The Bitcoin Treasury Machine | Harry Sudock & Rory Murray

26:51And so, you know, we spent a lot of time developing energy native expertise. That meant building microgrids at military bases. It meant building the software that ran demand response protocols. It meant getting called out to Atlanta, Georgia, to a data center on a sales call. That was where we found our first Bitcoin mine, was a sales call to sell them a microgrid to help them drive down energy costs. We saw that opportunity. And rather Rather than sell them our product, we bought their data center. And that started this cascade of scaling our Bitcoin mining, scaling our direct energy and land ownership profile.

27:27That was 2019, 2020. We bought that asset at the end of 2020. And that kicked off what was really a five year hyper growth cycle to become the largest domestic producer of hash rate. And so over the course of that scaling journey, we became great at power and land acquisition, not just energy development and management. And over that period of time, as we scaled, we also realized that the electron is going to have more utility across more types of compute than we'd anticipated five, six, seven, 10 years ago. That brought us directly to the crux of this opportunity to expand into a secondary form of compute that is likely to grow to be the majority of our business over time from a revenue perspective, but not from a strategic footprint.

28:10So talk about the organizational design. We think that we're going to be great at developing digital infrastructure for AI use cases. We think we're going to be great at integrating Bitcoin mining into energy systems, some of which are going to be in the data center, some of which are going to be at the utility level. We also think that interacting with energy more directly is going to be something that we're going to be good at into the future as well. Maybe that means behind the meter generation. Maybe that means more intelligent power sourcing on the power markets. We don't know what that's going to look like yet, but we know that we have a thesis about how energy management generation and consumption is an opportunity for us to drive shareholder value in the business.

28:48And then the last category, which is what Rory's covered a lot of, is CleanSpark Capital is a concept that we've been kicking around for many, many, many, many months. Are we soft rolling it? We soft rolling it? So very softly. And so the first step towards that is by taking a fundamentally differentiated view on treasury management. We are not a dad, but we hold a lot of Bitcoin and we do so in a variety of productive ways. What's really important about that productivity is it's not just about what are we able to extract from our holdings or our balance sheet. It's how does our capital activities integrate into a scaled operating business to make the operating business stronger and open the door to more types of opportunities across our balance sheet utilization and management profile.

29:35And so, I think of companies like GE, where GE Capital was a huge component of what they did that had nothing to do with how they built turbines or washers and dryers or all these other types of hard asset activities. It had to do with the financialization layer of everything that they did as well. I also look back to things like Berkshire Hathaway, where they took a position where they bought out GEICO and utilized the GEICO insurance premium model to take front of the locomotive capital engine and drive the incremental float from those insurance products to be able to unlock a bunch of different operating businesses elsewhere across their portfolio.

30:15And so the marriage of operating business in the physical world and the financial business in the markets world marry together to create differentiated and huge, huge, hugely outsized outcomes. So that's like 100 IQ points higher than a take that I've had for a long time, which is on these treasury companies, you need an operating business. I don't think you don't need that much IQ. But the explanation was 100%. To me, this is the biggest misnomer. We're one of the top 10 corporate holders of Bitcoin in the world. We're the largest domestic hash rate producer. And it's been really hard to talk about that in certain ways because we are a company with 13 ,500 Bitcoin on our balance sheet, but we are not in our treasury, but we are not a Bitcoin treasury company, right?

31:07And we generate yield on our Bitcoin, but we don't generate whatever the BTC yield metric is. Sats per share, that's not how we measure ourselves. We measure ourselves on shareholder return. We measure ourselves on stakeholder return. We measure ourselves on kind of total capital assets that we drive over time. And so I just think it's exactly right. But yes, not to jump in too much again. No, I want to get into this. But just quickly before we do, with Bitcoin mining, it's energy in, Bitcoin out. And as you move to AI, it's energy in tokens out, I guess. And that's going to be paid to you in dollars.

31:44Will you be turning dollars into Bitcoin in this treasury? So this is a critical piece. We believe that our obligation is to take the productivity of our business lines and drive them into the highest growth, highest value return opportunity in front of us. So let's say that we were able to take a lot of dollars in from our first AI deployment. I think that right now, the biggest opportunity in front of us would be to plow those dollars into the next AI deployment. I think over time, as businesses move from their hyper growth phase into more of a cash flow and compounding phase, the opportunity to think more about the opportunity cost of each incremental net income dollar is going to get more competitive.

32:31But right now, it's about growing to become a significant player in the AI compute world in the same way that we had to grow very aggressively to become a significant player in the Bitcoin mining landscape. Do you wish you could access cash without selling your Bitcoin? Well, Well, Ledin makes that possible. They're the global leader in Bitcoin-backed lending, and since 2018, they've issued over$9 billion in loans with a perfect record of protecting client assets. With Ledin, you get full custody loans with no credit checks or monthly repayments, just easy access to dollars without selling a single SAT.

33:05Ledin exclusively offer Bitcoin-backed loans with all collateral held by Ledin directly or their funding partners. Your Bitcoin's never lent out to generate interest. I recently took out a loan with Ledin. The whole process was super easy. the application took me less than 15 minutes and in a few hours I had the dollars in my account. It was super smooth. So if you need cash but you don't want to sell Bitcoin, head over to leaden.io forward slash WBD and you'll get 0.25 % off your first loan. That's L-E-D-N.io forward slash WBD. If you already self-custody Bitcoin, you know the deal with hardware wallets.

33:40Complex setups, clumsy interfaces and a seed phrase that can be lost, stolen or forgotten. Well Bitkey fixes that. BitKey is a multi-sig hardware wallet built by the team behind Square and Cash App. It packs a cryptographic recovery system and built-in inheritance feature into an intuitive, easy-to-use wallet with no seed phrase to sweat over. It's simple, secure self-custody without the stress. And time named BitKey one of the best inventions of 2024. Get 20 % off at bitkey.world when you use the code WBD. That's B-I-T-K-E-Y dot world and use the code WBD. The thing that keeps me up at night is the idea of a critical error with my Bitcoin cold storage And this is where AnchorWatch comes in With AnchorWatch, your Bitcoin is insured with your own A-plus rated Lloyds of London insurance policy And all Bitcoin is held in their time-locked multi-sig vaults So you have the peace of mind knowing your Bitcoin is insured while not giving up custody So whether you're worried about inheritance planning, wrench attacks, natural disasters Or just your own silly mistakes, you're protected by AnchorWatch Rates for fully insured custody start as low as 0.55 % and are available for individual and commercial customers located in the US.

34:49Speak to Anchor Watch for a quote and for more details about your security options and coverage, visit anchorwatch.com today. That's anchorwatch.com. Okay, so let's talk about how you actually deal with the treasury and you're going to have to keep this a little bit simple for me. Like you said you're generating yield. Like let's start with the easy one. Where does the yield come from? Yeah. If you don't know where the yield comes from, you are the yield. No. And let's be very clear. And this has been a point of frustration for me because, and again, I'm not here to wear my arm out patting ourselves on the back necessarily.

35:26But, you know, we take it very seriously to be very transparent about our strategies and what we do, be very specific about what is possible, what isn't possible, what are the risks and possibilities there, and to take, you know, diligence and analytical rigor to everything that we do. So where does the yield come from? Well, you know, we talked about let's just, you know, first and foremost is you can't generate sustainable. Yield is just return on capital. Yeah. OK. You can't generate sustainable return on capital unless you have some type of operating business. And maybe that operating business is an investment business, but that would mean you have to have a process.

36:10You have to have controls. You have to have a view. You have to have risk management. So the return on capital that we generate starts with thinking about what is the operating profile of our core business? And our core businesses has been Bitcoin mining. Traditionally, obviously, we're going to be expanding into we'll talk about how we're kind of driving capital from the digital asset management side into the AI HPC kind of an energy expansion side. But the first thing that we did in December of 2024 was start with a 60 to 90 day process to really decompose our entire business across what are the drivers, what are the risks, where are the expenses, where's the cost of capital, where's the cost of power, what is the timing of those cash flows, because this is a really underappreciated point, is that you might be doing something that makes a lot of sense in the aggregate, but it doesn't make a lot of sense when you get upside down versus timing and asset liability mismatches.

37:14So that took us maybe 30 to 60 days to kind of get settled and kind of really think through that. It took us another 30 to 60 days to really kind of design the philosophy around that. And what we came to was essentially a two-pronged approach. So the first approach is that we're going to be, we're generating around 600 Bitcoin a month right now. That can go up and down kind of depending on difficulty, operational hashrate, you know, kind of what we're doing. But let's call it kind of 500 to 600 Bitcoin a month. So, you know, we know what our OPEX component of that is going to be. And the other thing that you can do is you can start to think about what are going to be your CAPEX needs.

37:49So you can look out to September or December of this year or into next year and go, OK, well, I need 35 % of that right now. For every dollar adjusted Bitcoin that comes in that's worth a USD, maybe 35 % of that could go to OPEX on an ongoing basis. And maybe somewhere between another 35 % to the other 65 % of it might go into these capex opportunities right now, quite frankly, because there's so much opportunity to build out in this space. So that's on a monthly basis. And the second part is that we have the Bitcoin. And look, I really do give Saylor a lot of credit in this. Like volatility is vitality in the sense that you are taking an asset that the other thing is that yield on any asset comes from moving it around, right?

38:40Moving it into hands where it's going to be, it might be inert on your balance sheet, but it might be at rest on your balance sheet, but at movement on somebody else's. Maybe they will pay you for the opportunity to do that. That's what interest rates are. They go, okay, I've accrued some capital. Vanya has a great opportunity to build out a new AIHPC data center. He thinks he's going to get a 9 % return on equity. He'll pay me 5 % for the opportunity of using my capital in the meantime. That's a good risk-adjusted return for me. I underwrite him and he gets his return. And that's what yield is, right?

39:15It's not this like thing in the ethereal kind of out there that just comes from diluting down your business with no cash flows coming in and pushing that back onto a capital stack that doesn't have kind of a self reinforcing engine, right? So going back to how we split it, we have the spot plus program, which is what we can do is we can take, because we have 500 to 600 Bitcoin coming in a month, because that is our core operating business, because it maps onto our exact needs and we need to monetize some portion of that. Look, we want to hodl as much Bitcoin as possible, but at the end of the day, we still have to pay salaries and insurance and - Power bills.

39:55Power bills, all of these kinds of things. So some version of that is going to get converted into dollars. So I could do that in the spot market. We could go to the spot market and we can either do a market order or a limit order, right? And I'm not trying to like, I'll be simplistic in a certain way, but I don't want to speak down to anybody who kind of understands these concepts at a core level. No, please do. But essentially, you can just sell it market, which just says, hey, I'm going to go take whatever the price is right now. I got 100 Bitcoin to sell. It's going to go down in the centralized limit order book, probably down about two levels.

40:27And I'm going to get, you know, an average price. I'm going to get done within a couple cents or a couple cents, right? You could do a limit order. You say, hey, I'm going to sit here. I think that the natural volatility, what we've done is we've looked at kind of Bitcoin vol on a daily basis. It moves up or down. You know, it might go up 1.5 % and down 1.5 % a day. That means you're going to have kind of a 3 % range. I'm just going to set kind of consistent limit orders up 1.25 % because eventually kind of on a daily basis, it's going to pop up and I'm going to get taken out. That's one way to kind of try to outperform spot, right?

40:58And it's a very simple kind of way to do it. Obviously, the risks are if you're in a downtrending market. If it doesn't do that, if volatility compresses. So let's be clear-eyed about what that is. But that's one way to kind of think about how to manage some of the risk on the book. The other way is to go to the derivatives market and go, okay. So it's kind of like when I go to Delta and I click on flexible dates, right? We don't really – we know that we have to meet salaries. And we talk about understanding the timing of cash flows. Salaries are on the 7th and the 22nd, right? So somewhere between that – so I have 14 days in between that to come up with the dollars to do that.

41:34So I go, I don't really care if I sell Tuesday, Wednesday, Thursday, or next Monday. But what I can do is I can get paid for that optionality by the market. So there is volatility within Bitcoin. Bitcoin does not have an organic interest rate. But what you can find is that you can find that people will either want to take it on their balance sheet for trade financing or to collateralization or to borrow or just for any of these other uses. So there's a natural volatility in that market. So we'll sell basically short-dated covered calls. Again, simple, not easy. And that's our whole philosophy.

42:11This should be extremely simple to understand. It should not be that complicated. The risk should be completely decomposed and understood. but it's hard to do it because of the institutional risk management and the kind of consistency and the way that it maps onto operating business. So we just sell short-dated covered calls, right? And so what's interesting about short-dated covered calls is, yeah, even as volatility has compressed, the kind of total all-in cash on cash or sats on stats return you're getting is incredibly attractive, right? And so what we found is that by managing this in the way, and I can't give away kind of the whole kit and caboodle on kind of how we do it specifically.

42:50But we have a strategy where we go out X amount of days, kind of knowing that we're going to have to meet these obligations. As we get closer to that, we will increase what's known as our delta exposure. And that delta exposure means basically, you can think of delta ads. If I'm selling a 20 delta call, that means one out of five times, about 20 % of the time, on average, you can expect to get taken out. Now, there's going to be a lot of derivative heads listening to this who are going to talk about, can you really take a standard kind of a standard kind of curve on that and what are the real stochastic returns and should we use a jump diffusion index instead of a Black Skulls Merton model and kind of all that.

43:30But long story short, you can essentially think that if you're selling a 20 delta option, about 20 % of the time you expect to get called on that. What that means is if I'm selling a covered call that says that I have committed to selling you Bitcoin at$100 ,000 in seven days. If Bitcoin goes to$107 ,000, you pay me$100 ,000. But you're paying me$1 ,000 in the meantime for the right, but not the obligation to buy that from me. Bitcoin goes to$107 ,000, great. You're in the money. You buy the Bitcoin from me at$100 ,000. You go sell it back at$7 ,000. You're net up$6 ,000 in that$1 ,000 you paid me, all good.

44:05For me - Can I just ask a question? So in the 80 % of the time that that works, great. In the 20%, it doesn't. Does that cause any issues for the business? Well, and so it's hard to know what you want, right? Because the 80 % of the time it works, we keep the money. But that also means Bitcoin didn't get to that level that maybe we wanted to sell it at. So you have this entire non-stationary thing. And so this is what we've been titrating and really kind of, quite frankly, innovating on, right? And so we've innovated on how far out we go, what deltas we use, how often we will essentially rewrite those deltas.

44:39So most people that, that, and most of, most of the kind of other people in the space, they'll come in and they'll say, Hey, I want to generate yield on my Bitcoin. I'm going to sell a thousand calls six months out. And they're basically really, really in the money or really out of the money. And what we do is we build what's known as kind of an option tree, right? And so we build, we're basically DCA into these positions all the time that kind of reduces our kind of, it marries our outcomes, our realized outcomes more to what you would be kind of an expected outcome in the market, just because you have more kind of data points to go through rather than kind of having these chunky.

45:16I just want to hit on one point as to why I'm not as worried about, because at the end of the day, you want to keep the Bitcoin on your balance sheet because the upside appreciation of the technology diffusion is where a lot of value sits. So let's say that we are selling, I'm going to use round numbers, 500 Bitcoin a month in order to pay for our expenses and make investments in CapEx. And we've got laddered out across the big tree, a number of different durations, a number of different levels, etc., 1 ,000 Bitcoin that are out there that could be called away. And Bitcoin goes parabolic, which it has done from time to time.

45:51And we get called away on all 1 ,000. Typically, you'd say, are, well, that's really challenging because now our treasury position has been reduced. Well, this is the beauty of having an operating business that prints revenue in Bitcoin, because now we've got two months where we don't need to monetize any of that future production. We're able to replace it onto the balance sheet. So I love the - Oh no, I sold a thousand Bitcoin up 30 % in a month. And now I just have to sit on my hands for two months and just pause our strategy and make it all back. So does this only work when you're actually generating Bitcoin as a company.

46:24Exactly. The specific way we're doing this is, yes. This is the key, which is that what we're not doing is selling equity or raising debt to go purchase Bitcoin to create our treasury position. We have an operating business that puts us in a treasury accretive position. And so because of that, the doors for what we are able to do open up. Okay. I need to go back a bit then. So with the expansion into AI that you're going to do, Will there also be expansion in the Bitcoin side of the business alongside that? So what my vision and what our collective vision for the future looks like is that Bitcoin mining as a percentage of revenue is going to be dramatically smaller.

47:05And we could still see our Bitcoin mining revenue expand because our AI is just going to grow faster than our Bitcoin lag. So when you're set up, like, I understand now where you said clean spot capital, because this seems like a whole different business almost within the business. And the reason that it works is that we are in a high capital intensity business. And so having a tool and a flywheel that works this way becomes a funding mechanism for all of the growth that we want to engage in. I really want to emphasize that CleanSpark Capital or whatever that may or may not be over time and digital asset management in its current form is not meant to be some internal hedge fund or thing that sits off in the corner.

47:42And this is I've heard a lot of our a lot of our. So what is it meant to be? It is meant to sit in. This is the whole point is that the risks we are able to take risks that are outsized in a vacuum because they are hedged out by the operating business and they generate additional margins for the mining business and ultimately the operating business and ultimately the capital. So it's meant to feed and enhance the profitability of mining. It's meant to fund expansion. And it's meant to maximize the potential of the Bitcoin huddle. And so I've heard a lot of other people that try to do this. And it's, oh, you know, the most important part of this is that Gary Vecchiarelli, our CFO and president, had this idea for this trading desk four, five years ago.

48:33And, you know, when you have really mean this, you have to have a management team that is fully on board with what you're doing. You have to have a strategy and philosophy that maps directly onto your operating profile. And you have to have a team that can implement this in an institutional, rigorous and risk managed way. And so does that answer your questions or concerns? I mean, push back. I mean, it's not that I have concerns. It's just like, do you need the Bitcoin side of the business to continue to grow to allow this arm of the business to continue to grow? I mean, can I address some of the thoughts around that?

49:15I mean, I just think that there are, look, I don't want to shock you guys, but in about two years the bitcoin block subsidy is going to go down by 50 percent why do you don't tell me so in about a hundred years there's going to be no more bitcoin to mine other than on the fees and transaction side there's no subsidy the block subsidies correct okay right so this is always a game of running as fast as you can to get as much bitcoin on the balance sheet as you can to ride that adoption curve up and then to diversify both your digital asset management side in order to figure out how to kind of drive incremental returns and to expand into, like we touched on some other Bitcoin-denominated revenue generating things, which we are exploring very, very deeply.

50:10So the idea is always going to be, hey, how do we maximize the value of every kilowatt hour that we're expending? How do we take other complementary Bitcoin-denominated businesses, because we believe that Bitcoin is going to be a core capital asset in the US economy, and how do we take the float that that generates, maximize the margin on that on the digital asset management side, and then turn that into an origination machine, which can then drive back into the float? And that origination machine might be kind of AIHBC revenues, it might be structured products, it might be a whole bunch of different stuff.

50:43And that's kind of, I think, kind of TBD, but things that we think very, very deeply and granularly about. And there's a fundamental piece in the data center side that I think is important to talk about in this context, which is that the data center deployment capital life cycle is incredibly intense. And so if you are able to drive down your cost of capital on your data center deployment, you're able to realize significant margin expansion across that profile because you're borrowing dollars to build a data center, you're getting paid dollars for access to that data center, and the spread between those two numbers ends up being really material to the business.

51:22And so if you're able to expand that spread, you're able to give a lot of shareholder value back because you're doing it in a way that other people who are running exactly the same type of data center strategy are not able to enact because we've got these other components to the business that makes us a differentiated player, even when we're engaging in a similar activity. So tell me a bit about how the market views Bitcoin in this. Because like me as an all Bitcoiner, if I go out to a lead and try and get a loan, I'm going to be paying like high single figure, low double digits. Is that the same for you when you're doing this at such large scale?

51:58I mean, like, no.

52:02I want to know, though, like how you see that maturing, because we probably think or would all agree that Bitcoin is the best form of collateral. Like when will the market wake up to that? I mean, totally. And this has been my argument for a long time, which is that ironically, if you look back, you know, even a year, but definitely two years, you were you're you're 200 percent kind of over collateralized on a loan. You're paying nine to 11, sometimes higher percentages than that. And, you know, it's just it's just an upside down market. Like our view on this is the price of a Bitcoin secured loan should trade below the comparable, call it corporate credit market.

52:41I think you might say treasuries, but I would say corporate credit market. Yeah. With the idea being that if I'm giving you. What numbers are they? So. What are we in the market with? No, I don't necessarily mean you if you can't share that. We're in the market around software plus 3.55 % is the most recent paper that we've printed. Spreads have come in another 150 basis points from there. So you're talking – we're seeing indications in the kind of 6 % range at the institutional scale. I think depending on how you structure things for really kind of like really like overnight style paper where you're kind of doing trade finance, what looks kind of like traditional repo.

53:24You might even be able to improve a little bit from there. I think for term financing, you might be able to go a little bit up because the lender's taking a little bit more of kind of a, there's a little bit of a term premium that's built into that. But we're talking about compression of 500 basis points over about a year, right? So even though they are taking like a longer timeframe in that, there's no risk to them. Correct. So the reason that there's a premium on those dollars is because the price is not purely a fun risk. But yeah, there's always risk. There's always risk. Let me be clear. But the price of the dollars is not a function of the risk profile of the collateral.

54:00It's the competitiveness by which other people want those dollars as well. OK. And so if all of us are saying, we all want to go buy a house, but our mortgage broker only has enough money for one house, they're going to have all of us bid on it. Yeah. Even though they're never going to lose money because the house is like super cheap or whatever. Yeah. But so there's two dynamics. One is how likely do they think they are to lose the money? The second is how competitive is the market to get those dollars? And what are we willing to bid it up to amongst the three of us as we go out to the housing market?

54:31Can you explain why you think the interest rate should be lower than treasuries? Because like when I hear that as a Bitcoin, I'm like, fuck yeah. But like, why do you actually think that? Yeah, because it's like not impossible to lose money on a over collateralized. It's always possible to lose money if you try hard enough. On a relative basis, the likelihood that you lose money on a Bitcoin collateralized loan as the lender is about as low as you can possibly get. Because you're saying, you know, let's walk through the mechanics of what the lender is doing. I'm the borrower. I give the bank a million dollars of Bitcoin.

55:08The bank gives me$700 ,000 of dollars. The minute that the Bitcoin goes down to being worth$750 ,000, they have a$50 ,000 cushion still, they automatically liquidate that Bitcoin and extinguish the loan. Yeah. And Bitcoin trades between$40 and$80 billion a year 24-7. Yeah, you can do it on Friday night. You can do it on Sunday morning. You can do it on New Year's Eve. there is no limit to the market availability because I think one of the risks is that you go to the overnight repo market, which Rory mentioned earlier, which is the relationship that banks have with the Fed. The reason they call it the overnight market is because you give them the dollars in the afternoon and you get the paper back the next morning.

55:50It's overnight because there's a gap in the trading window. And so Bitcoin doesn't have that time gap. And so because of that, the liquidity profile of the collateral liquidation mechanism is not seamless, not lossless, but as close to seamless and lossless as we've ever seen any market for credit ever. And look, I mean, this is still super underappreciated. Like Bitcoin's a teenager. It just got its driver's license, right? Like it's 16 years old, right? And it's a terror on the road sometimes. But like the point is we've been through multiple cycles, multiple liquidation cycles. We have institutional trading infrastructure.

56:30We have OTC deaths that can quote risk. We have credit facilities. We have banks that are getting involved. I mean this is not untrodden territory anymore. And so the argument essentially for kind of why there's been that compression is one is that I think the people that were long dollars knew that they were getting paid. paid more than they should on a risk-adjusted basis to make these loans. And they're probably getting down to, we're getting within horseshoes and hand grenades territory of probably properly risk capital. But yeah, I mean, if you're going to ask for over collateralization in an asset that trades that is one of the most liquid assets in the world and one of the few assets that trades truly 24-7, then that to me commands a lower risk premium than almost anything else.

57:23If Bitcoin is this turbocharger on your balance sheet, do you think other businesses will start doing similar things to you, even if they're outside of the Bitcoin space? I mean, and this is my point, is that I can sit here and I could literally open up our book. I could show you exactly what our positions are. I could tell you exactly how I think about it, and you still can't do it because you don't have our operating business. No, no, it's not about expertise. So let's say I pick you out of CleanSpark and I put you into just a regular company that's not doing anything in Bitcoin. Do you still think Bitcoin should be on their balance sheet so you can do this sort of thing?

57:53I mean, my argument would be yes, because I think that there, again, and I'm not saying it should be 100 % necessarily. Again, I would do the same process that we ran through here. I would decompose what is our risk tolerances, what is our expertise, what is the timing of cash flows, what are our needs what's our margins you know what are our current assets and i would think about this and but yeah i mean the argument is it should be some portion of this because there is upside optionality on the asset there's the ability to borrow against it while you while you hold on to that upside optionality and there's the ability to drive incremental returns from it while you're doing that in the meantime so i mean i just to me it's it's an obvious yes but i understand why it's taken a long time.

58:37And what you're describing is that all of these businesses out there have a long lineage in traditional corporate treasury management, which is if you're running any version of a business, whether it's a very small mom and pop business or a very large conglomerate, is that you have cash on the balance sheet, you have timings of cash flow. And so how do you take the cash on your balance sheet and utilize it as constructively as possible for the operating business's needs in the interim. So, and I'll wind you up, which is that - You're good at that. Like, you don't necessarily need to take Bitcoin exposure to utilize a Bitcoin treasury approach, which is like, if you're, and I'll pick someone who has a, you know, pick a company that has a big cash position.

59:27Apple. Apple. Why isn't Apple just banging the Bitcoin basis trade? Well, the thing is, a lot of people have, and that's why there's been compression in this space. So, and what we talked about is part of our original presentation. We showed this essentially flywheel, and it showed kind of a flow chart of all the different things. It starts with a Bitcoin coming in. Then you sell a covered call. You sell a covered call. You get called away. It turns back into cash or turns into cash. that cash either goes in the operating business. You can write a put to get back into that Bitcoin. You could put a basis trade on.

1:00:03And you look at all the different flows and how they all go into interest. So yeah, people banged the basis. I think that the word got out. They got that. What is the basis trade? Basis trade is just the difference between the spot market and the futures market, the spot market and the forward market. And so there's a reason that the forward market kind of trades generally at a premium, essentially. And so backwardation means that the price of the spot asset is lower, is higher than the price of the future asset. And the reason that you would be generally in backwardation, like let's say oil – maybe not in the last kind of 30, 60, 90 days, but oil tends to trade in backwardation.

1:00:38And the reason is that if you – you might need that barrel of oil now, but if you only need it in three months, well, you're going to have to pay storage costs. You have to do routing. There's kind of all these – This is like why it went negative in COVID time. Your point about the basis, I do think it will come back because I think that human psychology is one of the most things that is one of the things you can bank on in financial markets. And the reason that the basis has been so persistent, it's down to about 3 % right now. And so what you're at is it's basically been compressed to essentially the cost of institutional capital.

1:01:14We've been able to actually, quite frankly, to put on the basis trade at above market rates because of the relationships that we have with some of our counterparties. Some of the things we understand about some of their balance sheet needs, they might. And so they know that we have capital. And for a very small portion of kind of our balance sheet, we're willing to essentially put some Bitcoin on their balance sheet. They're willing to pay above market rates for that. They give that back to us on the basis. So that's kind of another one of the sort of side benefits of this institutional desk that we have.

1:01:38but the point being that why would the basis trade in Bitcoin trade higher, what's known as contango. So the future price of Bitcoin is higher than the spot price of Bitcoin. So Bitcoin is$100 ,000 today. In three months, it's three months, it's 103 based on kind of this forward curve. There's a couple of reasons. One is leverage, right? So you're a hedge fund, you're a retail trader, you're whatever. If you go put a forward on, you only have to put up$35 for every$100 of exposure that you get in Bitcoin. So there's a demand for that. That's an interest. That demand, it's everything decompose.

1:02:14You know how everything computer, okay? Everything interest rates, right? It's always cost of capital. And so you're willing to pay a percentage on that because you think you're going to make 10 % over three months and you're willing to pay 3 % for that or whatever, right? And so that's kind of where that comes from. And so when you see Bitcoin go into a bull market, when you see kind of those outsized returns, and this is the other beauty of what we do, right? That's when, so we're getting, we might be getting called out of some of our coin. Now, what are we doing? We're holding dollars, okay?

1:02:46We're holding dollars at a time when demand for Bitcoin and the forwards and expressing that view via the forwards and the futures market has gone absolutely bananas. So we've seen these brief spikes, right? So even during this period of compression, we've seen these periods of brief spikes to kind of 9 % to 12%. So now I've sold Bitcoin up 30 % in a month. I'm holding dollars. And I can plow that back into Bitcoin basis trade in a delta neutral way at 9 % to 12%. And so that's the flywheel that we're talking about. And so I think people credit it. And again, I say simple, not easy. Yes, all we're doing is selling covered calls.

1:03:24All we're doing is banging the basis. All we're doing is doing this. All we're doing is doing that. But it's the way that we map it onto our business. It's the way that we've thought about this as it decomposes across the kind of demand cycle that Bitcoin goes through. And it's about the way that we express those trades in institutional ways, manage them in a higher velocity than other people in the industry do, and quite frankly, build deep relationships that are personal and human with our counterparty. So, yes, they can check our credit report. They can read our SEC 10K or 10Q. We exchange financials.

1:04:02We do everything via ISDA. We have one of the kind of strongest kind of 360-degree views that we take to every relationship with just legal, internal controls, tax, accounting, risk, all of this stuff. But we also build deep personal relationships, which quite frankly, Danny, is why we're sitting around this table, right? Like I've known Harry for many years now. We became friends because we sidled up to the same bar at Hill Country in NYC at an unchained pop-up on February 20th of 2020. I don't remember because it was right after. I don't remember that just because it was right after Valentine's Day and I kind of love the guy.

1:04:37But I remember it because it was during a period where we were going into a very challenging period for Bitcoin. We became fast friends. We were ideologically and philosophically and temperamentally and psychologically and all of that kind of aligned. And we talked for years before he hired me. And then we went through Grid. And that was had its ups, had its downs, had its ups again. And now we're here. And so we've built these relationships in this space over cycles and over times. And we take that at CleanSpark. We take that view to our community relations. We take that to our counterparties.

1:05:08We take that to kind of the people we talk to in the space. And, yeah, we're not here to be kind of showbo baggins for CleanSpark. But what I think that we have here, and if I could just, if you mind, if I just, right, but is that you have to have, if you want to do great things, and this is one thing that I've quite frankly matured on, I think over the years, is that there's such an individualistic streak in this space. And I really believe in that. But if you want to do great things, you have to do it together. You have to have an organizing principle and an organization around that. And so I really do think that CleanSpark to me is the enunciation of that organizing principle.

1:05:45I think it's where our skill sets have been best matched over time. We've tried to figure out how to work best together over many years, and it feels like we're expressing it in this space. The people that we work with are very complementary of that. Our management from Matt Schultz and Gary Vecchiarelli all the way down is very empowering of that. And the opportunity set in front of us is incredibly fertile. And the groundwork and foundation that we've laid is ready for that. And you know what? That only took about eight or 10 years of really, really, really, really, really effing hard work, right?

1:06:19So I just, I believe in what we're doing. I really do. My only addition is that all the value in any compounding environment happens in the out years. And so the trick in every overnight success is that it takes between 10 and 20 years to get there. So if you have the viewpoint and the temperament to figure out how to do something exciting and important, you've got to stick with it for a very long period of time before the more tangible value gets realized. But it's about having the mindset and approach that lets you get there before you're always going to be tempted to dump out like 30 times along the way.

1:07:03don't that's all just keep going um you've got a go right i do let me ask one more question to finish um this is obviously you're doing like novel interesting things with bitcoin on the balance sheet do you think this is actually the start of a corporate finance revolution with bitcoin i really do i really do we sit in a really unique and interesting space where again it's not anything that i did individually it is the dna that clean spark built many years before I got there. It is the hard work of Bitcoiners from the cypherpunks on up that have set the stage for this. It is the people that have been willing to push things forward, like everybody at Square who's pushed things forward on kind of payments and infrastructure rails.

1:07:46But we are sitting in a seat where we are fortunate enough to see a lot of, let's call it deal flow opportunities. Thank you, Siri. Deal flow opportunities, things that are developing. We really do want to be on the tip of the sphere developing that because we believe that our approach to this is going to be the most institutional risk management, transparent, high integrity ways to do it that are going to be good for all of our stakeholders. But yes, we are seeing this across. I mean, it is truly a Cambrian explosion of products. And like I said, there's been a lot of criticism in the past of yield and credit.

1:08:22Yield is productive return on capital. Bitcoin forces you to find what the true cost of money is and allocate it in the most productive ways possible. That's not a bad word, particularly when it comes to digitally and digitally native scarce hard money. And the second thing is credit has traditionally been a really bad word. But again, that's the exact same idea. It's how do we allocate this credit in the most productive way? And so I think we're seeing that happen right now. And I mean, it's truly the honor of my career. I mean, I'm a total nerd, but it's an actual dream to be at the forefront of an industry that's developing these.

1:08:58That is awesome. Right, we've got to go. We've got stuff to do. Thank you so much, guys. This has been fun. Thank you, Danny.