Bitcoin Mining After the Halving w/ Brian Wright (Galaxy)
welcome to Galaxy brains an infinite
amount of cash I’m your host Alex Thor
the US banking system is sound and
resilient Bitcoin made a new alltime
high if you’re not long if you’re not
long you’re short satachi is going to
come on there laugh hysterically go
quiet all bitcoin’s going to be erased
Bitcoin bitcoin’s the best
crypto Bitcoin is going to zero welcome
back to Galaxy brains Bitcoin not zero
uh still so that’s positive and uh I’m
your host Alex Thor thank you for
listening um hey got some interesting
news but before we get to this I need to
remind you to refer to the link to the
disclaimer on the podcast notes note
that none of the information in this
podcast constitutes investment advice or
an offer recommendation or solicitation
by Galaxy digital or any of its
Affiliates to buy or sell any Securities
um Phineas my friend we are back uh as
usual we’ve got a great episode today
the Bitcoin having happened last week
we’re going to talk with my friend Brian
Wright uh co-head of Bitcoin mining at
Galaxy uh about the having the future of
Mining and feed and also what galaxy
mining has coming up um what do you
think we just cut that interview how’d
that go in your mind very engaging lots
lots of happenings yep via and because
of the having and I think it’s uh
interesting to hear two folks who know a
lot about it break it down yeah some
other news here of course we’re going to
check in with our friend Bima BB from
Galaxy trading as always too but some
news happening in crypto this week in
the crypto world one the IRS released a
1099 da that’s their digital asset $199
a draft version of it this is the thing
that they give you at the end of the
year in your brokerage account that has
the tax information but they also
provide to the IRS like your brokerage
firm sends it to them the the broker
rule uh that was passed as part of the
20 uh
21 infrastructure bill um in requires
that um the sorry maybe it was 22 I
can’t remember the bill um it it adds
this authority to the IRS and now the
big question is um you know it’s one
thing if like your coinbase account or
like a normal exchange is going to do
this like um you know they’re a
centralized company they’re regulated
but the the draft includes that unhost
wallet providers should be providing
this too which I think is an extreme
overreach I’ve written about this a lot
like a piece of software that lets you
self- custody Bitcoin is not should not
and is normally not in a position uh to
file this or know what your cost basis
is right so tricky that’s still in a
draft um you know tax news to start us
off um block you know the the maker of
cash they just announced that they
finished designing their new Bitcoin
mining Asic chip um so I don’t know
maybe we’ve got a new manufacturer and
then this is interesting in Hong Kong
Bitcoin and eth ETFs are set to start
trading for the first time on Tuesday
April 30th um I don’t know could be big
although I was told by the guys at
Bloomberg that uh the entire Hong Kong
ETF Market is smaller than just the
Bitcoin ETFs in the United States wow so
potentially something there um but it’s
not it’s not like a US sized capital
Market granted none are um and then CZ
CEO former CEO of binance the largest
Exchange in crypto um remember he pled
guilty to a variety of charges mostly
stemming from uh lacks or non-existent
in some cases AML kyc policies at
binance uh the government is so he paid
a big fine and pled guilty and we’re
waiting on sentencing the government is
asking for a three-year prison sentence
for CZ I think the recommended for the
charges pled guilty to is 18 months
we’re going to find out on Tuesday
whether CZ what the sentence will be um
pretty wild I mean different than SPF
for sure because binance apparently and
thankfully was solvent so he didn’t
steal anyone’s money right so it’s a
little bit different um but nonetheless
that’s going to be a big story I think
next week um so check out for that hey
also I know some people have been upset
that we switched the static intro and
not haven’t been wrapping the intro
anymore but fear not we are going to be
rapping more separately um and this is a
great example at stay tuned to the end
of this episode for a special I mean I
guess having themed rap song uh Captain
Youth and intangible coins uh so at the
end of this episode called stealing time
it’s really good um it’s literally at
the end of this episode you listen to
the whole thing you don’t fast forward
um and anyway let’s go to
bimet let’s go down to our friend Bim
net AB BB from Galaxy trading as always
Bim net welcome to Galaxy brains thanks
for having me um so kind of a quiet time
I mean you had the Bitcoin having which
had a big impact on the network the
network obviously becoming the monetary
ass becoming scarcer but fees spiking
because of runes and ordinals and stuff
we’re going to talk with Brian Wright
from Galaxy mining in a minute about
that but um otherwise though like BTC
like kind of sideways what equities like
have been down but kind of like sideways
at the moment like it’s sort of yeah
they’ve been down for a couple weeks we
waiting for a new Catalyst or yeah what
are we waiting on well earnings yeah so
you know I think this week
about 160 companies in the S&P 500 uh
report earnings including some some big
Tech names yeah and so that will broadly
uh give the market a sense of you know
how healthy the the economy is you know
in terms of you know are people spending
money uh how healthy corporate balance
sheets are um so it’s and know you know
broadly impact risk sentiment you know
people if people start feeling good
about stocks again that should be good
for crypto that should be bad for the
dollar you know etc etc um so it’s
really important to pay attention to
these earnings um I play closest
attention to the consumer discretionary
companies that you know have a a bigger
kind of a stronger pulse on on on where
where the US consumer is um also credit
card companies as well um one
interesting tidbit uh one of the lower
quality credit card companies uh
recently reported earnings and they have
had their Provisions for loan losses uh
start to tick higher uh and it was uh
back to levels like that you saw in like
2008 and like around the financial
crisis we’re talking about like uh
provisioning of slightly over like 5% so
wait setting aside Capital to cover
those losses is that is that what that
means and like the delinquency rates are
you know set aside more as they expect
more losses basically so you’re saying
what the the consumer is now stretched
and there they don’t have extra cash
anymore they’re in debt yes yeah and the
the debt is at a higher cost than ever
because interest rates have have have
gone up uh savings have come down a lot
because you less far less transfer
payments from from the government it’s
also wages have not kept up with
inflation and so it’s a constant burn on
people and more and more people are
getting stuck in like the debt trap and
just spending more money than they’re
bringing in and so you are starting to
see cracks in in that econom in the you
know everyday person I would say um and
then the other thing to pay attention to
I think from this earnings season um is
the ability of of of corporates to
respond uh to increasing costs by
raising prices so you know over the past
couple of years you’ve seen a lot of
consumer staple companies your you know
big conglomerate types be able to pass
through the cost the increased cost of
Commodities labor and and other services
uh to the consumer but that was because
the consumer was in a much healthier
spot and so they could absorb that but
now you know if you’re you’re continuing
to see some of those costs go up right
and there’s less of an ability of those
corporates to pass through that that
that pricing to Consumers where is it
going to have to come from it’s going to
have to come from their bottom line Y
and so they’re the you’re going to see
margin compression as the consumer kind
of tightens up um and then obviously you
know you know consumption is like 70% of
the US economy and so you know like are
people consuming a lot are and and what
what are they telling you about what
they’re likely to consume going forward
these corporates are so good and so
precise at forecasting every foot bit of
foot traffic in their stores every bit
of sales Etc and so when they speak you
got to listen um and generally earning
season’s a great time to kind of you
know set back and be like what’s going
on yeah so a number of interesting
things that I’m hearing from you here
and reasons why earnings matter one
obviously that you mentioned at the top
was it it can help you know people
become bullish on stocks like that can
that can sort of change the whole
attitude and the risk sentiment in the
country in terms of in on the investor
side which can impact things like crypto
and the dollar and whatnot but also that
you’re reading through some of these
earnings like looking through them to
help understand Engage The consumer’s
Health yes overall which obviously has
an impact later on inflation and and
whatnot right if they’re all spending a
ton then inflation could be stickier
like yeah and it’s also like are they
laying off people right you know that
impacts the employment situation which
is is one of the fed’s mandates right so
um very interesting and and then I
wanted to ask you too when we think
about like how does this I guess so so
no fed speak no we’re talking about on
the macro data right now so what does
that mean that as they lead into the
fomc or something they can’t talk
correct yeah uh and right now like even
if they were talking like it’s just a
bunch of noise all of them come out and
like there’s ailon speakers every day
and it’s like I get the message like
data’s been hot you’re less likely to
cut like I you’re telling me it in 15
different ways to be clear you’ve been
pointing this out for several months
that like they would probably get here
and that that well actually what you you
weren’t sure whether they would get here
you were saying they absolutely should
get here and not cut because the economy
was h fine yeah um but now it seems
consensus I mean obviously the you know
the the the the Futures markets on rates
are basically pricing in barely any Cuts
like one cut maybe one or two
cuts um down from what like seven cuts
in January they thought we were going to
have seven cuts which was insane um but
I mean if if you really think about it
like I think your oneyear inflation
rates are like you know the average like
high 3es your six month stuff is now
looking at like you know probably like
low four you know probably still high
threes mid mid you know High three but
now your like three-month run rate of
the past like couple of inflation prints
is like mid fours yeah and so like it
doesn’t seem like you’re anywhere close
to your inflation Target yeah um and the
one thing I would highlight as well is
that you know Market expectations for
inflation are you know pretty important
and I think that’s what you have to
monitor the most because if inflation
just keeps continuing these expectations
are just going to like start to break
out and then people are going to be like
you know they’re going to doubt the
fed’s ability to actually achieve their
mandate they’re going to lose yeah
they’re going to lose some credibility
and stuff but I just don’t know how much
more inflation people can really put up
with because as we’ve talked before on
the the past episodes like you are
getting taxed because of inflation
people are going to end up spending Less
on you know tons of activities if if
their Essentials are costing them way
more and they are I mean I even you know
we all see this I have a family we go
and buy groceries you know some single
people in New York may not go to the
supermarket very often but we do and
it’s been getting more expensive for
years at this point um also looking at
things like um electricity cost is going
up like gasoline obviously but you know
the gas we don’t drive too too much I
mean it’s it’s been kind of expens from
I don’t know maybe I’m old I remember
when it was like a dollar a gallon so
pretty much anything over like two seems
kind of expensive to me but it’s it’s
been up um but really the one I looked
at recently was the electricity bill I
was like maybe I unfortunately I don’t
live in Texas where I can you have a
much Freer Market on electricity and
they have a bunch of Renewables I live
in one of these many parts of the
country where the grid is controlled by
one operator with totally opaque pricing
yeah which is how most of the country’s
electricity but it’s it’s we’re talking
a fair amount and we haven’t even come
into those summer months with like where
it gets really hot so um yeah they
they’re they’re hurting and also you see
these videos on Tik Tok I’m not on there
but they get posted on X right and um
people are hurting they’re talking about
it a lot a lot of videos of people being
like how and by the way some of these
people coming around to the wait a
second why can’t we just print more
money kind of question oh yeah getting
pretty interesting Tik Tok set to be
banned in the United States the
president just signed a bill that forces
the sale of it or bans it um just as
another aside here about the economy I
just it it does seem like the consumer
the average everyday consumer you even
call him the voter um is in a lot worse
shape than than people it’s not getting
any better right it’s actually getting
worse and it it I don’t think it will
get that much better there are no
magical solutions to this stuff like the
government’s not going to stop printing
money in fact they’re printing more
they’re printing more money see you know
like record issuance right and like like
and it’s just like it comes down to like
the wealth inequality stuff right like
rich people can keep their assets uh
their you know savings and assets that
are more resilient to inflation they
even appreciate even appreciate even
further right so the people that own
homes right now right as housing keeps
going up they’re protected against
inflation because you know they they
rent to people and as rents go up
they’ll raise their rents and they’ll
keep up with the inflation right and
like that’s what people spend a lot of
their uh you know money on is is housing
and stuff and so you know and then if
you don’t own these assets and like if
you want to hedge against inflation gold
silver like those things are already
trading super well at the dead highs and
like if you really want to keep up you
got to have big positions in them and so
it’s like it’s it’s just so bad yeah and
I think you know like which is crazy but
like part of the reason why social media
exists is to keep people like in a way
so that they don’t focus on on this
stuff but so the government probably
does need Tik Tok they just don’t know
it yeah I mean I think right now it’s
working against them or they think I
mean I I don’t know exactly why don’t
get me wrong I have no idea but it does
seem like it is a powerful tool for bite
dance to impact like a Chinese company
to impact America but again people I’ve
seen videos they are Furious about this
they view it as a free speech issue um
this is I thought a free market it’s a
very strange that’s very strange but a
lot of content on there about the
average like from people all across the
country saying they can’t afford basic
Staples that they’re working two three
jobs and you know I also think about the
employment number right like such a
crazy a lot of that employment is
part-time employment part-time employ
but it’s also the numbers are wrong
there the statistically and they do
don’t they update the numbers like every
time they’re way off all the time well
yes but I’ll take give you an example
this is the one that’s really been
trending recently is We’re a nation of
what 330 million people I don’t know
maybe the labor force is like 130
million people of that or maybe a bit
higher than that but initial jobless
claims every week are
$210,000 or 200,000 people same number
same number doesn’t make sense for a
population in a sample size that big
that the variability is that low right
like it’s it’s insane to me and and it
was crazy when when the job market was
really hot every single month got job
revisions higher there’s a huge spread
between you know the the household
survey and like the employer survey like
there’s so many weird statistical
anomalies in this data it’s like it’s
hard not to like not saying you need to
be a conspiracy theorist but you have to
wonder you have to question this stuff
yeah like even the like you know if I’m
a Fed official like I’m going down to
the people taking you’re like the guy in
The Big Short right Mich uh Steve
Carell’s character he’s flying down and
looking at it cuz like the data didn’t
make sense didn’t make sense this is
what what I’m saying about the Tik Tok
videos is like look you’ve got data on
one hand but then you just like hear
from the people that it is bad I mean so
I don’t know it’s a very tough thing um
anyway it seems like we’re a little bit
of holding pattern we got to let
earnings play out we’ve got to I saw I I
posted this on Monday or on Tuesday that
it was the lowest day in like or it was
the seventh lowest day ever in ETF
Bitcoin ETF volumes actually quite close
to the lowest but there were some in
February that were um so just people
like crab market people trying to just
wait and see basically honestly we don’t
have fed for what several more weeks so
so yeah I here’s the thing I I love
Bitcoin think it’s a great long-term
holding but has it lost a little bit of
a short-term momentum probably and you
can see that reflected in you know the
uh the volumes yeah in addition like you
know you had the Hing you had the ETF
right a lot of the the big narratives
for crypto have played out right yeah to
be to be frank that’s right and so you
know a lot of times markets need
catalysts yeah and markets need and like
especially in such a speculative asset
like like Bitcoin you know people like
to see good momentum to continue to
participate right and so you know to the
hardcore bitcoiners this is just noise
this is just like path people who are
like this is great we can stack here we
can stack everybody that’s like in the
Bitcoin game is like I need more time to
get more Bitcoin right like I got to
have more but it’s obvious I mean if you
look at the ETF flows as one version
like you can just see like huge run in
February and March and then April’s been
kind of like basically almost more
anemic every day I think we might have
decided that we bottomed I think two
last week
uh we had I think basically the lowest
total inflow ever um the lowest for the
biggest ETFs inflow right so I think we
maybe have bottomed but we’re remember
too on that flow story with the ETF we
haven’t had these wealth management
platforms and stuff turn on at all yet
our entire analysis was 14 billion in
year one takes us to 75k in price all
from a percentage a small percentage of
these wealth management platforms well
we had 13 and it brought us to 738 and
none of those platforms had turned on
yet so presumably there is more demand
side to unlock but I agree it feels you
know we’re sort of just no but but like
that’s really what you need for the
long-term thesis is just more access I
want multiples every month no remember
when it was 165 we were I was sitting
right in the seat yeah a year and a half
ago a year and a quarter ago brutal
times Well Jes well we we’ll keep
watching and we will let you know um
there it is my friend Bim Netta BB from
Galaxy trading thanks for having
me let’s go now to Our Guest Brian right
co-head of Bitcoin mining at Galaxy
Brian welcome to Galaxy BRS great to be
here I’ve always looked forward to being
on this I’ve been a big fan of Brian and
we’ll get into a little bit about our
let’s I we’re going to tease this to a
little bit about our history together we
worked at Fidelity together but I’ve had
Austin on I had had Amanda on um I think
Rachel had even been on from the mining
team beey I think yeah maybe it was on
once haven’t had Brian on Blake too hold
down on basically everybody but Brian
has been on but now Brian is here for
our big post Bitcoin having breakdown um
so great to have you on Galaxy brains
Brian um Bitcoin having the fourth
having happened we’re in the fifth
mining Epoch or Supply Epoch of Bitcoin
um miners are getting 3.125 BTC now as a
subsidy it’s the inflation of Bitcoin
there’s about 6 and a half uh 6.25% of
Supply left to mine mhm um I don’t know
the the event was so we’re recording on
Wednesday this comes out on Thursday it
was last Friday the having um block
840,000
um you know what happened yeah so a lot
to talk about here but I think the
biggest story was probably transaction
fuse um but before I even get to that
also there was no reor right that was
actually really interesting because a
lot of people were calling for a reorg
and that it would actually only be
economically rational to try to reorg
and and the rationale on that is that
now that we have this concept of you
know rare SATs in this epic sat which
was the first sat in the block mind in
this Epoch that is you know projected to
be valued at in in the millions of
dollars actually for for that sad many
many were calling for I’m rolling my
eyes at this R but okay yes um and but
so if there is was demand for that you
know some people were calling okay let’s
let’s you know try to reorg actually if
you if you’re the pool that does not
mine that block but that did not happen
so block
and then 840,000 gets mined that’s the
first in the new Epoch and then the
reorg would be rather than then if you
don’t win that block yes rather than
build on top of that you actually go
back and build on you try to build a new
chain on top of 839
999 yes and you basically if you end up
not successful and by the way know there
was a little there was an attempt it
looked like but it was not successful if
you end up not successful you basically
waste money mining on the wrong chain
yes for a while so that’s the
opportunity cost you’re talking yeah so
there is material um opportunity cost
but it was a high transaction fee block
and then with some expected Extra Value
but there ended up being another block
mine so block 840,000 one like one
minute later and then maybe another one
six or seven minutes after that fast so
we had a sequence of really fast blocks
and so there was no opportunity to which
I think it’s almost good probably that
there was just like no story sort of
around that um but I mean everything
went as it’s supposed to you know we now
we continue to have the hardest money in
existence and you know 3.1 25 Bitcoin
it’s now getting issued yeah it got even
harder there was I saw a small pool
called spider pool which I’ve never
heard of that was mining on that old
block for several blocks while everyone
else had moved on to just mining the the
heaviest chain yeah um you know I guess
I don’t know I I was rolling my eyes at
the rare SATs because of all the uh of
all the things in the ordinals world
this emanates from the ordinals world
right the idea the concept of well if
you’re going to individually label every
Satoshi then maybe some are you know
rarer or more valuable yeah um I think
that’s kind of silly personally but um
regardless you’re right on the market
they can go for some money yeah um but
the big story was really fees because
that was the thing even if you went for
that additional rare sat which could
theoretically net you a bunch of money
yeah you could also just go for the
block itself because fees were so high
yeah so there was over 40 Bitcoin total
in that first block so block 84,000 with
so you know 3.125 the first block with
3.125 Bitcoin is a subsidy and then over
30 37 Bitcoin in just fees but then yeah
you talked about opportunity costs then
after that there were a number of blocks
that were actually over 20 Bitcoin fees
so these were really really profitable
blocks to be mining and so huge
opportunity cost not trying to mine
those so it made a lot of sense why
there there was no reorg attempt but I
think as a result you know as a minor I
had a great weekend to be honest you
know and miners everywhere did and it
surprised me a little bit to the upside
um which was awesome to see like we and
all the
just had their our best weekend in ages
and actually happened post having um and
you can see this on you know hash price
is what a lot of miners like to use and
there’s just this massive massive Spike
over the weekend um as a result of all
this runes activity and so you know
blocks were sustainably you know over 10
Bitcoin I think they were averaging
maybe even over 10 Bitcoin yeah at least
like the next hundred blocks or so and
so you know like just even some
interesting stats from this you know we
had 20 of the
20 of the uh top 100 blocks in total
fees were mind since the having right in
the last like four days or so basically
um and and you know a lot of those
blocks actually the in the 100 blocks
all time that had the most fees you know
some of those were like really early
blocks where oh let me send 35 Bitcoin
in fees because it’s like $5 or
something like like that um and then
year to date we’ve had over 20% of all
transaction fee revenue for miners since
the happing yeah just despite you know
that only accounting for roughly like 2%
of total yeah we’re we’re what like 75
days into the year and like 20% of all
fees were mined in like the last five
days yeah so yeah you know really early
on and I and I am expecting you know
fees to decline it dipped a little bit
on uh Monday of this week so a few days
after but then actually went back up
Tuesday and we were getting two and a
half three Bitcoin fee blocks most of
the day yesterday so literally like 50%
of minor Revenue as late as Monday and
Tuesday yeah exactly and so you know to
me that really surprised me to the
upside and you know when I’m when I’m
modeling these types of things um we
certainly account for okay there’s some
expected kind of volatility with fees
but I think myself and most minors are
probably a little bit conservative
because you don’t know that something
like this is going to happen but it
really actually could be um you know if
we see these events occur you know
probably not sustainably but throughout
the year there’s going to be some
periods where miners are maybe more
profitable than they thought they were
going to be just as a result of
transaction fees yeah last year when
ordinals launched I think technically
they launched at the end of December 22
but but really January 23 um there was
like a huge fee Spike around ordinals at
brc2 specifically in like May of last
year MH and then it got quiet again but
then there was a big run again in the
fall so it does feel like with these
types particularly these token protocols
that I mean well both of these have well
ordinals from Casey rmore also runes
from Casey brc2 built on ordinals not
from Casey but these protocols um they
they’re a little um sporadic and
volatile and win but they can drive big
fee revenue and presumably like I mean
now that you have another one I mean
this could continue I mean it’s not yeah
you know and these fees were
specifically around minting creating
these tokens you know if you’re creating
a token well once you’ve created it like
you know you don’t have to create it
again necessarily so it it’s going to be
jump fits and starts but it does feel
like we’ve for example the M Pool itself
the uh the Quee of pending transactions
hasn’t cleared in over a year I think
for the first time ever so yeah there is
a backlog a Perpetual backlog in people
wanting to get their transaction onto
the Bitcoin blockchain yeah AB
absolutely and I think it’s good that
there’s demand for Block space I think
it’s actually a way to measure the
success of Bitcoin in a way that people
really want to transact on chain yeah
well let’s let’s dig into that a little
bit more so we got runes and ordinals
and I know many people we had Casey on
this show last February um it’s
something we follow I think it’s
undeniable that you have to follow it
it’s it’s a pretty like you said I mean
it’s a huge percentage and portion of
transactions on the Bitcoin Network um
so you just got to look at the market
and acknowledge that and so it’s
relevant it’s very and again if it
impacts fees a lot then it’s very
relevant for both users and miners um
and the network what are your thoughts
on ordinals generally speaking like you
know I know a lot of bitcoiners are are
are
I would say plenty are ambivalent which
I think is how I sort of think about it
but um some are very hostile they think
it’s spam it’s not what Bitcoin was
designed for it’s a Luke Dash Jr said
that the they that users of ordinals are
lying and tricking the code um what are
your thoughts yeah um so I’m definitely
not an ordinals expert but I think I I
approach this from a Bitcoin miners
perspective which really for for me is
that if it’s if it’s truly bad for
Bitcoin then it’s bad for miners that’s
not what I think have seen to date
granted I don’t have you know the
strongest strongest understanding of the
space compared to others I I certainly
follow it but for me if if if it leads
to higher transaction fees for the minor
that’s going to be good and so if it’s
at least neutral to good for Bitcoin and
results in higher transaction fees
miners are probably going to support
that I I I think that and so you know
for me this over the last year and a
half it’s something I didn’t project but
it’s been really nice when we’ve had
these periods of high transaction Fe I
certainly like it yeah speaking of
projections you’re you’re uh you come
from the the you know modeling world
right um how have you had to how have
miners how have you had to adjust your
projections I mean are you now like
building in some like fee multiple like
weighted like variable now like because
before did you even model Fe I mean for
we went through a period I actually
published a paper in 2022 called why are
Bitcoin transaction fees so low and it
was about how basically they’d been Rock
Bottom for several years that’s not the
case anymore how are you modeling this
are you thinking about that yeah it’s
it’s a good question because you’re
right like we almost just totally
disregarded fees in in our models to to
some extent and it changes how you think
about it because miners will either
model the revenue side of the the
equation with hash price which is sort
of combining uh price and network hash
Ray which are the two variables that
most impact miners into kind of this one
variable and you just uh project Revenue
by doing sort of your hash rate times
hash price um and it is it’s a really
useful metric I think luxer kind of
pioneered that and that’s Ally the the
primary reference point that that most
use but I think now what you see if you
look at the hash price chart over the
last year it’s driven over longer time
periods by price and hash rates so if
you sort of compare the the hash price
chart to a bitcoin price chart they’ll
look fairly similar because you’ll see
okay there’s a rise as bitcoin price
Rose granted you’ve also had Rising hash
rate over that time which has had sort
of the opposite impact that compresses
the uh extent to which it’s Rose but
where you see spikes it’s because of
transaction fees
and you’ll see this now it’s permanent
it’s going to be on the hash price chart
forever is this massive Spike at this
having that we we just had and so now I
do think it is making miners rethink
okay do I kind of almost take the easy
way out from a modeling standpoint and
just use hash price or do I actually dig
into the underlying variables and you
know have a row in my model for Price
have a row in my model for Network cash
rate and have a row for transaction fees
as well and maybe you do start building
in some assumptions where you know these
transaction fees aren’t just sort of
close to negligible uh percent of your
total revenue at like you know 1 or 2%
but now suddenly maybe you build in
throughout the year a few spikes where
you’re expecting 50% plus of your
Revenue to just come from transaction
fees um and I do think that’s
interesting because I think it’s
certainly something that you know like
Equity analysts that are following
public miners I don’t think are thinking
about it kind of a deep level I think
miners themselves are thinking about it
but it also even forces some of these
analysts to learn a little bit more
about transaction fees and how it
impacts the business and items like that
as well yeah I was thinking about this
and and you know we don’t really talk we
certainly don’t talk about single name
equities but on the show but I was on
Friday night when the fees are going
crazy I was like huh markets Clos like
for equities I wonder if like on Monday
morning like basically publicly traded
miners should rip theoretically I mean
if you had an over the weekend news that
say I don’t know just a big tech company
had a massive influx of new Revenue
shouldn’t the stock go up and I don’t I
didn’t actually look to see I think
separately there’s there’s been weakness
in equities and
anyway but um that is it should be part
of the discuss and by the way with like
l2s and stuff there are reasons why
there should be higher fee environments
yeah in the future anyway yeah exactly
and I think for for the one weekend you
could brush it off and say this was a
temporary thing around the hav it will
last for a short time period it’s not
going to have a long-term impact on
these companies but if you do start to
see it over these much more sustained
stretches over the course of months it
will actually require a little bit of
rethinking that like did everyone
actually under project total revenue
that these minor miners were going to
get yeah and I think what’s funny too to
your point about this as an event I mean
look there was a really iconic um fee
event on ethereum when um yugul Labs
launched their token I forget what the
token is called but like not their not
board Apes the collection but they have
a token ape token I think ape coin um
there was a giant like insane like rush
to like like claim it or I forget
whatever like right at one moment and
ethereum network fees dramatically
spiked and you can literally always go
back to that chart and see that event
same way you can go to the Bitcoin chart
by the way and see Bitcoin fees in 20
December 2017 and know that that was
like crypto kitties right like and
similarly we’ll be able to say runes
launch right like but and it was
predicted I mean literally people are on
Twitter saying a week ago like hey get
your transactions in now like fees are
probably going to go crazy so you
actually could predict it if you were
following closely and similarly you
should be able to say well if this new
big L2 is going to launch or if this
let’s say there’s another big Rune
project or whatever and and it’s a known
forward date like you should be able to
predict that and it depends how grandly
your you know if you model without your
business Revenue uh side without fees
then you’re just being conservative but
at this point like I mean percentage of
minor revenue for Bitcoin fees has
historically been like 1 to 5% yeah
exactly we had some periods where you
know it was like 8 to 15 if like during
this ordinal kind of period but yeah I
mean for a lot of time like 2% right
yeah like where do you let me get like
what do you think like if we just
average the daily that metric for every
day of this this year now at the end of
the year what would you think it cuz I
believe we published we actually
published in somewhere I think Sim on
your team tweeted he tweeted this chart
like the annualized version of that
number the percent and it’s like I think
last year was like one of the biggest at
like 5% like what do you think it ends
up being this year well I I so I think
to date it’s probably been well below
15% so we’ve got a few months right
where Bringing Down the average a little
bit and then since the having I mean
we’re probably averaging over 100% Frank
Frankly I think if we do every single
day it’s like 59 60% but that’s with
like multiple hundreds of perc on Friday
and Saturday yeah so this might even be
a little bit conservative but I’d
probably go around 25 30% I’ll probably
be wrong on this I 20 I mean I think
that’s about right though yeah um keep
in mind obviously the subsidy has deined
by half so like yeah that’s the thing
that’s worth mentioning it goes no
matter what basically exactly like your
base case is that it doubles from the
beginning of the year essentially so
then you know the the logic is that
you’re doubling and then also building
in some expectation that runes and
orinal is going to be a lasting thing
that will actually impact impact this
stat by a few percent percentage Point
yeah quite interesting um hey okay let’s
talk about the rest of the year for
miners because yeah one of the other
things that we we just had a difficulty
adjustment up yeah yeah probably only
like 15 20 blocks ago now yeah and I
don’t even think that I I I really
should have checked this before we came
on the air but I I’m pretty sure we’ve
never really seen like positive
difficulty increase after right after a
having it’s almost always down miners
become they earn half as much revenue
theoretically and they turn off their
hash rate but it’s going up yeah um
we’re not seeing hash rate come off yet
maybe we will what’s your sort of
expectation like into the summer for for
hash rate prediction yeah yeah um yeah
projecting Network hash rate is
something I think about like all day
long and then when I’m asleep as well
yeah it’s it’s your team publishes this
every
year four reports they’ve been under and
they ejected significant growth and then
hash rate has exceeded all expectations
yes so so so I think this recent
difficulty adjustment just for for
starters you know we the having did
occur towards the end of a difficulty
Epoch and so of a difficulty period and
and therefore so this will be a more
interesting one to me this next one
because you’ll actually have a full
period post having but but I think that
um you know this this having in general
occurred at a very different in a defin
very different bitcoin price kind of
period versus the previous one right the
the previous one occurred in 2020 if I’m
remembering correctly bitcoin price was
still below $10,000 at at the time I
think it was like8 n yeah I think 88 N I
think that’s right and so it’s just
different from where for where a lot of
miners are in terms of are they
operating at the margins or not back in
in 2020 there were a lot of miners
clearly on the margins because you know
they maybe made you know purchases plans
even back in 2017 2018 you know when
bitcoin price was over $10,000 then
three years later you have kind of
growing hash rate you have it’s amidst a
lot of price volatility during you know
the early stages of Co actually like two
months after that March 12th 2020
crashed to like 3200 yeah and so that
was a more kind of dire period for a lot
of Miners and you did see a ton of hash
rate come offline I think this is a
little bit different in that we have
seen bitcoin price appreciation you know
this year and sort of towards the end of
last year as well which I think bailed
frankly a lot of miners out in terms of
like their need to go offline or not and
so you know some of the statistics that
we do look at and we certainly publish
as well are just you know the cost of
mine for for Miners and and really their
marginal cost to mine specifically which
I think about as you know their their
power costs kind of divided by the
amount of Bitcoin that they mine because
that’s really the point that they would
rationally shut off and so um you know a
lot of miners were hovering you know in
the High Teens low 20,000 the having
occurs okay you double that number maybe
they’re producing Bitcoin around 40,000
plus some certainly higher and 50,000
plus but still where bitcoin price is
today well above 60,000 I think there’s
still a little bit of buffer there
that’s resulting actually in most miners
still remaining profitable not all um
but I think you asked also about what’s
going to happen over the summer well
maybe we may this next difficulty
adjustment maybe we actually do continue
to go up because we don’t have to see
that many miners go offline especially
if transaction fees end up staying High
over the next couple of weeks but I
think what will happen in the summer um
you know increasingly there is a larger
and larger percentage of miners that are
operating in Texas and so you kind of
have this these two competing things
that are happening at at the same time
um that I think will lead to a lot of
network hash rate volatility actually
which is that we just had a having this
is lowering the break even price for a
lot of the miners in Texas and at the
same time that prices are probably going
to rise in Texas from a power cost
perspective um so you have these these
two sort of variables going like merging
together break even coming down power
pric is going up and I think there’s
going to be a lot of curtailment
activity across miners in Texas which at
this point is a meaningful percentage of
the network um and so you’ll see some
hash rate come come offline there um
more curtailment activity as I said and
I think that we’ll probably have a
little bit more of hash rate plateauing
for a bit over the summer I don’t I’m
not unless there’s some unfortunate
bitcoin price event I’m not expecting a
huge amount of hash rate to come offline
but maybe we see a little bit of
staggered growth as there’s more
curtailment there’s upgrades of machines
rather than some net new machines coming
online um but I will still say like you
know my expectation is Hash rate is
going to be higher at the end of the
year than it is today I can’t remember
with whom but it might have been our
friend uh Kevin uh or from found uh
Foundry um y um or other others that we
I can’t remember we made a bet and I I I
all I remember is that I said straight
up a thousand x a hash or higher and
people said I was crazy at like it was
like 550 or so like this like in the
fall we we could hit 1,000 yeah it’s
crazy it’s not impossible um and so let
me add this is a little aside I didn’t
we didn’t pre I didn’t say we might
mention this but let’s talk talk about
the machines I saw a headline today that
block uh they’ve announced that they
finished I guess I think the story is
they finished building developing their
Bitcoin mining Asic chip um I’ve
actually got I’ve I’ve tweeted about
this but I believe oh it’s not in my
pocket right now I’ve got the blocks um
Hardware wallet so they’ve got an now
Hardware wallet for Bitcoin obviously
they’ve got cash app um but they’ve also
got an as6
yeah um and did I see Jihan woo announce
a new Asic or we’re going get two or
three nanometers or something yeah yeah
I think he he’s really bullish on I
think where we’re going in terms of the
efficiency of the these chips and the
new types of aex that are coming out
think you could get like below like
seven nanometers like several years ago
it it’s just getting better and better
and I think crazy yeah I think you know
one I applaud everyone who’s working on
this I I think like this sort of race
improving technology I think is awesome
I think having more options out there on
the market um is only good for everyone
in in the space actually I think even
the existing manufacturers I think it’s
it’s good to have some competition and I
think it can even drive them to improve
as well um it does make it hard though
for miners you know making these
purchase decisions right because you
know it’s a really significant capex
outlay when you buy machines um and
you’ve got to get that right and it’s
it’s tough when you don’t necessarily
know when the next machine is going to
come out how efficient that machine is
going to be so it also creates some
uncertainty yeah is that why miners T I
mean I don’t know if they all do but I
from what I’ve seen like they tend to be
like we buy what’s miners or we buy you
know uh um what do you call it bit man’s
machines because like we just like know
like they like you know it’s like there
might be a new one that spikes that’s
like super good but like we we couldn’t
plan for that but we know that like you
know um what’s Miner is delivering like
uh pretty consistent or whatever like
it’s so much Capital they by the way you
have to send it like is that still you
still have to prepay for machines
remember we were talking
like years ago yeah yeah it’s tough and
I think money off yeah
yeah bit man like they they’ve produced
you know pretty reliable machines for
for for an extended period of time and
so those definitely are the two largest
manufacturers but yeah it’s still tough
for miners you do do still have to
prepay I think both have um done a good
job actually of adjusting their terms a
little bit to accommodate miners because
I think that was a major problem in the
previous cycle and and yeah it’s
important to build these relationships
with these these miners as well so that
you can at least get some sense of you
know when the next machine has come out
and they’re also increasingly offering
options to you know maybe uh you know
get an option to buy the next machine
when it does come out if you you know
purchased the previous machine and and
things like that um let’s talk a little
bit about Galaxy’s mining business I
know some of our listeners are
interested um what what’s going on with
it yeah so I I I think like I I’m
actually excited for the summer so I
think you know when people when people
talk to me like oh like is is the having
you know bearish is it is it for minors
it’s like well it’s not really bearish
for miners like I it’s always I always
knew it was going to happen right like
you know in fact are you going to ask me
four years from now if the having was
bearish CAU off surpr no it’s like yeah
it’s always been my model you know ever
since I got into mining i i i modeled a
having you know this year that being
said for every minor I don’t you know
I’ve heard some miners like oh I’m
looking forward to the having I don’t I
don’t understand that necessarily
because your revenue is going to decline
certainly but I will say you know asking
about our operation the one thing I was
excited about is I think that you we I I
don’t think that there’s a minor better
prepared for the having than than we are
I I truly think you know our Helio site
down in Dickens County and Texas is the
best mining site in in the universe we
have you know about 200 megawatts
operational today and 800 megawatts that
we’re fully approved for um and are
building towards
and that type of scale at the lowest
cost of power out there I think can
cannot be matched and and so I think
that you know that that combination I
think makes me really really excited for
what we are building at Galaxy mining
yeah uh great to hear I’m just I I
promise we’d reference this but so we we
did work together at Fidelity one of the
things that we did when we were both
there in different jobs you were working
on Bitcoin mining at Fidelity and and
and later running Bitcoin mining there I
was doing Venture but we did collaborate
on an internal employee newsletter shout
out any Fidelity current or former who
are listening Crypt brief uh was our
baby and I recall um in addition to
working on that like every Thursday
night um during Co once the sort of like
work from home had happened we were also
we were gaming a bit IU and I I don’t
think either of us have time to play
Call of Duty any longer but those were
good good days yeah no we were a strong
pair on war zone I think you know like
going back and forth between writing
updates to the whole Fidelity crew on on
you know the latest in the crypto market
and then turning back to to some gaming
yeah know we we go back a while now work
multiple jobs together yeah we’ve been
friends for a while the Fidelity Mafia
in the house my friend Brian Wright
co-head of Bitcoin mining at Galaxy hey
thank you for coming on Galaxy brains
Brian yeah this was awesome thank you
that’s it for this week’s episode of
Galaxy brins thanks to Our Guest Bim
Neta BB from Galaxy trading and Brian
Wright from Galaxy Mining and my friend
Captain youth for collabing on uh that
rap and you know what here it is let’s
roll it out see you next
week
yeah Captain you tangible coins
intangible
what was rooted in Freedom became funny
and all these damn suits they really
just want money new coin is on the fence
but never going to do nothing is we F to
sell out all we F to do something I mean
whoa y’all going to pay taxes and F we
keeping on the
low that’s from promise you don’t want
to smoke but if you do I can roll it up
that a will put you in the and you don’t
even know what’s up honey B’s money man
but I don’t even fold this stuff we went
digital in 09 y’all ain’t really know
enough keep tweeting Griffon acting a
fool I love that I just stack y’all
watching the news wearing the mask the
tiniest St capitulated fast near the
bottom at that is too sad but I don’t
feel bad for him you get in what you
deserve and I was stag now before the
makes it worse the supply is going to
dwindle while the price is leaving Earth
and your market share is smaller be cuz
I got to it first Meanwhile your Fe I
going to flate away and die they call it
printing money but it’s really stealing
time every promise that they make I
promise it’s a liive won’t you keep the
CPI won’t you open up your ey there’s a
thorn on the track and I’m back with the
hit scares coin on the map it never
scares when I spit forever buying the
dip and flying the whip never lying when
I’m trying to dip a couple bips yo do
O’s in the room so we rap in the deuce
intangible coins and L Captain a you
live from the booth dead end off North
Avenue preaching truth if you don’t hear
it now that’s on you and if you won’t
save yourself what more could I do I
already tried to help and you thought I
was a fool now you’re on the sidelines
like what should I do byy an hour wait
for the price to come down a few always
ask and never acting I said the sack
SATs and keep the coins pull to avoid
the black hats a Bly big multi s to hold
the whole stack plus a heavy ass chain
they could never roll back I don’t feel
bad for them they get in what they
deserve but I was stack now before the
have it makes it worth the suppli going
to dwindle while the price is leaving
Earth and your market share is smaller
because I got to it first Meanwhile your
Fe going to play away and die they call
it printing money but it’s really
stealing time every promise that they
make I promise it’s a lie won’t you pe
the CPI won’t you open up your
[Music]
ey Captain
you intangible coins live from New York
City we out here Dead End
North
yeah you better buy before the
having you’re running out of time the
stealing the time no
[Music]
time thanks for listening to Galaxy
brains the weekly podcast from Galaxy
research if you enjoy the show please
like rate review And subscribe wherever
you get your podcasts to follow Galaxy
research sign up for our Weekly
Newsletter at gdr email read our content
at galaxy.com research and follow us on
Twitter at glxy resarch see you next
week
In this episode of Galaxy Brains, Alex Thorn is joined by Brian Wright, Co-Head of Mining at Galaxy, to explore the aftermath of Bitcoin’s fourth halving and its impact on the mining landscape. They discuss the reduction in Bitcoin subsidy to 3.125 BTC per block, the dynamics of transaction fees, and the failed reorg attempt post-halving. The conversation also covers the broader implications of the halving on Bitcoin’s network and price stability, providing a comprehensive analysis of current trends and future predictions in Bitcoin mining.
This episode was recorded on 4/26/2024
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This podcast, and the information contained herein, has been provided to you by Galaxy Digital Holdings LP and its affiliates (“Galaxy Digital”) solely for informational purposes. View the full disclaimer at https://www.galaxy.com/disclaimer-galaxy-brains-podcast/