invested in is going up.

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Like, uh, Saylor is buying more Bitcoin, but the incremental Bitcoin purchase takes, uh, a higher and higher interest rate to pay for the new issuance of preferreds. Um,

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and obviously, you know, you could say that over time, uh, you know, Bitcoin becomes more stable in terms of its return profile, or maybe the interest rates, you know, prevailing interest rates go down.

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But, um, you know, my, my sense is that demand for these preferred equities would not be as high if STRC was paying less, right? The reason that they're having to raise the rates is to keep them at par.

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If all of a sudden STRC was paying eight and a half or eight percent, I don't think you have nearly the amount of demand.

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So I think one thing they will have to solve for is how do you get demand when the rates are not as high? Um, and I think, uh, you know, the, the MicroStrategy CEO even tweeted this a while back.

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I think thinking that it was like a flex, but probably not, which was that, you know, eighty percent of STRC is held by retail.

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Um, if you want this to become broadly distributed with lots of capital, you're gonna need institutional investors to wanna put money into this so-called digital credit, and I think to make that happen, you need to turn it into real credit and not preferred equity.

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Um, look, I'm not, like, a fan of the Coffeezilla piece from last week. I think there was a lot that he missed, but one of the things that was true is, like, this is not credit. Like, as much as,

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you know, name your Bitcoin treasury company shill on Twitter will tell you, "Oh, this is all the same as credit, and, like, game theoretically, it's not in the interest of whoever."

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Like, we're all invested in Bitcoin because we don't believe in the game theoretic incentives of rational actors around us doing whatever. You know, like, that's...

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Like, you wanna trust in something that's more concrete than that, and especially institutional credit investors.

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Like, there's a reason that, you know, senior secured debt has negative covenants, and it has all these rules for what the company can and can't do, the fact that they can't just stop paying me if they don't want to, and it's because ninety-nine point nine nine nine percent of the time I'll be fine.

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But if that point zero zero one percent of the time things go wrong and I lose my principal, that's like years and years of investing for me to recover.

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And so I don't think these preferred equities are gonna be the instruments that get institutional adoption, and if MicroStrategy and Strive and these other companies want to, you know, keep the flywheel going and get more capital in the space, they're gonna need some better products for institutions.

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Um, otherwise you're just gonna be kind of pulling dollars in from the retail crowd, and it might be people who would have otherwise invested in Bitcoin, which is not great, you know?

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The digital credit meme is kind of on par with DeFi in a lot of regards in terms of how misleading it is, I think, for, like, the average investor. Yeah. But do you think this really does bear mentioning?

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Strategy and Strive can at any point change the redemption guidelines for these things and the interest rate. They're, they, they could completely rug you and then make the interest rate zero if they wanted to.

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I mean, they're not, like... Th-th-there would be a nuclear scenario in which they, they, they, they remove these, these, uh, benefits, right?

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Like, I, I, I don't know in what situation they would change it to make it so low unless there was a lot of demand.

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But the fact of the matter is, you don't have the same investor protections that you do, like what Jay was saying, if you...

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This is something like a convertible note or, like, actual credit instrument that an institut- that, that an institutional investor would hold.

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And on that note, Jay, I mean, we cover a lot of the Bitcoin miners and AI pivoting miners right now. This is obviously some banks would have, uh, maybe more interest-In these products than others.

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Other investment banks are actually trying to lend during this whole CapEx boom.

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But, like, why would you buy this when you can go out and, you know, buy some sort of convertible note from a, uh, Bitcoin miner pivoting to AI or a blue chip neo cloud, where the credit risk on that is much, you know, I mean, it has actual credit, first of all, but the risk on it is much lower compared to something like this.

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Um, and, and to me, it's kind of-- I, I just wonder, like, where all this is headed because if we look at Strategy's last

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Bitcoin buy, which we're gonna cover in our last segment today, uh, two point eighteen billion dollars for that buy were furnished from sales of Stretch.

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And so, like, this is becoming a meaningful portion of their equity issuance week in and week out. At least, it's, it's a growing pie. It's usually much lower than that.

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I'm not really sure what happened over the last couple weeks to where they got that many inflows, but it's really starting to pick up, and they're issuing a lot of this.

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I mean, is, is there any scenario in which you would start getting a little nervous at how much Stretch is out there?

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Like, at what-- Is there a threshold that a-at, where at some point you say, "We need to maybe pump the brakes on this"? I don't think it's an amount, but I think if,

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if the incremental purchase starts to go down in size, if they're not able to make the same size of issuance that they were previously, or I think the even bigger thing is, you know, let's say over the next two years, Fed funds rate comes down, and, you know, Bitcoin chops, or maybe we even go into an upmarket.

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If they're not able to keep the issuance increasing while reducing the rate that they're paying to these holders, then you have a real problem, right?

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Because right now you might say, "Hey, there's so much demand from retail to buy STRC that it's gonna be okay." But is there as much demand if it's paying ten percent or nine percent or eight percent?

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'Cause you can't pay thirteen percent for, or twelve percent forever, right? Um, I think that's something, you know, that you really, you really have to consider.

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The, the other thing that you mentioned with this, this, uh, parallel to the conv-converts for the, the, the AI, the, you know, the miners pivoting to AI is, um, one of the reasons STRC is so attractive is because it's a very liquid product, but retail investors have a revealed preference for highly liquid products regardless of what the risk is.

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Institutional investors are very different.

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I would rather take, you know, if you're an institutional investor, a six-month, one-year lockup or a long-duration instrument that has a redemption period for more, uh, risk reduction, right?

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Covenants, uh, directly non-collateral, senior secured position, whatever it might be.

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Um, and so, you know, you-- they're gonna have to navigate that if they feel like this retail pool of buyers is not what's gonna carry them to the next, you know, fifty billion dollars of Bitcoin purchases.

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Well, Jay Patel, Lagos Finance, thank you so much for joining us, man.

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Always, uh, always fun talking to you about, uh, the latest, you know, latest headlines when it re-- uh, comes to credit and all of these, uh, all these fun toys that we're building and bringing to Bitcoin, right?

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So anyway, cheers, man. Thank you so much. Bye. And, uh- Thanks, Jay...we'll see you next week. All right. We have our next guest on, Charlie. Aydin of Hive. But before that, we have a word from our sponsor, CleanSpark.

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[upbeat music] We are CleanSpark, America's Bitcoin miner, a publicly traded company with the largest operating hash rate, powered entirely by self-operated infrastructure across four states.

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This is our proof of work. We are setting the standard for what's next. Learn more about the intersection of energy and Bitcoin at cleanspark.com. All righty.

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And with that, we will bring our next guest, Aydin Kilic, to the stage, CEO and President of Hive Digital. Aydin, welcome back to the show, sir. Good to have you. Welcome back. Hey, guys. Good to see you.

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Thanks for having me. Yeah, always, man. Always, uh, nice to have you on. So y'all had an announcement, I believe, last week about an upsized, a hundred million dollar senior secure or a senior note offering.

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Can you give us a rundown of this offering and what Hive intends to use the proceeds for? Yeah. So we announced last week originally it was gonna be a seventy-five million dollar deal. There was overwhelming demand.

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It was, uh, received incredibly well, and it was upsized to a hundred million, zero percent coupon. So it just shows the strength of the demand.

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Uh, it's interesting, I think your last guest was talking about [clears throat] different financing options, and some people are paying, paying twelve percent. And I guess he, he's in, uh, in that world.

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And, um, our coupon was at zero percent. Institutions were still obviously very bullish on it. The bonds traded up on Friday. Uh, our stock was up on a two-month high on Friday after the deal was priced.

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So I think really it's a strong vote of confidence that the Street is excited for us to execute on our twenty twenty-six targets.

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And so to answer your question, what the use of proceeds is for is exactly what we've been telling the Street we're gonna do this year, and that's get to two hundred million dollars of, uh, GPU cloud revenue. We've got

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some really exciting things in the pipeline, some large two thousand, uh, cluster GPU deals, uh, that will form that ramp to the two hundred million ARR, and that's all in our investor deck.

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And, you know, we're very intentional with our market communication, and we put out a press release with Bell Canada a few weeks ago that said we four X'd our capacity with them.

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And that's exactly what that was, is a lead in to say, "Now we've got the data center capacity ready to go now."

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Uh, the merit facility, I believe, was effectively ready April first, so it's ready for GPUs to get plugged in. And, um, next is, is to, uh, announce definitives and, and, uh, march towards that target.

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So I think that once we break-- We're at thirty-five million ARR today, by the way, with fifty-five hundred GPUs in our cloud.

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And our target this year is to effectively double that to eleven thousand GPUs in the cloud and two hundred million revenue.

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Now, you may say, "Well, hold on, if you've got fifty-five hundred GPUs to make thirty-five million revenueHow is doubling the GPU count gonna six X your revenue?

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Well, the new GP-- the GB200s and GB300s are so much more profit dense per watt. So a GPU, sorry, a GB300 is upwards of three fifty an hour per, uh, you know, in, in-- on a long-term contract rate.

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By the way, going forward, we've been targeting multi-year long-term fixed contracts rate. That's what the street wants to see.

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The street likes steady cash flows that they can easily underwrite and put multiples on, uh, e-especially as it applies to colocation contracts. We'll talk about that in a sec. And, um, and so we still got legacy GPUs.

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We've got A40s that are renting at forty-four cents an hour, and we've been running those cards since twenty twenty-two.

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I mean, tho-those cards used to mine Ethereum, and then we pivoted them in twenty twenty-three to AI clou-- to GPU cloud. [coughs] Even before ChatGPT exploded, we were still, um, selling these on aggregators.

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That's when we grew from one million to ten million GPU cl- GPU cloud revenue, now twenty million. And so we've been doing this for a long time, so we're really good at it. We used to have a hundred thirty thousand GPUs.

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We're mining Ethereum, so we're data center builders and operators. We also are really good at orchestrating and operating compute, whether it's Bitcoin mining, uh, Ethereum mining, or GPU cloud.

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And so I think that we've got a really good track record. I mean, twenty twenty-five, guys, we went from six to twenty-five X a hash in six months, so that was eighteen X a hash in six months.

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When we were sprinting, we were doing almost an X a hash a week. I think we might have bro-broken an industry record. And so this is a good reminder to the street. Hive's been around since twenty seventeen.

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Like, two Bitcoin halvings, an Ethereum merge. We built our own miner with Intel. We've done it all. There's no other company right now that can tick all those boxes.

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So I think that it's gonna be a very exciting year as we ramp. And then just coming back on the colo, we've also got some surprises there. I mean, they're not surprises. It's, it's in our, in our projections in our deck.

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But, um, our facility in New Brunswick. One thing I, I got asked a lot last week and really just this quarter is, "Well, what's gonna happen with your Bitcoin hash rates?" We have twenty-five X a hash.

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We're mining just under eleven Bitcoin a day right now, and actually closer to eleven Bitcoin a day. And so that's our cash flow that propels the business.

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And in addition to that, the thirty-five million ARR from the cloud business. And so Bitcoin at seventy-five thousand, you could kinda figure out the math. Now, we have a lot of new gear.

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So the eighteen X a hash we brought online in Paraguay was S21+ Hydro. We even got some S21 XP Hydros in there. So we've got, on a blended basis, sub-fifteen joule per terahash, uh, compute in Paraguay. High efficiency.

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We expect that the cash flow through the next halving. And then we do have some legacy gear in Toronto and Sw-- uh, sorry, um, uh, New Brunswick and Sweden.

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And as those approach end of life, like we're still running underclocked J Pros, right?

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But as those, uh, a-and even our Buzz miners we're still running, uh, as those approach end of life, we'll decommission them, and then we'll consolidate the most profitable miners in the first three buildings in New Brunswick and Le Chute.

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'Cause build-- New Brunswick is a four-building c-campus. And so we will, in stages, convert New Brunswick to HPC. Uh, we bought thirty-two acres of land. We put a press release about that.

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We've been going through permitting and design development. And then, of course, we have our Toronto airport site, which is only seven megawatts, but some phenomenal edge site.

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We've had, uh, reverse inquiry demand, uh, a lot, you know, from, from, let's just say, uh, factions of the Canadian military and, and super strong enterprise demand. And of course, our partnership with Bell Canada.

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They're even interested in, in helping out with New Brunswick as well because they've got a lot of enterprise demand. So we wanna have a lot of long-term, steady cash flows that the street can easily underwrite.

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And our target would be a hundred million on the HPC colo, which would constitute New Brunswick, uh, our Little Bowden site, and the Toronto airport site, in addition to the two hundred million GPU cloud.

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Thank you for that, man. That's a good rundown. Um, I appreciate the comments on the Bitcoin mining side specifically because I think a lot of people are interested in that.

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An-a kind of a follow-up question to this financing. This is coming at a time when we might expect private credit markets to be slowing down. You know, we've covered this a few times on the pod.

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Blue Owl, Apollo, and BlackRock have changed the redemption guidelines for their private credit funds.

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They are capping redemptions for certain, uh, for certain clients, and they can't withdraw their full amount because they've had a few heavy withdrawals recently.

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I'm curious if-- what, if any, changes Hive is seeing on the ground for private credit, especially since y'all just closed this. So I think what you're referring to are-- is slightly different than...

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Those are not necessarily players in the convert market. Those guys are more lenders in project financing for data center. 'Cause this is just kinda different buckets, right? So- Right.

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Is there any spillover effect, though, into the convert markets? I mean, uh, it, it-- basically, the question being, is credit being harder to come by right now or not, uh, regardless of what the instrument is? No.

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I, I would think that my opening comment that we started a seventy-five million dollar offering that was upsized to a hundred million,

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and we did zero percent coupon because there was overwhelming demand, would, would be a incredibly strong indicator that there was, uh, a huge amount of demand. And, and so n- short answer, no.

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Um, and I would say more broadly, the reason why I think it's important to distinguish betwe-between the different types of, of lenders, we're seeing an entire plethora of, of blue-chip lenders that see GPUs as an asset class.

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And so, for example, a big part ofExpand the GPU cloud business is working with good lenders who will lend you what we're targeting single-digit, uh, debt on, on the GPU hardware.

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And, you know, you're looking at a DCSR, um, trying to target one point two, and, and you ensure that what you're renting the GPUs for and what your, um, debt servicing looks like, you cash flow positive over the term.

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By the way, you know, we know the street wants to see at least three-year terms on the GPUs because then your-- as people generally know, uh, after cost, you're typically two-and-a-half year ROI on GPU cloud to pay off the full value of the GPUs.

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So if you're doing a three-year contract, then you've fully paid off the GPUs and then some. If you do a five-year contract, you've effectively two X paid off the GPUs.

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Uh, and then you still have the residual value of the GPUs at the end of the term. You'll own-- will own them outright, um, and at the five-year term still.

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We know the street doesn't wanna speculate on only residual value. Like, people don't want you to do a two-year contract, pay the GPUs off by ninety percent, getting two and a half year ROI for the full thing.

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And you say, "Well, if I, if I paid them off ninety percent and the GPUs are gonna be worth sixty percent of their face value after two years, we're still ahead fifty percent." The street doesn't wanna hear that.

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Like, Wall Street, they don't wanna speculate. They want the GPUs fully paid off, and then the residual values just feed in there. Now, my, my sort of counterargument, but you, you-- there's no, no point arguing.

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You just give the street what they want, and you structure the deals at cash flow.

254
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Uh, but, but just because we've been doing this, because we bought thirty-eight thousand A-series cards in twenty twenty-one, you can look up our press release in July.

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We, we spent sixty-six million dollars buying thirty thousand GPUs. Four thousand of those today are still on our tab, but we sold thirty-four thousand. That's a lot of GPUs.

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We sold thirty-four thousand A, A40s, A5000s, A4000s for eighty to ninety percent of their MSRP three years after the fact. This is a fact. It's just a fact.

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We took that money, and then we invested it, reinvested it into H100s and H200s. So we know, we know that GPUs have a much longer economic life cycle than ASICs.

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And by the way, I wanted to get a temperature, so I had Mario and my team go and get a quote on A40s today. They, they quoted

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three thousand dollars per GPU, and the pr- the new, uh, the brand-new price on those was forty-two hundred. So after like almost five years, they're still seventy percent of what they were worth. Why?

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Because, I mean, look, obviously, China has a huge amount of demand, and they're trying to get whatever it...

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Maybe they can't buy the latest and greatest, but they're allowed to buy the older gear, so they'll take all that stuff, right?

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So anyway, I think that's just good color for your listeners out there who understand the nuances. Like, we're experts in Bitcoin mining.

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You know, if, if we're gonna talk about hash rate and having economics, I'd be talking about joules per tera hash and, and, and hash price and the interstitial components.

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But now that k- we're kind of in this HPC and GPU cloud era, I like to educate and explain to the viewers what are kinda the, the, the gears that make this all tick and, and how do you set up for long-term success.

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And so just, you know, summing it up, you've got to negotiate a three-year term, four-year term, maybe even five-year contract with your off-taker, and that sets your top line. And then, of course, you've got your OpEx.

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Are you running the data center yourself? Are you in a co-lo, whatever that may be? And then, of course, you've got other corporate overhead in, in, uh, servicing that.

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And then, uh, the debt and, and can you still cash flow positively?

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Why I mention that is 'cause a lot of our peers in the last year, year and a half that scaled the GPU cloud business didn't even bother really, um, having deals that cash flowed. Um, they were just scaling to scale.

269
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And after debt servicing, they'd be cash flow negative. 'Cause again, two years ago, people were paying nineteen percent to, to lease GPUs. I'm sure you guys, uh, might remember that.

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I mean, we, we know 'cause we're very much on the inside, but we never played that game, right? We've always been best ROIC, lowest cost of capital, and so we're a bit more patient, a bit more conservative.

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But I would, I would look back at every c- capital deployment we've looked at has, has been a win. And the one thing is we do have a more aggressive depreciation schedule.

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We've always appreciated ASICs over two years and GPUs over three years, even though the economic life cycle in the real world is much longer than that. That's just how we structure it at Hive.

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So I, I do wanna make that distinction, but I hope, I hope that stuff's helpful. Yeah. I'll, uh, I'll toss a question here, just following up kind of on the point you're making.

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Um, you know, it's interesting because ASICs and, and Bitcoin hash rate has been pretty commoditized, and we haven't seen,

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we really haven't seen these rigs go up in value since the last cycle, whereas GPU compute's very different because it is, it is not commoditized across the entire asset class.

276
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And, um, I'm seeing analysts look at, like, how these different frontier models and the different, like, just the, the path that AI is taking and people who are developing these models, like they-- like we have a, a headroom on how much silicon we can produce.

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We have a headroom on, like, the, the newest and fastest GPU.

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So it seems almost like there's an argument that models will op- will over the coming years could optimize for the existing compute that's out there, which is a very bullish case for anyone with compute on hand already.

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I'm curious your thoughts, because if, you know, you know, you might not be buying-- if you're not buying the newest stuff from Nvidia, it might not matter because you already have existing compute.

280
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Do you see what I'm-- Do you, do you hear people who make this point, and I'm curious your thoughts about that? Um, yeah.Sorry.

281
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So the question was like we acknowledge that hash rate has become commod-- hash price is commodifying and- Yeah. Hash, hash price is pretty commoditized, but- There's more resilience in the demand for GPU.

282
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Yeah, but, but GPU compute is pretty different depending on the, on the, uh, on the cards you have. And so, uh- That's right. Like, yeah.

283
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And so I think it, it kind of-- it's a pretty strong case for like blended compute, uh, at, in your portfolio, which you guys have.

284
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So I'm curious like 'cause you talk about this three-year GPU depreciation schedule, and the reality is that's what the street wants to hear. But like, you know- Allow me to clarify.

285
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The three-year GPU de-de-the three-year depreciation schedule for GPU, that's just an accounting treatment. Yeah. As the auditors or Darcy, our CFO, is the longest standing CFO in the game, conservative.

286
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It's great to have a conservative, uh, longstanding CFO.

287
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All I'm saying is that when you look at our financial statements and you look at the bottom line of that income statement, if it's negative, it's 'cause we've just got all this accounting treatment, very short cycle depreciation, which means you've got higher intra-quarter depreciation.

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That's all I was referring to. As a CEO structuring deals, running this hardware, uh, in the real world, we've been running these A40s. We got first delivery of them in late twenty-twenty one.

289
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So they've been running for all of twenty twenty two, three, four, five. They're in their fifth year now, twenty twenty-six, five years and running. And the spot price of these A40s just went up ten percent.

290
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I said forty-four cents an hour. A month ago they were forty cents an hour. So yeah, there's absolutely more resilience in, in the demand. And I think one thing to be aware of, you did talk about hash price, was

291
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in this cycle, in this bull cycle, this really the first time we've seen it since the industrialized era of Bitcoin mining, um, hash price did not rally above pre-halving levels. It didn't.

292
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And, and I think ten-ten really clipped the wings of this bull cycle, which is unfortunate. In twenty twenty-one we saw hash price eclipse pre-halving hash price from twenty-twenty by a long shot.

293
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Twenty seventeen, forget it. I mean, twenty seventeen, you know, that's when Hive went public. December twentieth twenty seventeen, Bitcoin was at twenty thousand for the first time ever.

294
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I was in Todelli's office in Toronto raising money when I was taking my company public. And it was, it was hash price in twenty seventeen had eclipsed twenty sixteen pre-market or pre-halving hash price by a long shot.

295
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That didn't happen this time around. So I think, you know, in addition to massive demand overall for the, um, growth of AI application via LLM or robotics, I mean, they're-- we're seeing crazy stuff.

296
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You see today as Frank was sharing a video, there's like a marathon, uh, robots in China now that like beat a record that a human ran. Yeah. I saw them zooming past the Chine- you know, the runners. Yeah. It was wild.

297
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Yeah. And, and, and, you know, a couple weeks ago we announced a partnership with AMC, and so they are a, uh, AI robotics company.

298
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Uh, shout out to AMC that they have like those Boston Dynamics robot dogs, but they're equipped with security cameras, and they're meant for patrolling logistics yard warehouses, whatever.

299
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Just, you know, kind of industrial security application. And just as a quick moment, just to kind of illuminate the application use case of, of AI and why you need this compute. So it's not just chatbots on an LLM.

300
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So they have a sister company, and the sister company makes-- this is AMC. Their sister company makes, not public, um, security cameras for, um, seniors homes with fall detection.

301
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But it's like a fixed camera in a room, and if it just is watching a room and everything's static and someone falls, it's like, "Hey, event detection alert. We saw it."

302
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If you put a camera on a dog, now it's mobile, so the field of vision for the robot dog is constantly moving. So how do you process that?

303
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That's where you need AI level compute to be able to process constantly morphing video images and be able to detect, well, is this an intruder or am I just passing by a dumpster? What's going on?

304
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So at any rate, um, you know, we're, we're seeing so much demand. Um, you know, Jensen's keynote, I highly always recommend everybody to watch it.

305
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We've gone three years in a row to GTC, and he highlights so many use cases.

306
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So any rate, I think to your, to your point, yeah, GPU compute as we have emerging demand and broadening use cases and then of course deeper, deeper, uh, need as the fundamental model builders are getting more and more advanced.

307
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I see it getting deeper and wider, um, the expanse and need for GPU compute. So I don't see it getting commodified anytime soon.

308
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And just as a, a kind of closing thought on that notion I think is very relevant and helpful.

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I started my career, I did electronics engineering, and so I worked as a radio frequency engineer at a company called Sierra Wireless.

310
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For the first four years of my career, this was kind of mid two thousands, everyone's using a Motorola Razr. Remember the flip phone? It was like a kind of a crappy camera, and you just had T9 text input.

311
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Well, back then, like that was it, right? And everyone's using like GPRS or 3G. And in the lab at Sierra, we were developing 4G. And so we had the ability to do streaming video.

312
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I remember this was in two thousand and seven. I'm in the laboratory. I'm a young engineer, and all the senior guys are like, "Who are we building this for?" Like everyone has like these crappy flip phones.

313
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You're taking a grainy photo, maybe sending it to somebody. Who needs streaming video? Is it for like Japanese people on, on the subway that watch, you know, TV?

314
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'Cause back then, you know, we just always perceived they'd be so much more advanced in, in markets like Japan. And nevertheless, we're building the technology. We're like, "Whatever, it's our mandate.

315
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You know, we're gonna build this stuff." Then the iPhone came out, changed everything. The application layer, location-based services, video streaming, you name it. People are tagging where they are.

316
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Now, like how much, how much-- And, and then of course, cell phones went from minutes of, of talk time to bytes of data.And I remember when my cell phone bill was in megabytes, and then it was an inflection point where your cell phone bills in, hit a gigabyte.

317
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You remember that? And how much, how much talk or how many gigabytes do you have on your cell phone now? I don't even know. It's so many. It's exactly- Like a hundred and twenty-eight or something. Isn't that crazy?

318
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Like if you went back five or ten years ago and told yourself, "Yeah, you're gonna be having a hundred gigabyte cell phone plan," you go, "You're crazy. No way." Like, you know?

319
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And, and now it's just we just use more, and more, and more data as part of our everyday life.

320
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And so I think that the more that we rely on data, it's the same way even before AI, we-- there's still massive data center growth to support all this stuff, right?

321
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[chuckles] And so you, you think about every time you hop in an Uber, or you watch a show on Netflix, or you do e-commerce, and, and all this information that's constantly flowing, and predictive analytics, and targeted marketing.

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Like you, you realize how much information is flowing out there.

323
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And I thought-- And so my point is, is that you hit this inflection point, and so I think with AI we still haven't even hit that inflection point where some product is gonna come out that is gonna impact and change how we use it.

324
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And look, the XAIs of the world, they're-- like they're-- for sure they're working on all this stuff, but s- one day something is gonna come out, and it's just gonna change how we go about business or day-to-day life.

325
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And like, look, I use Cloud for Excel. It's frigging amazing, but that's still pretty niche.

326
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Like, there's gonna be something like an iPhone that will come out that will harness AI technology, and the amount of compute that we need will just continue to exponentially grow.

327
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Now, as a CEO of, you know, an AI, uh, compute company, fundamentally, naturally I'm bullish on the sector, but look, we s- I see these, these growth spurts in technol- technology as pretty cyclical.

328
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Let me turn to you guys. Do you agree or disagree? I totally agree. I'm bullish on compute, pretty much all compute. Hash rate, hard to say, depending on Bitcoin price. Compute- Yeah, I would- Yeah.

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I, I would say that's probably, um... I, I, I would agree with that too. It's, it seems to me to be the trajectory that we're headed in. Um, Aydin, thank you so much for joining, man.

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We gotta move on to our next section, but a- as always, uh, you come with a lot of good takes, um, a lot of stuff to unpack. So thank you for joining the show. We'll have to have you on again soon.

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Yeah, and a lot of good merch. Come get a hat in Vegas. BDC Vegas, baby. We'll be out there. [laughs] Nice. We're seeing Vegas. If that's your persona for these episodes, we give away the hats, okay? [laughs] Okay.

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Thank you, Aydin. Appreciate it, man. Thanks. Peace. Cool. All righty, and we will move on to a quick OpNext recap. But first, an ad read for our sponsor, Luxor.

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00:57:54.222 --> 00:58:00.572
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334
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335
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336
00:58:30.472 --> 00:58:40.992
To learn more, go to luxor.tech/commander. All right, Charlie. Yeah. Tell our listeners- We're gonna do- What they missed in New York... we're gonna do a little dog fooding here.

337
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[laughs] Yeah, we're gonna do a little dog food. We won't... we'll keep this short. Um, so we had our conference this past week in New York, OpNext.

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What a huge success, packed house, almost too packed, and we had kind of a who's who of the Bitcoin developer and investor community there and presenting. Um, I think, uh,

339
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I- we were gonna do a quick brief reflecting on it. Um, I think one of the highlights for us, Colin, and I can, if, if I may speak a bit for both of us, um, was the investor panel.

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This was kind of, uh, this was quite a, uh, notable panel that you led featuring Robert Mitchnick of BlackRock, David Duong of Coinbase, Boaz of Anchorage, Orlov of Tephra Digital.

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You guys talked about Quantum pretty much the whole time, and, uh, my assessment of it as I got around to watching this was that, um, all these folks represent capital allocators, custodians who, uh, do have opinions on Quantum and Bitcoin.

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And this is interesting because, um, I would say most of the Bitcoin developer community believes that Bitcoin

343
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is appropriately responding both in, uh, the, the Bitcoin developer community is appropriately treating the issue, whereas the investors seem to believe that this is an imminent, probably a se- a, a, a near-term problem that they want to take proactive steps in, uh, in s- in various types of mitigation or solutions.

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Is that a proper framing, do you think? I think that is. I mean, this is... So I, I basically got around to three questions to-- with them, uh, because they had so much to say, which was great. Yeah.

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First question is: What are you guys thinking about Quantum? Are you talking about it internally? Are you freaking out? Second one is: What are clients asking you about it, and are they freaking out?

346
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What kind of questions are they asking?

347
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And then the third one, which was the spiciest, and we'll maybe close our discussion on this with this one in a bit but-Will your institutions play more of a hands-on role in Bitcoin soft fork and upgrading process to solve for the quantum computing risk?

348
01:01:19.116 --> 01:01:24.996
Um, some interesting answers to that. But to what you were just talking about then, that was something that Robert Mitchnick really

349
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highlighted during his response to that first question, this idea that investors like concrete timelines and, and capital allocators like having some sort of roadmap.

350
01:01:37.956 --> 01:01:44.576
I mean, go, uh, I, I mean, you know, you can look at what Aydin just said about the depreciation schedules for GPUs, right? Like, all of these...

351
01:01:44.716 --> 01:02:02.356
The, the financial world loves to have everything modeled out down to the last penny, and so the idea that there wouldn't be a clear process to upgrade Bitcoin right now is kind of anathema to them when they're looking at the US government, Google, all of these other institutions put forth these timelines.

352
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Whereas I think what you pointed out in your initial foray into this question was really important. The Bitcoin development community s- thinks that they're on track for how they do things for this, right?

353
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And I think that's a really important distinction, is that the d- Bitcoin developer timeline and institutional investor, other important stakeholder timelines are not gonna match up one to one because the process is so much different.

354
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Bitcoin development is typically very slow-moving, it's decentralized.

355
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It's not the same as the timeline or the development process for one of these big in- um, centralized institutions when they're making a decision on something technical like this.

356
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It's very easy for a bank or Google to say, "We're gonna update our, our encryption for quantum." Uh, there, there, uh, it's totally centralized.

357
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There are a few key decision-makers that are gonna sign off on that, right? With Bitcoin, it's not the same.

358
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The one analogy that Robert used that I think is really good though for framing why people on the quantum alarmism side are really frustrated is he said, imagine you're a commander of a fortress and you're, you're given intel from your scouts that an attack is going to take place between midnight and 6:00 AM.

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You wouldn't go to your troops and say, "Okay, everyone man the walls at 3:00. We'll split the difference." You would have them up on the walls at 11:00 to get ready for an attack at 12:00, right?

360
01:03:23.736 --> 01:03:32.536
And I think his point in saying that is he would, he would like to see m- you know, some sort of solution be proffered in moving towards it more quickly than not.

361
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Um, whether or not you think, you know, they are moving towards that solution I think is going back to that first problem about timelines.

362
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That's kind of a question of whether or not you think the current response is good. But the, the real meat of it though is, you know, they said some of their clients were saying that they were interested in quantum.

363
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You know, some of them are starting to, um, ask questions. They did not indicate that there was very much selling as a result of this, actually. Yeah. I think that's an important point.

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I'll, I'll, I'll interject that, um, one revelatory comment from... Like, similar comments from multiple of these guys, Coinbase, BlackRock, Anchorage, was that their clients are not yet broadly concerned.

365
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Their clients are not banging down their door right now to solve the quantum issue. Um, but they do anticipate that becoming a thing.

366
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Now, for the listener, this quantum topic has really, is really only like a year and a half old, uh, in its modern form, and only in the past, I'd say, three or four months has it become a, like, really quickly forefront topic.

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So this could be, this could change a lot. Um, yeah, it... Some, a lot of interesting comments. I don't think we- we've seen, uh, point guys from these large institutions really comment in kind of a shared,

368
01:04:55.636 --> 01:05:08.836
uh, you know, in a share, on a shared platform- Mm... at the same time as we did, uh, at OpNext that you led, so. Yeah. And also, I would just say I was really impressed with the length and details in their responses.

369
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I think it's really easy to get cynical about a topic like this and think, oh, the investors don't know what they're talking about, the developers barely know what they're talking about, the quantum [laughs] physicists barely know what they're talking about- Yeah...

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right? But I was really impressed with how well thought out their answers seemed to be, and how much they had to say about it, too. I think that was really, you know, for me, op- an optimistic sign.

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Now, for some though, I actually think that's gonna be a pessimistic sign for my last point here, and then maybe we can close on this with final thoughts from you, Charlie.

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My third question was, you know, okay, Taproot took a long time. Bitcoin developers move very slowly. We are in a specific

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moment in time now within Bitcoin where not only is quantum computing a problem, but it's a problem now when Bitcoin is its most institutionalized ever.

374
01:05:56.336 --> 01:06:02.836
There is more capital at stake than ever, and there are more stakeholders who really [laughs] wanna make sure their investments don't go to zero.

375
01:06:03.196 --> 01:06:09.856
Some of those stakeholders are the wealthiest institutions on the planet, like BlackRock, right? And, and some of these other, uh, big banks.

376
01:06:10.356 --> 01:06:21.856
And so I asked them, "Do you foresee your institutions getting involved in Bitcoin development for this problem and taking a role, whether that's researching it, whether that's funding development, et cetera?"

377
01:06:22.336 --> 01:06:31.166
And I, I was basically given answers to the effect that, yes, that would happen. They all kinda danced around it, right? They were very diplomatic.

378
01:06:31.166 --> 01:06:39.776
I mean, Robert Mitchnick of BlackRock basically said, "We're very leery of having a big institution like BlackRock insert itself into these discussions."

379
01:06:39.796 --> 01:06:50.466
But he did say that this is enough of a concern to where we will probably want to have some sort of say in how things are going, and this, I think, was one of the most controversial aspects of the conference.

380
01:06:51.136 --> 01:07:01.066
Um, you know, you had some folks, the, the usual suspects who, who are very leery of i- institutionalized control over Bitcoin, of course, as they should be. One of them- I know...

381
01:07:01.066 --> 01:07:09.576
being Alex B here with this tweet, quote, "Yeah, this is a block size moment. They think they can come in and steer consensus. Gonna be a wild ride."

382
01:07:09.716 --> 01:07:16.732
I do think that isUh, I mean, he's obviously, he's-- he obviously tweets very spicy stuff.

383
01:07:16.772 --> 01:07:28.932
But, I mean, as far as the trajectory of things go, for the previous fork attempts, we have not seen, I would say, large institutions come in and try to take a, a, a, like a, a major role in pushing forward Bitcoin development,

384
01:07:29.912 --> 01:07:40.912
uh, since the block size war. And again, that was a total... That was two Bitcoin eras ago, and it was a, you know, a private company, Bitmain, the larger, uh, the larger driver.

385
01:07:41.052 --> 01:07:55.252
Now you have a pretty cross-demographic or like, uh, from, from... Y-pre-pretty wide, uh, big, more big tent here from a lot of the institutions who all say, "We're aware that this

386
01:07:57.012 --> 01:08:09.472
can be, can look bad," but they do indicate that they want to, you know, have a-- they have a concern. They have a position. One hundred percent, and then I'll leave it after this.

387
01:08:09.632 --> 01:08:22.532
Marty Bent quote tweeted Alex B's and quoted from the talk. I, I, I w- I wanna caveat this. I don't have the transcript in front of me, so I don't know who said this exactly or how accurately Marty quoted this.

388
01:08:22.812 --> 01:08:31.212
He was in the audience, though. I made eye contact with him. Or maybe not eye contact- [laughs]... but I was looking at him a few times being like, "Oh man, he's gonna, he's gonna love this last question."

389
01:08:31.612 --> 01:08:39.992
And he said, quote, he said here, quote, "It's not the same Bitcoin, the Strategies of the world, the Coinbases of the world, the BlackRocks of the world, and the Anchorages of the world are part of this community.

390
01:08:40.032 --> 01:08:45.672
There is a clear threat we'll make sure the protocol updates on a timely manner," end quote. And then Marty said, "Yeah, this is going to be fun."

391
01:08:46.112 --> 01:09:03.372
And I do just wanna leave it with that in the sense that you don't have to get conspiratorial with it, but I do think you have to recognize that this question of how much say do the big institutions have over this upgrading process, coupled with the question of what do we do with the coins, is going to make the quantum debate probably the most toxic thing ever for Bitcoin.

392
01:09:03.432 --> 01:09:13.912
Like, I actually think this is going to be significantly more toxic than the block size wars for a number of reasons. Ooh. And it goes back to what Neha Narula was saying on our- More toxic than the block size war?

393
01:09:14.532 --> 01:09:22.452
Um, yeah. Yeah. But it was going back to what Neha was saying, uh, the week before we, or two weeks before we w- did Op Next, um, the last full week of streams that we had.

394
01:09:22.792 --> 01:09:28.292
She said, "Look, the quantum computing risk for Bitcoin is a problem that has multiple different stages to it.

395
01:09:28.812 --> 01:09:36.592
First stage is just figuring out some sort of quantum invulnerable address scheme and getting that patched into Bitcoin."

396
01:09:37.072 --> 01:09:45.232
Then you have this second really thorny problem, which I didn't even touch on this because we didn't have time to get to it during the panel, like what do we do with all the quantum vulnerable coins?

397
01:09:45.412 --> 01:09:59.372
And we'll, we'll leave that for another show, but that's going to be a very schematic question, I think, for a lot of the Bitcoin community. Yep. There's gonna be plenty of fodder for us to cover on this, and we will.

398
01:09:59.532 --> 01:10:13.912
We will. We are, we commit to you, dear listener, to try to do our best journalistic integrity to cover all sides, um, a-as long as they're quality perspectives. And with that- Let's do ad read...

399
01:10:14.632 --> 01:10:26.012
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400
01:10:26.032 --> 01:10:30.472
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401
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403
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405
01:11:13.912 --> 01:11:18.642
And with that, we will go quickly through the last few stories today.

406
01:11:18.692 --> 01:11:32.492
For our next one, Alcoa is in the news because it is ostensibly looking or reportedly looking for a buyer in NYDIG for one of its defunct aluminum smelters. I'm quoting directly from Coindesk.

407
01:11:33.161 --> 01:11:43.351
Alcoa is in advanced negotiations to sell its dormant Massena East Smelter in upstate New York to Bitcoin mining firm NYDIG. NYDIG is a really interesting case.

408
01:11:43.372 --> 01:11:52.601
They are a, you know, a Bitcoin financial, uh, institution, and they are leaning into Bitcoin mining at a time when a lot of Bitcoin miners are leaning out and, and, and going into AI.

409
01:11:53.372 --> 01:12:09.132
But with this most recent news item, if this is true, they are trying to buy this smelter from Alcoa, which has been sitting idle since 2014, just became too expensive to operate it with overseas options, so Alcoa shut it down.

410
01:12:09.172 --> 01:12:29.292
Alcoa is reportedly looking to offload ten simil- ten such sites, nine similar sites to this one, as it looks to sell them to data center companies that are looking for large industrial sites with the electrical footprint already on site, so they don't have to go through all the approval process and building out things like transformers and substations.

411
01:12:30.212 --> 01:12:39.752
Now, the reason I chose this was, number one, we wanted a good Bitcoin mining story. Uh, we like to throw our Bitcoin mining listeners a bone, so al-always gotta remember our roots.

412
01:12:39.772 --> 01:12:46.032
But again, going back to what I was saying about NYDIG, NYDIG really has been leaning into Bitcoin mining when a lot of Bitcoin miners have been leaning out into AI.

413
01:12:46.472 --> 01:12:57.172
They were in the news most recently, I think, for one of the bigger headlines over the last year for them when they, uh, re-- uh, when they, uh, started negotiating with Crusoe to buy all of Crusoe's Bitcoin mining assets.

414
01:12:58.032 --> 01:13:04.292
Um, I'm not sure if that deal has closed or if they're still negotiating it. I'm pretty sure they're still negotiating, but, uh, that's pretty huge.

415
01:13:04.372 --> 01:13:09.842
Crusoe, one of the largest oil and gas miners in the world, they're moving into AI, [chuckles] like all the other Bitcoin miners.

416
01:13:10.172 --> 01:13:19.636
NYDIG coming in to fill in the gap, though.And that acquisition made a lot of sense to me because NYDIG's parent company, Stone Ridge, has a huge oil and gas portfolio.

417
01:13:19.696 --> 01:13:25.876
Maybe they're trying to see how well this can work at scale and deploy it across that portfolio. Who knows?

418
01:13:25.916 --> 01:13:39.296
But all that being said, it's very fascinating to me to see a company like NYDIG really double down on Bitcoin mining, take advantage of some of these cheap ASIC prices and some of these good deals on some of these sites at a time when no one else is wanting to.

419
01:13:40.456 --> 01:13:44.276
That's all I have for that though, Charlie. I don't know if you have anything to add. No.

420
01:13:44.356 --> 01:14:00.976
Alcoa sites have been at the center of a lot of very notable Bitcoin mining deployments, thinking back to the Bitdeer and Riot sister sites down in Texas shortly after the China mining ban.

421
01:14:01.896 --> 01:14:08.876
But yeah, we'll, we'll close on this, this story with Strategy, and then also a companion with Bitmine because they're the only ones buying Bitcoin.

422
01:14:09.276 --> 01:14:18.896
But Strategy raises two point five billion, buys thirty-four thousand a hundred and sixty-four Bitcoin. I believe I saw a Coindesk headline that said this is like the third largest purchase ever.

423
01:14:19.856 --> 01:14:23.036
And so Strategy, as always, back in the news.

424
01:14:23.176 --> 01:14:33.056
It now holds over eight hundred and fifteen thousand sixty-one Bitcoin after this purchase in which it, uh, you know, bought thirty-four thousand a hundred and sixty-four Bitcoin.

425
01:14:33.476 --> 01:14:48.036
I was doing-- I was running the numbers here, and Strategy, according to data that I scraped with Claude, Strategy has purchased, purchased eighty-nine thousand six hundred and three Bitcoin in Q1 alone, and they are like one of the only treasury companies buying currently.

426
01:14:48.696 --> 01:14:55.035
Um, I, I could have some incomplete data, so apologies if I do. And if, if you, you see some discrepancies here, please point it out to me.

427
01:14:55.636 --> 01:15:10.476
But MetaPlanet's purchased five thousand seventy-five over Q1, and Strive increased its treasury six thousand one hundred and fourteen. I believe that is largely from the, the Similar scientific acquisition.

428
01:15:10.556 --> 01:15:22.676
Uh, but if you look at a lot of the other ones, ProCap up by about four hundred and fifty-seven Bitcoin in Q1. Most of them not really making any moves to that front and, uh, uh, to that end of accumulating more Bitcoin.

429
01:15:22.716 --> 01:15:35.386
In fact, some of them are scaling back their Bitcoin treasuries. And in tandem with this, if Strategy is the only company buying Bitcoin, Bitmine, for whatever reason, is the only company buying Ethereum. This is,

430
01:15:36.536 --> 01:15:46.896
this is Tom Lee's Bitmine. They purchased one thousand-- a hundred and one thousand six hundred and twenty-seven Ether worth over two hundred and thirty million in large liquid haul of twenty twenty-six last week.

431
01:15:46.976 --> 01:15:52.896
So at the time that these, uh, crypto prices are popping, maybe we have two entities to thank for that.

432
01:15:53.256 --> 01:16:01.096
That being said, Strategy and the strategy of Ethereum, Bitmine really seem to be the only big players currently operating in the treasury landscape.

433
01:16:01.436 --> 01:16:11.756
Maybe a good move, maybe they're buying the bottom, but as Jay said in his answer to our first question, we will see. Uh, hard to be totally bullish here, but hard to ignore this reversal.

434
01:16:13.076 --> 01:16:26.656
And with that, Charlie, I think we did it. And with that, we are doing this Monday, Wednesday, Friday, noon Eastern. Make sure to tune in on X or YouTube. This becomes a podcast after we wrap up.

435
01:16:26.676 --> 01:16:40.036
You can find out wherever podcasts are streamed, Spotify and Apple. Leave a review, give us five stars, and make sure to hit that button, that bell, if you're on YouTube. Otherwise, thank you so much.

436
01:16:40.825 --> 01:16:50.756
We'll catch you on Wednesday with another banger show. See ya. [outro music]