{ "episodeId": "SLP574", "speakers": { "stephan": { "name": "Stephan Livera", "role": "host", "tag": "STEPHAN" }, "rapha_zagury": { "name": "Rapha Zagury", "role": "guest", "tag": "RAPHA" } }, "segments": [ { "speaker": "stephan", "time": "00:00", "start": 0.2, "text": "In the long term, this is something that Bitcoin really needs, right? And if you go back to what I said that, you know, we're always looking-- and we'd be wrong a lot of times-- but we're always trying to do what is right to Bitcoin, this decentralization of mining pools is absolutely something that we need" }, { "speaker": "rapha_zagury", "time": "00:29", "start": 28.6, "text": "Hi everyone, welcome back to Stephan Livera podcast, brought to you by Swan dot com, the best place to buy Bitcoin. Rejoining me today is my friend Rapha Zagury. He is the CIO and also the head of Swan Mining. So, Rapha, welcome back to the show." }, { "speaker": "stephan", "time": "00:44", "start": 43.99, "text": "Thanks, Stephan. Thanks for welcoming me. Be back. You know, I was actually checking it out this morning. It's been a year since I've been here, but we, you know, we talk from time to time. Been too long. Yeah. Way too long, way too long. I always see, see you at Swan, you know, but, glad to be back here, man. Speak, as I said, it's been a while." }, { "speaker": "rapha_zagury", "time": "01:02", "start": 62.43, "text": "Great. So-" }, { "speaker": "stephan", "time": "01:03", "start": 63.07, "text": "Yeah," }, { "speaker": "rapha_zagury", "time": "01:05", "start": 64.91, "text": "I, yeah, it's been too long, like I said. but, let's start with the, the floods in Brazil. I know it's, it's obviously a sad topic. I know, Last I checked, over a hundred and thirty people have sadly lost their lives in the floods in, the state Rio Grande do Sul, Rio Grande do Sol, do Sol. d- I know you had a comment you wanted to make there?" }, { "speaker": "stephan", "time": "01:27", "start": 86.68, "text": "Yeah, I mean, it is unfortunately has a lot to do with why we bit-- we Bitcoin at the end of the day, right? And, as I told you, I wanted to talk, touch a little bit on this because I think, first of all, of course, it's super sad, but I'll tell you first what has happened and some of the recent developments, 'cause I, as I said, I think these are super important. so it's been about a week, week and a half that the heavy rain started to, to hit the south of Brazil Brazil. And this is nothing new, you know, this happens from time to time. You know, the rains were, of course, super, super heavy, but very similar to what happened, in New Orleans when ca-- the Hurricane Katrina hit. what really got a lot of the flooding in New Orleans was that the levees broke, right? And the water rushed in. So very similar in the south of Brazil, there were some levees that broke, old infrastructure, right, that let the waters to, to come in. And really, if you look at- Look at the pictures, the pictures, you know, are just sad, really, really saddening. You see like whole neighborhoods under water, people sitting in the ceilings of their homes waiting to be rescued, pets, you see cats, dogs, you know, there's a, a, a picture, Which again, it's, it's shocking to see, but you have this house in the middle of nowhere, and at the top of the roof, there's only the roof of the house exposed, and there's a horse on top of the house, right? and this all happened, you know, very, very quickly. If you look at the images, there's somebody that recorded it like at midnight, and then at one o'clock in the morning, two o'clock in the morning, so by two o'clock in the morning, the water has, had risen like five meters from," }, { "speaker": "stephan", "time": "03:14", "start": 194.39, "text": "It's, it's a huge water column coming in. So this all happened and immediately you saw a flood of volunteers coming in to rescue people, like people coming from everywhere in Brazil and going down and, bringing their boats, bringing their jet skis. You see, there's a-- and again, this is all on X and Instagram, people can s- can see like the, all the videos that were made, Like even the big surf, big, big wave surfers in, in Rio brought down their jet skis, down south to help people, to rescue people, to rescue pets. Like videos of them getting dogs out of the ceiling of houses, right? Taking them to safety. and meanwhile, while all of this is happening, some curious things, which again for us that are Bitcoiners may not be surprising, but that happen at the same time Few examples, people bringing their boats in, trying to get the boats in the water, and there's a barrier of politicians, you know, asking to check the boats, to make sure the boats have the proper documentation, to go, to go into the water, and this, of course, didn't last too long, the population started to, to revolt, and then they, they got the boat, boats in the water. donations that were coming from Rio, São Paulo, from all other places that were going down south, they were being Blocked in the, 'cause here when you go from, go from one state to the other, you have to stop and pay taxes if you have, commercial items. So they were stopping the trucks and asking them for their invoices, and they said, \"Oh, we don't have invoices, these are donations.\" They're like, \"Oh no, you, you have to pay taxes on these.\" And the truck driver just said, \"You know, screw this, I'm not paying anything,\" and just drove away. But, you know, they, they got," }, { "speaker": "stephan", "time": "05:10", "start": 310.08, "text": "These are happening. But as all of these things are happening, right? I think the big difference that we have today is of course, you know, the communication flies around and all of these things again are on X. the government, unfortunately, this is another thing that has been prominent in, in Brazil recently, The, freedom of speech, you know, is being really, really, re-repressed in Brazil, right? To the extent that you have judges going after Elon Musk and, I mean, it's just insanity what, what's happening. and at the same time, when the new government came in, one of the things that they did was to start sponsoring the media, so all the state companies pay for, you know, huge advertisement on, on the media, and of course, they control the media, right? So, I was watching a clip where the local media in Brazil is just saying, \"Well, you know, all of this that you guys are seeing is fake news, you know, the government isn't, aren't trying to stop anybody.\" And then I take the other side, and, and of course, a lot of this, there's noise around it, right? You never know exactly-- This is the problem with today's world, is you never know exactly where the truth is. But I, I would rather believe, you know, on a video that you're seeing from hundreds of different people, There and rebuilding, everything. Curious fact also that happened, I'm gonna go quickly through this because I think these set the tone for a lot of things we're gonna talk about. Another curious fact as I said, unfortunately the south of Brazil gets heavy rains from time to time, right? It's the geography of where it is, like all the cold fronts that move up the coast of Brazil, they, they start in the south, so they always get hit by, by a lot of rain. late last year, one of these rains came in, washed away one of the bridges that was constructed. government came back in, local government said, \"Yeah, this is gonna cost sixty million dollars to rebuild.\" Locals found that that was just crazy The amount of, of money, and they rebuilt the, the bridge by themselves, costing six million, yeah, so a tenth of the cost, right? all of this went through a lot of debate, you know, the government tried to stop them, they ended up, of course, building the bridge anyway because the locals needed the bridge, right? So who will, who will build the road? I think, you know, that we, we, we saw that happen. Now, fast forward, the, the re- this massive rain Happen right now, and there's footage showing that, you know, along this river, there's several, other bridges that collapsed again, and this bridge that was built by the, the population, it's still there, it's still standing, you know, as strong as it was before. So not only they rebuilt it, but they built it, I think, at higher quality than you would, than you would expect from, from the government, and much quicker, right? I think one of the things that made the population really move was that not only the fact that it was gonna be really Budgeted a long, a, a huge amount of time to, to rebuild it, right? And they needed, like, you know, if you are, if you sell your items to somebody else that is at the other side, right? And if you have a factory and you c- you can't afford not having that, so they, they built it out of their own, their own pocket, All of this happening at the same time, which is unfortunate, I think a lot of the things that you've seen in the US, you've seen in Brazil as well, where, you know, the polarization of politics is, is everywhere. In the South, if you tr- if you trace, a map of Brazil and you do, like doing the US, trying to find, you know, blue states and red states, the South is very- Kind of like blue states, they're not exactly comparable because we don't have Republicans and Democrats, but, very similar mindset in terms of, you know, freedom of speech, of trying to get people, you know, again, to, to have their indi-individual freedoms, right? So this is all it's leading to, you know, some, some public upset that, it, who knows where it's gonna, it's gonna stop, but, I was watching some, again, other videos this weekend and then I- I'm just seeing all these people in the south, you know, flying the Gadsden flags, on their rooftops, right? And for those that don't know, the Gadsden flags are, became a symbol, they stands for a lot of things historically, but it became a freedom, a, a symbol for, for freedom and indi-individual freedom, right? With the rattlesnake on the, on the ground. Right. And the don't tread on me, yeah. Don't tread on me, exactly. So, I If you look at Brazil, another map of Brazil, and you see where taxes go, right? And you would see, for every-- There's a very interesting-- I can, I can share this later, but there's a very, interesting chart showing map of Brazil and say, okay, for every hundred dollars of taxes, where does it go in Brazil? Which con-- which states get more, more, which states get less, and which ones contribute the most, right? So, unsurprisingly, São Paulo, the s-- and, and from São Paulo down to the south, it Most of the contribution comes in terms of taxes that are collected, and none of these states collect more than like ten percent, thirty percent in some, in the most of the cases. So the South, which actually collects more, collects like thirty percent for every hundred dollars that, that come in, and a lot of the money goes to the Northeast, right? And what the government claims that, \"Wow, this is redistribution, it's important,\" but it's very, very poor redistribution because along the way, a lot of this capital is, is lost and a lot goes to corruption. And badly dis- the bad distribution, right? So I'll stop here, Stephan. I just wanted to give a quick overview on this because I think when I look at all of this that is happening, first of all, you know, not many people outside of Brazil know about this, but then second, when we think about, you know, why we really see that it's important to separate money from, from the state, in act, I can't see better examples than this, right? I mean, we're, we're see- we're living in real time. why having money and stay, and stay together creates sometimes unintended consequences, but a lot of times actually unintended consequences that are not good for the population." }, { "speaker": "rapha_zagury", "time": "11:35", "start": 694.51, "text": "Yeah, and I think it, it also comes down to having a free market in money also makes us more productive, and a more productive, wealthy society can handle natural disasters so much better than a society that doesn't have that same kind of wealth. And so it's just kind of an obvious point, but a lot of people haven't really thought about that, or if you hear about these natural disasters in Haiti, as an example, right? The, the population is simply not wealthy enough to, to deal with it. And so it's a, it's a stark reminder that we- Sort of, we need markets and we need, you know, a free market in money to be able to give us that. So I think the other thing that'll be really interesting for people is to hear a little bit more about Swan Mining. So this has recently been announced and now there's one, you know, managed mining as well. So, if you could just give a bit of an overview of, what's happening here, and then we can go from there." }, { "speaker": "stephan", "time": "12:27", "start": 746.81, "text": "Yeah, for sure. As I said, in the beginning, a lot has changed since I was last here, and one of the big things that we've been doing at Swan, particularly through the middle of last year on, was looking at, and talking more and more with institutions, and that's been true in terms of asset allocation, portfolio construction, but also in other areas, right? back in the middle of last year, we started thinking about, passively investing in some mining companies companies, we looked at a mining company in Australia, right, as you know, and through that process of understanding the mining company, understanding their setup, and understanding the mining business a little bit better, there were a few things that were, you know, really, really caught our attention. This was around July, June, July of last year, right? So the first one was that the prices of Azix were super, super low compared to historical levels, and the second one, and again, moving- Back a year ago, Bitcoin was at thirty thousand dollars, a lot of the miners had gone through troubles, right? So there's very wide availability for deploying mining and, and a lot of hosts were looking for, for partners to deploy machines. So we looked at that and we said, well, maybe instead of just doing a passive investment into mining, let's think about building our own mining operations. And we, we had of course some people that we knew in the mining sector, we talked to them, and the more we looked at it, the more we- We found it was interesting, it was a good timing to, to do it. So we decided first to start deploying some of our own hash rate. We deployed machines across different places, initially in the US, because there were some, as I said, some good hosting opportunities. we expanded to other countries eventually. But through this process of doing that, we also started to have deeper and deeper conversations with institutions. we announced last week that Tether came in as an investor. Investor with us, on the ma-- on what we call, calling Swan, managed mining solutions, right? and we're expanding with other investors as well. I think Stefan, when I look at mining, right? I think mining is an interesting area to invest for, for several reasons. First of all, you know, I think long term, I still think that any-- it's very hard for anything to beat Bitcoin, right? If you just wanna invest in something for the long term, you know, probably an investment in Bitcoin is the, the best alternative that you have. but we do know that there are investors in-- either in different situations or wanna have different kind of risk profiles, right? So mining fits well for a very good subset of, of investors. I'll give one example. A few investors that we talked to said like, \"Listen, you know, I really wanna get exposure to Bitcoin in some sort of way, but for me and for my clients, it's super important to have cash flows from time to time. So can't get across the fact that, you know, if I just buy Bitcoin, even if I liquidate from time to time, that I don't have any cash flows, and actually the mandates that I have with these clients, I have to invest in, in, in things that at the end of the day" }, { "speaker": "stephan", "time": "15:41", "start": 940.76, "text": "Right? So mining, when I showed mining to this subset of investors, that, you know, fits exactly into their mandate, 'cause they're like, \"Well, this is a way for me to deploy capital, to allocate capital to a different sector that I have, get exposure to Bitcoin, because it isn't direct exposure to Bitcoin, is it one to one? No, but it's indirect exposure to Bitcoin. And more important, very simply in their mindset, what they're seeing is a way that they deploy fiat and they get cash flows in- Bitcoin, right? So every month, every quarter, depending on the mandate, they're gonna receive some Bitcoin in a wallet, and they're gonna get exposure to, to, to the, the price of Bitcoin and create a stack a long time just, just by that, right? Through that process, and again, we can get into detail, but, another thing that we did that it's very different is we have a platform that gives a hundred percent transparency to investors. So the beauty with Bitcoin is that, you know, as long, as long as they see the, the Bitcoin addresses that are mining to, they can track, they can see exactly what it's happening. but even before that, they can't-- the, the same dashboards that we use to see our mining activities, we give access to investors, they can see when the machines are- They're hashing, the number of machines they're hashing. Next day, whenever we get the payouts, they see the payouts coming in, right? so it, it's, it's very different than what they're used to in the traditional financial system where there is very little transparency, right? here, for good or for bad, the site is down because of energy issues, they're gonna see that it's down, but if it's hashing, they see that it's hashing, and then, as I said, the next day, the next week, the next month, they see the" }, { "speaker": "stephan", "time": "17:24", "start": 1044.36, "text": "In a sense, it's a, it's an indirect way for investors to get exposure to, to Bitcoin while also having some cash flows along the way. The, the what we do for our clients on, on managed mining is deploying that capital in a smart way. So we find the best locations, the best facilities, we deploy, we go out, we scout the ASICs because we have scale right now, we can get access to good prices of ASICs, we buy the machines, we deploy the machines so the whole process- process of finding the, the sites to deploy, super important to find low energy prices, finding lower energy prices, deploying in low energy places, getting the, through the whole deployment of the machines that, you know, plugging them in, hooking them in, getting the right, setup, and then after that, managing on a day-to-day, so seeing the machines are performing well, optimizing the machines, we test all different kinds of firmware, we test all different kind of ASICs out there, so we do all of that again For, for our clients that benefit from the scale that, that we've acquired, right? Just very quickly on Swan Mining, as I said, we started from nothing back in July of last year. We've been hashing at around seven and a half exahashes, right now, and we've acquired machines to more than double that that we're just waiting to receive and deploy as well. It's a super interesting process because, you know, of course, there's the planning process, there's an acquisition of machines, but very, very similar, I think Between industrial facilities, right? Then you go out, you scout the sites, you find the sites, and then you go through a process of deployment. So we are going through the process of deploying these, these other machines that we bought. And I think the way that we thought about this in the beginning is that was, if, you know, primarily before the having. The most important thing for us was to go, go to market as quickly as we could, right? Because we wanted to optimize the uptime and optimize as many of those bitcoins at six, six twenty-five block rewards that we could. so last year was all about going to market very, very quickly, and beginning of this year through now, it's been about optimizing locations, you know, getting better, the machines hashing in a better way, testing different, technology. So some of- Of our sites, we're testing some immersion technologies, for example, which allow us to overclock the machines a little bit more without losing a lot of efficiency. It's a fascinating world, there are a lot of things happening, it's still in its early days, there are a lot of technologies still being developed in, in Bitcoin mining, and, and, you know, regardless of what, I think what everybody says, it's still a fairly profitable business even after the heavy, and we can go into details, you know, about e-units Economics after the having before the having, but it's still a fairly profitable business, and I think there's a lot of opportunity out there as well." }, { "speaker": "rapha_zagury", "time": "20:21", "start": 1220.98, "text": "Yeah, the first thing that came to my mind when you were explaining there was the comment around Structure and mandates, right? So if you think about the, the structure of this business, and it reminds me of how maybe in finance classes, maybe they'd be talking about, oh, the difference between a company doing a buyback versus paying out dividends and kind of different reasons that you might have a different structure. So I guess this is sort of having a structure that allows, and to be clear, what we're talking about here is larger investors as well, right? So I think that was maybe another point that can be easily confused, if people- People are thinking about the quote-unquote cloud mining of yesteryear, where an individual, like maybe at the individual level, the retail person, is sort of being asked, \"Oh, go on this website and buy this amount of hash, and it represents this kind of hash versus...\" You know, what this is, which is more like, okay, this is for large institutions, you're buying an identifiable set of machines or, you know, the, the mining associated for those machines at a, at an identifiable site, right?" }, { "speaker": "stephan", "time": "21:28", "start": 1288.05, "text": "100%. This is actually a good point to, to address. Like, these are a hundred million dollar plus investors, right? So right now the mandates that we're getting, our mandates are extremely large, and there's a reason for that, and, and- We may launch, you know, a different vehicle later, but we don't have that. The reason why we're doing large scale right now is exactly that. So it allows us to, with a hundred million dollars, I can go out and I can actually scout a, a single site for this investor that can, you know, deploy their own Azix, right? A lot of these investors actually can keep their, the Azix in their balance sheet if they want. So we get paid the management fee and they keep, they deploy the capital, the capital is completely- Segregated from Swan, which is also another important thing, and they get access to, to the machines in, under their balance sheet if they want to, right? It can be under the vehicle, it can be under the balance sheet. Again, there's, no recourse into the structure of Swan, it's a hundred percent with the, with the investors. So, knock on wood, something happens with us overnight, right? They have recourse into the machines, they're gonna keep the machines out. The other thing you mentioned, right, different than cloud mining, it's not that Allocating machines, they literally have an inventory, of the machines that we acquire, right? So we bought a thousand machines, here's the serial numbers, here where they're deployed, and when they look at the dashboards, if they want to, they can actually see on the machine level how each of the individuals of machines are, are hashing, and they can go to the site level and see how the site is hashing, right? Or they can go in the portfolio level and see how the portfolio is, is performing when you, when you consolidate all the sites, right? So it Nothing to do with, with cloud mining. This is, it's as close as they can get to owning a mining operation, and not having to, to run it on a, on a day-to-day basis, right? We'll manage that, we'll run that for them. As I said, we'll get access, I think, on scale to some good deals that we have, have a lot of people that've been mining for a long time that came work to, with us and are helping, you know, set that up, so they'll get access to" }, { "speaker": "rapha_zagury", "time": "23:42", "start": 1422.46, "text": "Yeah, and I think maybe the other thing that was surprising for people was just that Swan was known, you know, previ- up until recently, Swan was known as like, buy bit-- you know, go there and buy Bitcoin, and that's, that's what Swan is, right? It's financial services. So I think the, the question or the challenge comes from people of, oh, well, does Swan have mining expertise, right? Has, you know, and especially because it's, it's new to the mining game, how is Swan gonna handle, going through," }, { "speaker": "stephan", "time": "24:13", "start": 1452.76, "text": "Yeah. so let me recap, go back, you know, first what Swan does, right? And why Swan is here. At the end of the day, it's very simple for us at Swan. We, you know, we, we always ask the question, is, are we doing good for Bitcoin or not, right? So our main goal is to increase Bitcoin adoption. That's what it is. And that's been true for our Swan since the early days that Corey started the company, right? And, and I'll tell you, it's, it's gonna continue like that We've attracted are people that have this, this mindset. And I think, and I, you know, I'll, I'll include myself on this group, like one of the main reasons I joined Swan, being around eighteen months now, was First of all, as a Bitcoiner, I was consuming a lot of the content from Swan, right? So every time I was looking to understand something, I'd look at some content out there, I'd go to podcasts like yours, I'd go to Swan. There is a-- I mean, huge amount of material, huge amount of education that, you know, with the goal exactly of increasing Bitcoin adoption. And what that does, it, it brings to us a lot of talent, right? There are several benefits that we get out of that, right? I think we get investment opportunities, we get access to capital, but more important than any of these is talent that comes through the company. I can tell you, Stephan, I don't know a single people that will send me a message and say, \"Well, you know, when I look around at everybody, that everything that is being done at Bitcoin and the Bitcoin only companies, there's a handful of them that I really would like to work to. I We're doing, and that was true with mining. I, back when we started doing all of this, so back in the middle of last year, everyone can look at this at, at, at Twitter. I sent like some quick messages saying, \"Yeah, we're interested in mining, looking for people that understand mining that, you know, could help us in a couple of different things,\" and at that time, in research, right? and I got like a lot of DMs of very, very, very qualified people that wanted to, to join some of the people that started Swan mining with us came from, from that time, right? so the access that we have to, to good people, and we, we got some really, really strong mining OGs, that been mining for a long time, it was the same thing, right? They came to us like, \"Yeah, you know, when we see everything that everybody's doing out there, I think making a collaboration with Swan makes a lot of sense. This is what, what you guys do at the end of the day is gonna continue to help Bitcoin, right To attract a lot of good talent, from all the way from capital structuring, which is what I do, but more important to the technical part, understanding the miners, the ASICs, the industry where it is, should we do one phase immersion, two phase immersion, should we do air cooled, right? What kind of machine should we be buying? What kind of facilities are we looking to do? So all that technical expertise, we got people that came that do all of that, all the way to, to deployment and knowing people, 'cause, you know, again, More important to, to know people in this industry and under-understand where the opportunities are, where the traps are. There are many traps out there in mining, right? Have to be very, very careful. so at the end of the day, I think it all comes through the power of, of the brand. and the brand is of course it's one, but even before that, the brand is Bitcoin. We all are Bitcoiners, we wanna see the success of Bitcoin, we try to do it in different ways, right?" }, { "speaker": "stephan", "time": "27:46", "start": 1665.64, "text": "and, and, you know, when I One, I see that a lot of people think like that, and, you know, that, that, that continues to give me a lot of comfort and confidence that, we'll have the right people to continue to do, to do this business. and just to conclude I think it also gave us access to capital, right? People, when they see what we're doing, opportunities and capital, we started to think about doing Swan Institutional exactly because we saw the, the two worlds. We saw people coming to us saying, \"Well, I'm trying to do something in Bitcoin, you know, I'm trying to raise capital for my company, and it could be anything from an asset manager all the way to a hardware wallet, right? \" So people would come to Swan because they knew that we, we, we had good network of Bitcoiners. And said, \"Well, if you guys know Bitcoiners that are looking to invest in something like this, that would have interest in this sector, let us know. \" And on the other hand, we also had Bitcoiners that, you know, have been investing in Bitcoin for a while that came to us and said, \"Well, I'm looking to deploy capital in mining or I'm looking to deploy capital in other areas, what do you guys think? \" Or, \"I'm looking to construct a portfolio, right? \" Family offices would come to us like, \"Look, I want to construct a The '90s in banking, was very similar. I think the, the commercial banking industry exploded in the '90s exactly when you start to see that, you start to see a lot of capital meeting opportunities, right? And that led, I think, to the exposure of venture capital, private equity. They have gone way, way too, too far, but, that all was born, again in, in, in, in the '90s. That's when I, you know, late '80s, early '90s when we really Industry, right? And, again, I think we're seeing a lot of that in, in, in Bitcoin, and it's, it's great to see. And, we want of course, capitalize on that. I think we're at the right spot to, to do it and to do it in the right way and to do it in a way that is gonna be the right way for Bitcoin, right?" }, { "speaker": "rapha_zagury", "time": "29:47", "start": 1787.27, "text": "Back to the show in a moment. CoinKite dot com are my favorite providers of Bitcoin hardware security products. Now, when it comes to securing our Bitcoin, as we say Create your private keys offline and then keep your private keys offline, and that's where some of these devices like the Coldcard Mark IV or the new Coldcard Q device can come in and help you, because they can help you create your private keys offline. You write down your twelve or twenty-four word seed, and that helps you interact with the Bitcoin network in a self-sovereign way. And so you can use these devices easily with software such as Sparrow Wallet or Electrum or Specter or Nunchuk as a few examples. Now, the really cool- Part is that you're keeping the private keys offline because you're signing in an offline way. So if you're a beginner, yes, you can just directly plug it to the computer, but you can use these devices also in an airgapped mode. So for example, the micro SD card, which is available on the Mark IV, or you can also use micro SD cards on the Coldcard Q, and the Coldcard Q also has an extra way, which is this QR code, so you can scan, and read it back that way, and do your transactions also in that Different features and ways that you can improve your security, but you can just start basic with a single signature hardware wallet, and then later think about, okay, do I wanna do a passphrase? Do I wanna use bip eighty five? Do I wanna use seed x or do I want to use multi-signature? So these are all some of the things that are available to you. The coldcard and CoinKite team are always innovating and putting out new products. They have a range of different products, so for example, the TapSigner is a cheaper device for those people who want a specific," }, { "speaker": "rapha_zagury", "time": "31:32", "start": 1891.8, "text": "They also have the seed plate, which is a way for you to backup your seed words in a metal product. So there's all kinds of products there. Go to coinkite dot com to get yours and use the code livera for a discount over at coinkite dot com. Swan dot com is the leading place to buy Bitcoin, and the Swan team has a mission to onboard millions of people into Bitcoin. Now, the team have been working really hard to update the Swan Bitcoin app, which you can find on the Apple App Store or the Google Play Store. Google Play Store. So the team have created a really slick and smooth experience, so now you can go from zero to Bitcoin in just a few minutes. So if you have family and friends who you are struggling to get them onboarded, well, Swan Bitcoin application is a great way for you to help them. You can be standing there right there with them, and in just a few minutes, they can have been onboarded and be buying Bitcoin. And Swan are making it really easy to do this because now there's zero- Fees on the first ten thousand dollars of Bitcoin buys that you do, and it's not just for new customers, it's also for existing customers. So remember to tell your friends and family to go to the App Store and search Swan Bitcoin, install the app, and get started with Bitcoin, with Swan Bitcoin. This show also brought to you by mempool dot space, the leading Bitcoin and blockchain visualizer. I use it all the time to keep an eye on what's happening in Bitcoin's mempool to keep an eye on the fee rates in order to get into the next Bitcoin block. Of course, you can search Bitcoin transactions and see all kinds of information. They have all kinds of ways to visualize important information, whether that is the RBF history of a particular transaction, the replaced by fee history, or looking at what's going on in the mempool in terms of, transactions. Action fee rates. Now, for those of you interested, they have a Mempool Enterprise program if you're with a company and you wanna support mempool dot space, they've got various options including support for things like a co-branded mempool dot space or an improved SLA or with increased API limits. with the higher tiers, you can have increased access to the team for things like feature requests, as well as having, a more custom design, opportunity Opportunities available. So for those of you interested, go and check that out over at mempool dot space slash enterprise. And for those of you who just wanna see the fee rates and search things, mempool dot space is the site for you. And now back to the show. And when it comes to Bitcoin mining, there's been a lot of discussion around Bitcoin mining pools. I know you've publicly commented about trying out, trying around with a few different mining pools. Do you have any comment there on, which, pools or is that more like, Customer, like the Swan's customer, Swan Managed Mining's customer's choice." }, { "speaker": "stephan", "time": "34:25", "start": 2064.81, "text": "Yeah, both. so we do have Not investors, but potential investors that we've had conversations with that say, \"Oh no, I may give you a mandate, but if I give you a mandate, you know, this is what I wanna do, this is kind of ASICs I wanna have, these are the regions that I wanna deploy it to, right? \" but most people don't care, right? They're looking for us to give them, and this is part of why, again, we, we charge a fee to do this, is because we do research and we analyze everything and we try to understand what's better and when we started mining, our own mining operations back in middle of last year, that was an obvious question, like, okay, so where do we deploy hash rate, which pools are, which pools are we gonna be using, right? And in the beginning, we tried a couple of different pools and, you know, we, for a little bit of time, we didn't pay too much attention to that, but around the third quarter, fourth quarter of last year, when you- Started to have a lot of volatility in fees, then we started to note that, you know, depending on the pool that we were using, there was massive discrepancy on the payouts, right? So if you had a period of twenty-four hours that fees spiked significantly, you would see some pools would pay us, you know, re-exactly as expected, looking at what was produced in the, or what was mined transaction fees in the last twenty-four hours, and others wouldn't, others would be, you know, close to, to zero in some In some cases. So as we did that, I said, \"Okay, so we need to create a control group. Let's start, you know, separating a group of ASICs that are always gonna be hashing with different pools, and let's do that and let's compare and contrast, right?\" And through this period, there are a few things we found out. First of all, fee volatility, we get one step back, Stefan, just to, I think to level set and people understand how this works. So today as a miner, right? Miners, pretty much all the miners, they mine through a pool, right? So the pool allocate a lot of hash rate, and then when that pool finds a block, right? That block, the, the fees and the, the block reward is distributed among all the miners that were mining that pool through a certain period. There are different ways to measure this, there are different ways to allocate the hash rate, right? Some, some are gonna do, you know- Depending on shares, some are gonna do depending on time, but at the end of the, the biggest model out there is what is called FPPS pools, right? So it is what Foundry does, what, F2Pool does, which all the big pools, the, pools do, where you're gonna look at the period of time, you're gonna look at your contribution, right? Say, okay, Stefan contributed to ten percent of the hash rate, and I'm simplifying, but Stefan contributed ten percent of the hash rate, for the last twenty-four hours, through, through, through the last twenty-four hours. Some will go even further and go say, okay, so we look at the amount of, the percentage of the network that we had as a pool, right? So if we as a pool had ten percent of the network, Stefan had ten percent of our pool, we're g-gonna guarantee that Stefan gets one percent of whatever the network generates in the last twenty-four hours, right? This all works really well when you have predictability and stability in fees. So in a period that, you know, fees are gonna be close to... That fees are very low. So if fees are close to zero, you don't care, because the block reward is completely known. We know it's three and an eighth Bitcoin is gonna be generated every ten minutes in one block, right? So you don't care. Now, in a period of time that you start, let's get, you know, as an example, 'cause we ran some, some numbers on this. Take the twenty-four hour period of time, right, you know, before and right after block, the, the having block, the block eight hundred and forty thousand, right? block eight hundred and forty thousand was found by, by via BTC, massive amount of bitcoins in terms of fees, right? I'm not gonna get into the detail of why, but there was massive, amount of fees in that twenty-four hour period. Now, if you look, very interesting, if you get all the major- Pools in that twenty-four hour, block period, and you look at the amount of fees that each of them found in the blocks that they found. So you get Foundry, F2Pool, Luxor, everybody, and you see the amount of fees that they found. Some found a lot of fees, some found very little fees, right? And, and, and of course, this is an exaggerated period because fees were very high and very volatile, but I think it's good to prove the point. And you'd see that Luxor, for example, in that twenty-four hour period, 14% less transaction fees than the average transaction fees on, on that transa- on, on that peer, right? So if they haven't agreed, imagine that I haven't agreed with the Flexer that I need to pay whoever is hashing with me the average of the network, that money needs to come from somewhere, right? Or they're gonna underpay, they're gonna say, \"Okay, we're gonna pass through and if we find blocks with less fees, we're gonna pay less our miners, right? \" And that happens also. And if you see, and then you go all the way to the end, and you see the amount that you-- we got paid from each of the pools in that following twenty-four hour period, massive discrepancy on them as well, right? so when people look at the, the FPPNS model, they, they think, \"Well, it's a much more stable model because I know I'm gonna get a payout every twenty-four hours, every twelve hours, whatever it is that you set it up to, right? Or I'm gonna get a very frequent payout Pay out, right? And I know exactly how much I'm gonna get. That's a point that it's not true. You don't know exactly how much you're gonna get. You know that you're gonna get something, but if you compare that to what was expected and actually what was paid and actually what was mined by the pool during that, that, that period of time, there are discrepancies which again just mean that, people are paying. And again, there's no free money, right? imagine you are a pool and you go from Very unlucky strike and, we just saw, saw this with Brains, right? Brains had a very long period of time that they found pretty much no blocks. Again, probabilistically looks very-- but, but it happened, right? It could happen. You could throw a coin, you know, a hundred times in the air and you can get all heads. I mean, probabilities are extremely, extremely, extremely low, but it, it could happen. And when you're mining, it's exactly that, you're guessing numbers, and it could be that your pool stays a long period of time Right? FPPNS pools reduce that by saying that we're gonna pay you, right? but again, brains is paying, you know, brains may be a bad example, but let, you know, other pools aren't gonna be paying regardless if they find a block, if they go through a very long strike, where's the money coming from? Usually they need to get a, either a loan to pay people, right? They're gonna have to pay interest for that, and eventually, of course, long term, you know, that's the beauty also, I think with At big numbers long term, if you talk about, you know, multiple years, this, infrequency, this volatility, unpredictability stabilizes, right? And you have much less predictability, but in the short term, it happens, and because of that, people have been migrating more and more to FPP and as pools, and that led to the concentration that we see today in pools, right? Because that's what everybody wants to do, that's where everybody goes to, and I understand why it's an image Imagine for example, you're a smaller scale miner, right? You have maybe, I don't know, a couple of terahashes out there that you're, you're hashing. You have two options. You can either hash solo and you can wait, you know, until you find a block maybe once a year or whatever it is, right? And some people do that. But in the meantime, end of the month, your energy bill is gonna hit you regardless. You're gonna have to pay for that. You're gonna have to take money out of your pocket. To pay that, you could have been lucky that you found a block right in the beginning, then you have money to pay for your energy for the, for the whole year. but you could be very unlucky that five years go by and you didn't find any blocks, and you still had to pay five years of energy, right? And people in the past, you know, if you look way, way back, there were people that actually went bankrupt by, by trying to, to do this, because again, they, they didn't find a block for, for long periods of time." }, { "speaker": "stephan", "time": "43:10", "start": 2590.12, "text": "that led us to, you know, start looking at other models out there. And Stefan, interrupt me if there's something that you want me to go over. Yeah, sure." }, { "speaker": "rapha_zagury", "time": "43:18", "start": 2598.43, "text": "Yeah, I mean, yeah, I think you're getting to the, the interesting part around, selecting, pools. And you said the different models, right?" }, { "speaker": "stephan", "time": "43:25", "start": 2605.22, "text": "Yes. So A-and stepping back, so point to prove the point that, you know, we see a lot of interesting opportunities as we were thinking about doing side story here. So as we were thinking about doing Pacific Bitcoin last year, one of Cory always has been super interested in mining. It's always been, you know, he was at the board of Riot for a while with Jan, right? So they've always been looking at mining with, with very keen eyes and- Last year, even before we decided to go into mining, we had decided that we wanted to do a mining day at Pacific Bitcoin. So that got us good, you know, luck is everything in life, right? So that got us even more engaged with people, and we talked to a lot of people in the industry. and I ended up talking to the guys at Ocean. Back, back then, you know, they were starting to think about what they were doing. and I really liked the model, you know, it caught my attention. It's like, okay, you know, I And I see why, you know, the-- in the long term, this is something that Bitcoin really needs, right? And if you go back to what I said that, you know, we're always looking-- and we'd be wrong a lot of times, but we're always trying to do what is right to Bitcoin, this cent-- decentralization of mining pools is absolutely something that we need. You know, there's no question that, that, that we need that. So even if the project, you know, wasn't great, but it-- it is. But even if it wasn't, just" }, { "speaker": "stephan", "time": "44:57", "start": 2697.4, "text": "So we started having conversations with them, and then, you know, it really caught my attention the way that they were doing it, and we decided to, you know, direct some, some hash rate to Ocean. Again, we've been open about this, we don't, we don't disclose the numbers or anything, but we're, we're mining with them as well, the same way as I told you, we're mining with other pools out there to, to, to understand. The beauty of the model of Ocean is that It's a hundred percent transparent. You know, if I had to say one thing that it's a key differentiator, it's that, that you may not like their templates, you may not like what they're doing, but you see exactly the block that they mine, you see exactly the fees that were paid, and we get paid out of the, out of the Coinbase, right? So there's no question of how much is getting paid to us, how much is going through a centralized pool and then being distributed. goes back to my original point in the beginning, right? Why we Government, because whenever you have, have starting having more and more centralization of power, centralization of resources, and, you know, it may lead to bad, to bad outcomes, right? It's the same thing with pools. You don't wanna have one single pool that receives all the payouts and then sends it out, right? How-- then you, you lose track of if you're getting paid is exactly what you should be getting paid, right? And again, there are other risks as well which, you know, we could, we could get to. in the case of Ocean What we're getting. there is that risk that from, you know, they may be lucky, they may be unlucky. and there's a lot of confusion on this because people, people confuse I think the, the part of being lucky and unlucky and how much you got paid to the part of the filters, if they filter, if they don't filter how much you got paid, right? and there are different impacts on, on each of these, but more important The way, if you look at the roadmap of Ocean, and this was the one thing that actually got us to, to, to be super interested in the, in their project, they're gonna give back the block template creation back to the miners, right? And if you think about it, this is the" }, { "speaker": "rapha_zagury", "time": "47:03", "start": 2823.21, "text": "Stratum v2 part of it, yeah." }, { "speaker": "stephan", "time": "47:05", "start": 2824.86, "text": "Exactly. I, I don't know if they're gonna use Stratum v2 or something else, you know, I, I don't know the technicals that well, but it's something similar to Stratum v2, where you were gonna get machines, you know, finds a block, I can set the block however I want, right? If I wanna include a hundred percent of Swans, transactions on that, I'll be stupid to do that 'cause I'm gonna be foregoing transaction fees that are, are being paid. We, I could, right? and, that, that's true for every miner. The model that we have right now with the big pools, the big FPPS pools, is that The, the, the block creation that should be owned by the miners, they have the hash rate, right? The hash rate is the, is the, is the scarce resource here, right? It's actually being concentrated and being g-given almost for free for, for the pools, right? And you, when in fact it should, it should be-- you should be paid for that, and/or you should have control on building your own block. so it's in the roadmap of, of Ocean to give that block creation back. To, to miners, is that there's a series of benefits to that. First is that there's a decentralization of block creation, so some miners may optimize for having the highest possible transaction fees they can have, some miners may optimize, you know, have only fi- transactions that they like, right? Other miners may actually prioritize, but you have diversification, have this better distribution of, of these templates, right? All the pools out there, that's the other thing we found out, all of them filter, all of them, they have to filter, they have to create blocks in some sort of way, right? and the, the, this data is open, you can actually look at the blocks that were found, right, among different pools and compare the transaction fees that were collected in e-in each of them, and you see that there are massive discrepancies. And, and again, I think the beauty, whether we like the filters that Ocean is doing or not, complete separate discussion, the fact that you know exactly what it is and that at the end of the road, we're gonna as miners be able to create our own, blocks, I think it's super, super interesting and extremely valuable, right? so that's where we are with, with pools." }, { "speaker": "rapha_zagury", "time": "49:24", "start": 2963.83, "text": "And one, one thing I've also heard with Ocean, it's also, because people, I think sometimes confusing the pro-filtering stance of, you know, public Ocean employees with the entire pool, because you do get the choice. I think that's the other thing that's probably not, quite well understood. Obviously, I know you understand this alpha, but I mean, just people in general have this conception that, oh, you only mine with them if you kind of wanna do the filter thing, but actually, you, you can choose on a different filter, right? You can get" }, { "speaker": "stephan", "time": "49:54", "start": 2994.05, "text": "If you get-go to their website, I forgot where this is, but, I think it's under, yeah, under documentation. So you'd see that you have alternate block templates. You can pick the templates, right? You're gonna be charged a fee, like you can, you can do the core template, which is the same that you would get out here if the other fi-other pools, and you pay a two percent fee for that, which by the way, is in line with a lot of pools who charge, right? you still pay a fee when you- When you, when you mine with, I don't know, Foundry, Up to Pool, you know, all of them, you pay a fee, right? May not be two percent, but, sometimes it's more, sometimes it's less depending how much you do, but you pay a fee, you're gonna do the same thing here, and you, you don't-- you're not subject to filter, so you have the option, it's completely available for anybody to do that." }, { "speaker": "rapha_zagury", "time": "50:43", "start": 3043.34, "text": "Yeah. and then there was also the concern, so as, so the, the, this is the big concern that people like, zerox, b10c, and Mononot were mentioning, which was that it looked like a bunch of these pools were actually sort of pointing-- they were kind of like front ends and all pointing, to Antpool basically, and thus, making, you know, the ecosystem more centralized. And so that, that spurred some conversations about Stratum v2 and picking your own templates and things like this. And separately- There was also an earlier concern noted that a lot of different pools were all using the same potentially custodian. That, you know, the rumor is that this entity out of China, known as Kobo, was, you know, the entity that was also like representing another an-area of centralization. So I think it's sort of driven this conversation, for some people who are obviously trying to drive Stratum v2 adoption or something like that, and then also- Also, the conversation which is separate, which is FPPS versus PPLNS or something related to that. So it's kind of these different aspects of it that are all, coming out. but," }, { "speaker": "stephan", "time": "51:56", "start": 3116.16, "text": "yeah, yeah. And to, to that point, I think the way to approach this is just think that when you're using one of those pools, it's like insurance. You're paying for insurance, right? And the insurance covers that they're gonna pay you for a block, they're gonna pay you for your hash rate. Rate, you know, in a cer-certain period of time. So you know for sure that if you point hash rate to them, that in a period of time that you point to the hash rate, you're gonna get paid for that, regardless if they find a block or not, right? But for us at No Markets, know that again, there is no free lunch. If you are paying for insurance, you know, the insurance, the cost of insurance has to come from somewhere, right? And I think one of the reasons why we saw, Senator, this is my guess, why we're seeing To be on the other side of this insurance, you need capital, right? Because at some point, you are gonna be a pool. Let's say you're a smaller pool that you're out there, and you don't wanna run that risk. And somebody approaches you, and another pool tell you like, \"Stefan, you know, you have a pool, your pool isn't that big, right? I know that you weren't lucky and you didn't find a block, you know, for ten days. We'll cover that for you. We'll give you the capital, you go out," }, { "speaker": "stephan", "time": "53:13", "start": 3192.86, "text": "Right? But what that will do is that all the capital is going to the same place, right? And the capital provider, whoever that is, it's one entity that, that is taking a, a advantage of this. This is my guess on, on this. Side note here, which I think it's, something important to mention also. And Bob Burnett mentioned this all the time, and I think he's spot on. Two things that he says that I think are spot on. First of all, is that block space is, is, is a very scarce, resource that is, it's gonna lead to a marketplace for block space at some point. Is this gonna happen immediately? It's gonna happen, I don't know, but eventually block space is gonna be negotiated in different terms than what we see right now. People are either gonna pay to be in a block, right? You may actually pre-sell space Based on the blocks, right? And this is why, again, creating your own block templates and understanding how to create your own block templates is important, because there is gonna be a marketplace for this in the future, right? Let's say, for example, you are An ETF, and you know you're gonna have to settle daily, and you know you're gonna have to every day include transactions in the blockchain, you could pay a miner to say, okay, so I wanna have priority in your, in the blocks that you find. So if you find a block, I wanna be sure that, you know, every-- As soon as you find-- I can't guarantee I'm gonna find a block, but I can tell them that as soon as I find a block, I'll give you priority, you get ahead of the line, and to do that, you" }, { "speaker": "stephan", "time": "54:45", "start": 3284.93, "text": "These are its early days, but they're gonna develop eventually, right? The second one, and again, going back to Bob, Bob mentions this, and I think he's spot on also. A lot of people when they talk about mining, they say mining is gonna converge to the end, the, the energy sector. The big energy producers, they're actually gonna end up in mining, which is probably gonna be somewhat true, but I think there is a mu- a much higher chance of financial markets converging Converging into markets, then energy companies converging into markets, because this is a capital, very capital intensive business. Think about mining, right? It's energy, efficiency, and capital. You have to manage the three really well, right? And a lot of people look at energy, energy generators, of course, it's super important. Efficiency is the second one, super important, also you need to have the better machines out there, and you need to optimize your machines, but the capital side is typically Overlords. And I would argue, and of course, I'm super biased because I come from capital markets, I would argue that capital is the most important vertical of all of them. and that's why I think at the end of the day, you know, those that have access to the right kind of capital will actually be the ones that are gonna be the higher, have the higher chance of success in, in the mining industry. And, you know, lo-just look back, look back at the past cycles, and if you think about it, what really killed some of the miners out there That went bankrupt, it wasn't energy, you know, it's not that their energy costs exploded overnight, right? It wasn't efficiency, their machines didn't change overnight, it was capital. They leveraged through the roof, right? They got access to capital that was super expensive in a way that, you know, was completely, I think, unlinked to, to their revenues. They still needed to pay a lot of interest regardless, right? Or they diluted or keep diluting their shareholders significantly. So I think, you know- Solving that third vertical and having it in the right way, whoever does it in the right way would have a competitive advantage on, on everybody else, right? And this is why going back, this is one of the key reasons why we think that something like managed mining will give access to clients in the best way possible to, to mining, because, you know, it's a- The interests are all aligned, the capital is aligned in the same way, and I think it's super transparent, it's the way for, for investors to see, to, to see the returns, I think in a much better way as well. So I think that, again, it's, it's where you link the ca- the, the best use of capital, the best allocation, and eventually, again, that's our bet, it will lead to, to better results." }, { "speaker": "rapha_zagury", "time": "57:30", "start": 3450.2, "text": "I think that's fascinating, and it relates back to almost what we were saying at the start about what structure, what entity are you using here? Because, you know, if you think about it in a, in a loose sense, if you have a certain amount of money and you either, you know, buy a property and rent it out to somebody versus, you know, have a company and get a dividend versus, you know, like it, it dep- like the structure of the entity Change, you're kind of transforming what kind of return it is, whether it's like, income, a rental, or interest, or, you know, and so then that sort of- As you're saying, it kind of goes to this capital, it becomes a capital game, and whoever can access cheapest capital, obviously, if you understand the Austrian economics point, which is he who is closest to the money printer wins, then it, it sort of will, it looks like it, as you're saying, it's gonna become a game about who can- Create a structure that is most beneficial, you know, to be close to the money printer." }, { "speaker": "stephan", "time": "58:31", "start": 3510.75, "text": "A-and again, I'm very biased on looking at capital and thinking that capital is super important, because again, I come from this world, I think that capital is-- But I can guarantee you, structures are important, right? In having the right investment vehicle and giving access in the right way and aligning the interest, right, so that the investors, people investing, and the company that at the end, they're all in aligned in the same way is super important, and it goes back to match- Matching also asset liability, right? If you have-- we already have an asset, which is Bitcoin, that it's super volatile, super unpredictable, production is unpredictable, right? If you're on top of that, you add the liability that it's in fiat, that it's completely decoupled to the asset that you have, you're gonna be in trouble down the road, right? Because you're gonna have a period of time-- and again, we've seen this, we've seen this in, in the last two happenings, right? Where mining companies go into and they still need to pay interest" }, { "speaker": "stephan", "time": "59:25", "start": 3565.13, "text": "To issue more debt, or they're not gonna have enough capital to create that, or they're gonna have to issue more equity, right? The way we're doing this, and your analogy, I think it's, is spot on. We're segregating it. It's exactly like, you know, I, I keep coming back to, I think it's a bad analogy, but it's similar in some way, which is what you referenced, is similar to REIT, right? So if you wanna get access to a very broad access of different ASICS, different geographies, and you The REIT's gonna buy, you know, several properties and, and then you get access to that, to that cash flow, right? But it's segregated to the vehicle, so the vehicle holds the assets, the vehicle holds the cash flows, right, and the investors get paid out of, out of that vehicle, right? I think that's a much better, much more transparent vehicle than, than, than what-- it's, it's different also. I think there's space for everybody. I think what, what a lot of mining companies do out there and go out to, to your point, go out to, to, to the markets, right? To capital markets, to issue more debt, super smart, right? This is where you get access to a huge pool of capital, right? Stock markets out there, exactly as you said, they're very close. I would argue that probably stock markets are That are closer to the money, money, money printing machine that you can be these days, because money is printed, it has to go somewhere, right? And the monetization that we've seen in stock markets, it's, it's massive exactly because of that. And a lot of mining companies are being very smart in tapping into that and going out there and issuing more equity in, in public markets, right? but I think there are other alternatives to do that, and that's the way that we've been, been-- Because if you're very large, this is true, I think, for Right? If you wanna get access to mining, you could go out there and buy mining stocks, you could go out there and, you know, mine yourself, could do all of these. We're just coming with a different solution where they can come to us and, you know, deploy. And by the way, a lot of times, things that we do are in partnerships with some of the mining companies they're, they're out there, right? We'll tell them like, \"Listen, we have capital to deploy, we know you have facilities, let's sit down, let's think about" }, { "speaker": "rapha_zagury", "time": "01:01:37", "start": 3697.85, "text": "Yeah, interesting. And, yeah, I mean, it kind of reminds me like everyone's looking at how Saylor, you know, either issues stock or issues very debt at a very cheap cost of capital to get some, you know, fiat and then use that to buy Bitcoin. And so in a sense, it's kind of there's a mining play of that as well. And as you're saying, if, if REITs are gonna be, are gonna be the big one in the, big in the real estate world, is there gonna be like MIT, mining interest-- You know, The future evolution, who knows? as you said, this is a," }, { "speaker": "stephan", "time": "01:02:11", "start": 3731.95, "text": "a, this is a machine that converts fiat into Bitcoin, right? That's what it is. You are gonna invest fiat in one side, which of course, gonna be converted into Azix, which are gonna be convert-- which gonna use electricity, right? but at the other side of all of this, what comes out, it's Bitcoin payments. It's the-- I always been very critical of, structures that were the inverse of that, like, you know, Bitcoin backed debts and things like that, You have debt that is denominated in Bitcoin. This is the opposite. This is a way that you have, fiat. You're putting fiat in one end, and you're producing at the other end, you know, a cash flow, a stream of Bitcoin that is gonna be coming to, to, to a wallet of your choice every, every day if the investors want you." }, { "speaker": "rapha_zagury", "time": "01:02:55", "start": 3775.74, "text": "This also reminds me of a really great point, Lynn Alden has been making. Now, for listeners, Lynn al-- obviously many people know Lynn Alden, obviously a, a leader in sort of macro and, economic writing, also very interested in Bitcoin, also on the board of directors for Swan. And, a, an interesting point Lynn was making is that in, in a sense Sometimes the money has been made by doing a fiat short, right? So people think they, that, you know, they've got some real estate loan or some stock loan, but it's almost like they, they made all this money by just being short fiat, and it was actually the financial system and the leverage that allowed them to get that. And I'm curious, you know, if you're seeing, you know, that kind of insight, is that sort of- You know, are, are, you know, are more people going to start to understand that?" }, { "speaker": "stephan", "time": "01:03:46", "start": 3826.68, "text": "Yeah, I absolutely, and I think they are. I had a very interesting conversation with, large fixed income asset manager, right? So they have a lot of assets under management, mostly in fixed income, and they looked at Bitcoin mining exactly that way. They're like, \"We would never set up a fund to go out and buy Bitcoin for our clients just because I said in the beginning, they don't even have the mandate for that.\" Like, but we could look, 'cause we've done-- they said we've done this before, where we go out and invest in specific industries and we get the cash flows of the industry. It's exactly the same way here. We're gonna be investing into Bitcoin min-mining facilities, and every quarter, if we set it up that way, our clients gonna get dividends based on what was produced, right? Some-- sometimes it's gonna be better, 'cause Bitcoin price gonna go up, and you're gonna get more payouts. Sometimes it's gonna be worse, right? They're gonna get paid less But if they understand that, if they understand the economics of that, and, and also if they look at the unit economics of what we have here, right? When you actually go into the details of showing them how much, they actually get for production, the numbers are much better than a lot of industries out there, right? You're talking about ROIs in like the, the high twenties, mid thirties, after all the fees, after all energy costs, after everything else, it's super appealing for, for, and Without considering the, the rise of Bitcoin price, right? If Bitcoin price can continue to go up, they have all that upside tail in the, in the up, in, in, in the right way for them, right? It's all the optionality is all in their favor." }, { "speaker": "rapha_zagury", "time": "01:05:26", "start": 3926.69, "text": "So I'm curious if you see, now, none of us has a crystal ball, right? But if we're going into this bull market and we're sort of, are we gonna-- What kind of parallels do you think we're going to see looking off the past one? Like, as I sort of summarize what I saw, at least a few things in the last bull cycle, we saw a lot of leverage, we saw this kind of concept of, \"Oh, don't sell any coins, just borrow against your coins,\" like that was kind of the thinking. we saw hash price This, this crazy, and so that means the price to obtain the mining machines went through the roof as well. So I guess my question for you is, do you see similar parallels happening this cycle, or do you, do you see something different? Like more maturity this cycle maybe." }, { "speaker": "stephan", "time": "01:06:14", "start": 3974.83, "text": "E-every cycle is slightly different than the past, right? For us, we've been around, like, we-we've seen this, but there are always some similarities, and I think some of them are unfortunately tied to human nature, so we may see it again. I think on the Bitcoin side, before going to the mining side. Unfortunately, we are gonna be seeing people taking leverage again. We always see, right? They're gonna look-- particularly depending on when inter-- where interest rates are, maybe now not that much 'cause rates are a little bit higher, but that always happens, right? 'Cause they-- it starts to feel like it's a price-- as human beings, we're horrible in predicting discontinuities, right? So we always think that the next day is very similar to the last day, and we don't look in a longer time period, and, you know, and we saw this a little bit earlier this Yeah, and the price kept going up month after month after month, right? And nothing is guaranteed, and then but people are gonna leverage and they're gonna get more, more exposure. That's, that's a fact. It's the nature of the markets, also. I think that, you know, and unfortunately because we, we still have, a lot of free money out there, right? Which again goes back to a lot of the problems that we mentioned, leverage is gonna happen. We're also gonna see, you know, again, the cycle of people looking at the new Bitcoin and all of that, that always happens, and, that may be happening a little bit with inscriptions and, you know, all of that already, and, I still think that a lot of this doesn't have value in the right-- and the only thing that really has value is Bitcoin, but again, just like that, a lot of things are gonna, are gonna emerge. in mining, what we've seen, I think in the last few cycles, is, as Going up. By the way, hash price just hit a, an all-time low, right? So, after the halving. So we're, we're actually still not even close to that, but it will happen in, in the next bull market for sure, and then you start to see some interesting things, and this is part of our bet in mining also. if you look at the prices of ASICs, right? in the last few cycles, they exploded up, like really, really went through the, the prices of ASICs are usually me-measured in That you have out there. And it's hard to look at the longer term, chart because it, you know, it, it change, machine types change and efficiency changes, but it gives you an idea in short periods of time doesn't matter because, you know, efficiency isn't changing that much. And you saw prices almost multiply by ten in, in some cases, right? because machines are very scarce, people really need them to think about the economics, right? If pri-- Bitcoin price starts to go up significantly, places where before the- The energy price was too high for you to mine, become economically efficient for you to mine, so people would hash with anything. They would get, you know, remember the last cycle, people were taking out, you know, old s-nines and just plugging them back in again, and, they were profitable, right? And pretty much anywhere. it, it gets to a point that it may be profitable for you to plug a, a Bitcoin miner at home and still pay residential rates and it's still gonna be making money, money on that, right? If the price goes So there's a lot of demand for machines, a lot of demand for efficient machines, the inventory dries out, and there's a bottleneck. I mean, you can't just, you know, the Bitmain or these my-- they can't, they can't be producing more and more, you know, machines indefinitely in the short term, they can in the long term. So inventory dries out, pr-price explodes up, right? We may see the same thing, I think we will, depending on how quickly the, the market goes up. then I think more on the infrastructure side, it becomes harder and harder also to deploy these machines, right? And this is something that is happening, you know, even regardless of a, a, a Bitcoin price move, because there is more demand for infrastructure from AI and other competitors that wasn't out there in the past, right? It's, it's different and it's very exaggerated because I think the demands for AI are much more specific than the ones for, for Bitcoin, but it's definitely putting some pressure out there, and it's definitely, I think, crowding out some of the opportunities a-out there, primarily in the places that are good for, for AI, right? And you see it, you see it with a lot of the public mining companies out there all diversifying into, into AI as well. So that's another factor to have in mind because that's gonna put pressure on the infrastructure and the infrastructure, Since we've been thinking more and more about building our own infrastructure in some places, Marathon, for example, has been-- always had a very asset-light structure and has moved, you know, through time into, owning their own infrastructure as well exactly to, to avoid these risks, right? Of getting into a bull market and not having a place to, to deploy your machines. That's def-definitely a, a, a risk, right? so I think these things are things that could happen as we get, closer and closer to, to a bull market. What Stefan, just one thing that I think, you know, we've, we've learned with Bitcoin is that whenever we think something is for sure, whenever we think that the bull market is coming for sure or bear market is coming for sure, it's the end of Bitcoin or Bitcoin is, you know, we're seeing hyperbitcoinization, we're always wrong, always. Right. Yeah," }, { "speaker": "rapha_zagury", "time": "01:11:31", "start": 4291.36, "text": "I think that's right." }, { "speaker": "stephan", "time": "01:11:32", "start": 4292.36, "text": "And we're gonna-- On that thing, I'm gonna be right, right? That we're all gonna be wrong. It's a-- It's impossible to predict Bitcoin price, Just this y- yesterday, you know, Mother's Day, we're having this big lunch and, you know, some of my friends, family and friends are, are over. And I go, \"Oh, so, you know, they know I'm in Bitcoin.\" They're like, \"So, is, is now the right time to buy?\" And I, and I, and I told them like, \"Yeah, now is the right time to buy, the same way that it was, you know, when it was a fraction of where it was, and I told you to buy and The massive volatility, because this is-- and this is good news, it's great news, it just means that we are early, right? If the price was stable and it wasn't changing that much, it would mean that, you know, we were very close to hitting the total addressable market of Bitcoin, and we're not. Bitcoin is still a drop in the ocean of, of monetary solutions that store value out there, right? So, you know, this is what long term I really look at and, That if that's gonna happen in one year, two years, five years, thirty years, I have no idea, but I think it's eventually it's gonna happen because, you know, just fundamentally it's the best, source, I think it's the best kind of money we've, we've ever seen, right? and we've, again, just, think long term, this, it, it's gonna continue to capture, monetary premium from everywhere else." }, { "speaker": "rapha_zagury", "time": "01:13:05", "start": 4385.08, "text": "Yeah, I think you're right there. And, yeah, and definitely I think" }, { "speaker": "rapha_zagury", "time": "01:13:12", "start": 4392.08, "text": "In the sense of, we don't know what's gonna happen. We don't, we don't know if it's a bull market or a bear market or whatever, and you just sort of have to be ready for multiple different scenarios. one other topic just to get into before we finish, I know you are hosting the, well, it's kind of like a, not a very frequent show, but the Nakamoto Gauntlet. You're one of the hosts of this show, and, basically you are inviting on some people from the investment world, and then you're Telling them why they gotta be buying Bitcoin, but, can you tell us a little bit about how that's going and what sort of, conversations you're having there?" }, { "speaker": "stephan", "time": "01:13:49", "start": 4429.71, "text": "Yeah, hundred percent. So this is, was an idea from Dom Bay. Dom actually reached out, he saw what we were doing at Nakamoto Portfolio and, the analytics for institutions, right? For those that don't know, NakamotoPortfolio dot com is a website that goes, it's from Swan Research, and you can input any portfolio, you can see, you know, Location, if you've added in the past, how it would look like in your portfolio, you can actually make simulations in the future. So Dom saw, saw this and he's like, \"Man, this is great. \"Uh, Dom is a firefighter, he helped his, the, the pension of the, of, of his firefighter union to actually get access to Bitcoin. And here's a long story about Dom. Dom actually was at Pacific Bitcoin two years ago as a firefighter, he saw everything that was being presented there, became a Bitcoin- Bitcoiner got super excited about it, again, converted his pension to allocate to Bitcoin, and when he saw this, like, quote, \"These are the tools that, you know, we should be putting in front of, of pensions.\" And his first idea was, \"Let's go out there, let's try to find these pension funds, you know, to come on, on a show with us, we'll do an analy-anal-- analytics of their portfolio for them.\" And of course, you know, none of them bit on that, you know, they didn't wanna come and talk about something" }, { "speaker": "stephan", "time": "01:15:12", "start": 4512.06, "text": "Bring guests in, we'll talk about some of the pensions out there. I think the, the beauty of a lot of what they do is that, you know, we can find information about a lot of what, how the pensions are allocated, and we did three shows. So the first show we did, we got the Ontario Teachers' Pension Fund, we looked at their asset allocation, we looked at how they were allocated. It's okay, so what is the right allocation? So that's where the process, like, okay, so if we're analyzing this, we're coming in as, as Goldman, right? At Goldman, I used to do this all the time. We would sit down with the clients, you know, institutional clients, okay, here's your asset allocation, and they would ask things like, \"Well, so should I allocate more to private equity? Should" }, { "speaker": "stephan", "time": "01:15:55", "start": 4555.25, "text": "process, but here we are with a focus on Bitcoin. So okay, given this is your portfolio, given these are your objectives, right? As you know, pensions at the end of the day, they need to, to pay their pensioners, they need to be, you know, maintain their purchasing power before anything else. So there's a huge focus on inflation and inflation protecting, assets. So Bitcoin is right in the core of what they should be doing. So we looked at their portfolios, went through the process, and, and then at the end of the show, we made a, a, a hypothetical allocation to, to the portfolio, right? So Ontario teachers, we suggested around two percent for their portfolio, and we recorded this a year ago. So if you look at the numbers, you know, that two percent became already four percent if they haven't, hadn't rebalanced their, their portfolio, right? And the point here isn't to, to, again, to prove that we're right or wrong, it's just to show that, you know, there, there are real life consequences of not allocating to, to Bitcoin. Guys, everybody I said, \"Oh yeah, Bitcoin just divided by two, right, when it goes down. Imagine if we had Bitcoin. But, that there's the other side of that, which is what has had happened in the long term, which is, you know, Bitcoin has gone up and not allocating, I, you know, and this is my view, I think it's n-not, at least not analyzing Bitcoin in a very serious way for these portfolios is a breach of fiduciary duty of a lot of these managers. They should be taking a very serious and a very deep look into What Bitcoin could do for them. Forget about, about the fundamentals in the beginning, but just think about it as being an asset that has had the performance and the correlation that it has had to other assets. Just on that by itself, it should be in a portfolio. And then when you think about the fundamentals and the fact that, you know, it potentially could really be a very good source of, I hate to call it, but, you know, insu-- it's not exactly insurance, but insu- protection against losing purchasing power, right? It makes a lot of sense. And if you're Wrong, I mean, it's not that they're gonna be allocating a massive amount of their portfolio, but that's the good news. It's so early that even a small allocation, I think, in Bitcoin could have significant impact on some of these pension fund portfolios, right? So this is what we've been doing the show, going time and time again and going back, and talking about, you know, how Bitcoin could actually be seen in an asset allocation perspective for, for these portfolios, right? Pensions As I said, I think it's criminal for some of these large pensions not to consider seriously an allocation to Bitcoin. And it's not that, you know, they've looked at it, they, they did their homework, they did the analysis, and then came to the conclusion, \"Oh, no, this is too risky, it doesn't fit, or it's not correlated to...\" No, they, they- Don't even wanna have the conversations, right? And, and that, I think, as I said, I, I think it, it's criminal and shouldn't be happening." }, { "speaker": "rapha_zagury", "time": "01:18:47", "start": 4727.11, "text": "Yeah, I think it's, really, it's just a, maybe it's hubris, maybe it's just sort of tribal thinking that's keeping a lot of these large, funds and entities from allocating to Bitcoin. so as you mentioned, in those conversations, you would typically say, \"Okay, maybe go for two percent Bitcoin.\" In that scenario, where would you say they, quote unquote, de-allocate? Where should they take that away from to put, you know, into Bitcoin?" }, { "speaker": "stephan", "time": "01:19:16", "start": 4756.89, "text": "Yeah, I, you know, from the, from the particular case, depends client to client, but in particular case of pension funds, I think their inflation protective assets, real estate, right, all of these make a, a lot of sense. Real estate's the top one that, because usually they have very large positions in, in real estate, right? So there is room there to, to reallocate Some of that position. And second, more fundamentally, think about the real estate cycle, right? Real estate became these, I, I call it a Frankenstein of an asset, right? 'Cause it became something that it wasn't supposed to be, and now it became a, you know, a savings technology where real estate should be a place for you to live, right? and the monetary premium on real estate is massive, it's being monetized, you know, not for a few years, but for decades. So So in terms of the cycle of monetization, if you think about a pension fund and why, fundamentally, why did they invest in real estate? Is it because, you know, they wanna give houses to their pensioners to live? No, it has nothing to do with that. It's because they think long term the house, the price, the price of houses are gonna keep up with purchasing power, gonna protect them, right? And because more and more people thought about that, it actually accelerated and it did much more than that, right? but that cycle also comes to an end because at some" }, { "speaker": "stephan", "time": "01:20:37", "start": 4837.62, "text": "neighborhoods that are just sitting there with no one living actually in, in the places, right? And you need to have some sort of adjustment in the, at, at the end of the day, the prices are gonna come up, right? With some sort of, filtering out is gonna happen, and I argue that, again, in the case of real estate, this is-- you're much closer to the end, I guarantee, than, than Bitcoin, right? Even if you put probability, if you think that probability of Bitcoin actually capturing monetary premium is very, very low, it Market cap compared to three hundred and twenty trillion dollars in real estate, right? So it's still very, very small. Your potential-- everything in, in investment, you have to think about, you know, probabilities and outcome, right? Here's an asset, and you know, even forget the probability for a second, but if you're right and if it captures a significant part of the monetary premium, and it's not only real estate, right? Real estate, I think it's the, the big, asset class that we talk about, but equities is the same way, right? People Progressively, because they wanna get something that will protect their assets in, in the long term, right? Bonds the same way, you know, Brazilians, interest rates in Brazil are re- really, really high. At the end of the month, they have assets left in their account, they buy government debt. That's what everybody does in Brazil, right? so there's a monetiz- monetization of debt as a savings technology as, as well. But again, this, this all has unintended consequence, and these are all assets that already have been monetized for a long time There are less obvious ones, I mean, still some obvious ones like gold. If they have a gold allocation, that's usually where we go to, like, \"Oh, you, you have gold, right? \" Super interesting. The last, conversation we had, We've, we, we, we, we brought the, the CIO for the Houston Firefighters Pension Fund, right? And he came to the show, he already has an allocation Bitcoins, it's rare, this was the, the last show we recorded. So he already has an allocation to Bitcoin, he had a point five percent allocation to Bitcoin, and he told us in the show, he's like, \"Yeah, I also have gold in my portfolio. I don't see any reason to have gold. I decided recently we're gonna de-allocate from gold and we're gonna make that whole allocation to Bitcoin. So they're gonna move that two percent allocation that they have in, in gold into Bitcoin because he came to the conclusion that again, Bitcoin has a much better chance in being a digital gold and being a store of value in the long term than gold itself, right? So I think gold is the other area that people should be, that investors should be thinking about reallocating and putting, you know, I didn't reallocate everything, but definitely a few, Stephan, I, I had a conversation with a family office a few weeks ago. There were two things that I told them that they, you know, very skeptical as you, as you, as you said, I think to that point, like people that come from the traditional markets, and I can tell you because again, that's where I came from, it's almost like I don't know how to explain, but when you look at Bitcoin, right? The per-the perception they have in their mind, is that Bitcoin is like all these memes, this crazy people, this magic internet money, right? And there's a huge barrier because of that. They don't even get into the merits of it as an investment vehicle, because that's, that's the impression that they have in their mind. So this family office, same thing, like, like, \"Oh, this is magic, internet money, you know, there's absolutely no way I'm gonna put you're gonna lose the capital. But then we had the discussion, you know, we went through a presentation, and then the two things that came to the-- that I mentioned that made them change their mind and said, \"Yeah, you know, we should allocate some.\" The first one, I told them like, \"Listen, you invest into venture capital, private equity, hedge funds that give you no transparency. The only thing you know is the track record of the manager, right?\" And I asked, \"So what is the shortest track record that you have?\" They're like, \"Oh, Extreme, you invest in a manager that had two years of good track record, a hedge fund manager, right? And being in, in markets for, for some time, you know that that doesn't mean anything, that they can start to-- But you invest in them, right? They will be part of your portfolio. Like, yeah, you're right, okay. So Bitcoin has much, much longer time period than that, you know, more than ten years of track record for you to check and, if you just look at the returns, if I printed it, and by the way Tell them it's a hedge fund manager's, most of them will invest, right? So that by, just the returns speak by themselves. So that, that stuck with them. And the second thing that, you know, I told him was like, listen, given that you know this, and right now you have zero, you have anything, I can tell you that, I don't know if the right answer is for you to have one percent, five percent, ten percent, but I can tell you without, you know, any doubt that zero is the wrong answer, and that's where you are right" }, { "speaker": "stephan", "time": "01:25:36", "start": 5136.06, "text": "I think that the probability of this actually working out is also zero, right? Which isn't. I mean, you can tell me that you think it's one percent, it's two percent, it's five percent, right? But it's, it's not zero. And I think you're breaching the-- I told her, I think you're breaching the fiduciary duty you have with your investors by not, by not having some sort of allocation to, to Bitcoin. And I understood that, you know, in the past it was probably harder, this is again a family office for you to of account for your clients and what you have right now, you would have to go to Swan, open an account with us, right? And understand all the barriers with that. And I still think you should do that, but now that the ETF is out there, you have no excuses, just go out and buy the ETF, and with that, start to learn, you know, the other benefits of doing self-custody, the other benefits of really understanding Bitcoin, and then I guarantee you, you're gonna get to a point that you're gonna understand. And they came out of that Some and they, they are allocating some of their, clients' assets into, into Bitcoin right now, right? so I think a lot of that is happening, and we've, again, these are conversations we're having e-every single day, right? And we don't care, I always tell them like, listen, if you already have, you know, a brokerage account and you only have access to the ETF, go out and buy the ETF. It's better than not having any exposure, right? It's worse than holding your own Bitcoin, it's ho-worse Right? Let's go one step at a time, go there, understand it. By the-- It's good for them also to buy the BlackRock or whoever, or the Fidelity or whoever the ETF is, because it brings some legitimacy on their road that they're buying something. Like I said, BlackRock is selling this, right? It's probably doesn't mean anything, but in their mind, it, it, it has value and, and I think it helps them cross that wall of looking at the memes, looking at the magic internet money and seeing, you know, Bitcoin for what re Does, which is the best monetary savings, as I said, I think it's the best, fuel cell that you can have for your savings in, in the long term, right? it's-- I can guarantee you that, you know, at, at least for me, as long as I live, my nodes are gonna be running and they're gonna be perpetuating transactions across the network, and there are many, many people like me, which means that in ten years, twenty years, fifty years, a hundred years, Bitcoin's still gonna be here, you know Down, it doesn't matter, the protocol is still gonna be here, and whenever the nodes come back online, you know, the transactions are gonna continue to be broadcasted, and this is gonna continue to go around. You know, we're way, way, way past the point where this isn't gonna work, this isn't only gonna work, this is gonna thrive, in my opinion." }, { "speaker": "rapha_zagury", "time": "01:28:24", "start": 5304.56, "text": "Well, yeah, that's a fantastic spot to finish off. So, we'll put all the links in the show notes, so listeners go and check out, the, the Gauntlet show, as well as some of Rapha's research over at nakamotoportfolio dot com. And of course, I think it's, yeah, it's really exciting to see, and, yeah, I think it's, it's a, it's a, it's about pragmatically helping people take that next step into Bitcoin or to get started doing something with Bitcoin Thank" }, { "speaker": "stephan", "time": "01:28:54", "start": 5334.82, "text": "you, thanks Stefan for having me, pleasure being here." }, { "speaker": "rapha_zagury", "time": "01:28:57", "start": 5337.76, "text": "I hope you enjoyed the chat, make sure to share this episode and press like and give us a thumbs up if you enjoyed this episode. Thanks, and I'll see you in the citadels." } ] }