Cool. Okay, great. Thanks everyone for joining us. I think there's folks dialed in, online as well, so thanks for doing that. My name is John Todaro, Senior Research Analyst here at Needham, covering crypto and blockchain companies. Joined today with CEO of Cipher Mining, one of the, the larger and lowest cost miners out there, Tyler Page. Thank you for joining us.
Thank you very much for having me, John.
Great. Well, would love to get into a few kind of key topics here, but first off, for those who don't know, Tyler was in Hong Kong recently, a few weeks back. And I guess just first question to start us off, I believe you were meeting with some rig manufacturers. Any kind of thoughts there on the rig marketplace?
Sure. I mean, look, we... I was there last week, so if, I, I nod off, it's because I'm still recovering. I think I'm not quite as spry as I used to be. But, yeah, a couple things. So Hong Kong, we try to get out to Asia at least, or I try to get out there at least yearly. In the past, in past years, there used to be a time in our industry when access to rigs was really the choke point, and now the narrative has really shifted to access to interconnect- for power. But back in those times, we were very proactive in trying to get to know, you know, the Chinese C-suite of the big manufacturers. And so when we first went out there, many of them said, "You know, you're the first Western CEO that's ever come to see us.
Hmm.
And when we came back, we had some really good deals on rigs that were below market. And so I do think those personal relationships have been very valuable to us. So we try to have a semi-regular sort of time to visit out there. Now, the market's shifted a lot. The rigs are very cheaply priced these days. There's probably a cyclicality to that over the course of years, but it's equally valuable to get out there and spend some face time to hear both about new entrants we had some meetings with. The big three, you know, the three biggest that we currently have rigs from, Bitmain, MicroBT, and Canaan.
Mm-hmm.
And then also while we're there, we actually have a few current investors in Hong Kong, some funds that are invested out there, and actually a fair amount of interest. I think with the recent ETF being announced out there, it's a little bit more top of mind. I know that there was a Bitcoin conference there going on at the same time, and I think it was the best attended it's ever been. So there was a fair amount of enthusiasm. So it was a little bit of a blend of what's going on out there. I mean, specifically, I think it's always hard to predict. Everyone seems to be in an arms race to come up with a more efficient chip. You know, Bitdeer is now in that mix as well.
Certainly, you know, some of their executives have that pedigree from Bitmain. So, you know, I think there is an element of there's a Bitcoin boom potentially coming that people are thinking is gonna come, and there's always new rig entrants, it seems like, on this kind of every four-year cycle.
Yeah.
And so, you know, I think from our perspective, we like to keep our options open. We currently have a very diversified fleet. We do have machines from MicroBT, Bitmain, and Canaan. We test every new machine, but typically, new folks will launch a rig, a lot of them will fail, a lot of them will fail to tape out a chip or fail to go into mass production. We always wanna be one step ahead and try to find the next deal. So I, I was very encouraged. I do think there are aggressive pricing frameworks right now, and we will certainly look to capitalize on that as we expand.
Do you think that changes at all? 'Cause we are at rig prices, basically, cycle lows here. Any kind of thoughts from those management teams whether... You know, what kind of gets it to the point where they do start raising prices?
It's hard to say. I mean, I think they are in their own battle for market share, so even if they probably all secretly hope that and want that to happen, I think they don't necessarily wanna tell folks like me because they want to get... You know, I think they view the world as sort of split. You might know better, John, but I think the big publicly listed U.S. miners are something like 20% of the global hash rate- give or take. There's markets more for retail, and then there's big pockets of interest in places like Russia and the Middle East. And I think, the best I can tell from their strategy, is to basically have a channel marketing strategy to each of those. So I think they, you know, the good thing about where we're sitting is, they definitely all see the value in having a flagship client in the, like, U.S. publicly listed company channel. We are one of the handful of big folks with big expansion plans, room to expand. We will definitely be buying more rigs, so I think we're on their, their shortlist. And some of our competitors run a model that's, like, loudly exclusive to one manufacturer.
Hmm.
So I think we're really using that battle to our advantage. So I don't know what that says about the broader pricing market. General consensus is that if hash prices and Bitcoin prices and then hash price goes up, over time, typically, that has led to more expensive rigs that sort of follow that market. We'll see if something's different this time around. Now, there's a lot of capital going into the space. You have potential American entrants that might use a fixed pricing schematic, so I don't know. There's also a contrarian take out there that maybe we've kind of permanently reset- the price of rigs. I, I don't know if I necessarily think that, but I have heard one or two people articulate that. That would be very interesting because I think it puts more, even more value on the electrical interconnect-element of the business.
Right, yes
That's great. I wanna turn to your hash rate growth you have coming, 'cause there's, there's a lot planned, and a lot of miners are saying this right now. So everyone's kind of come out, and it's 2x, 3x hash rate projections for 2024, and then 2025, it's even more. Talk to us a little bit about what's different this cycle versus last. 'Cause we, we've kind of seen that story before. A lot of miners came out, said there's gonna be a ton of hash growth, and that didn't play out. So, so what's different now? Is it just, you know, access to capital, the, the financing is mostly there for these guys, or do you think there's still a lot of risk that these folks coming out, announcing all this hash rate growth, they're not gonna actually be able to hit it?
I think the more things change, the more they stay the same. The story changes a little bit, but there are always ambitious growth plans. For as long as I've been around Bitcoin mining, there have been folks that throw big, ambitious goals out there that often don't materialize.
Mm-hmm.
I think the risks to execution are really the central question an investor has to ask of these companies at this point in the cycle. The market seems to be favoring growth, you know, sort of thoughtful growth plans right now. It's fair to say that most investors in the space are very constructive on what will happen to Bitcoin prices in the coming, let's call it 18 months. And so from my perspective, the, the conversations I have with investors are trying to say: So if you, if you lay out everyone's ambitious growth targets against that backdrop because you have a fundamental view about Bitcoin prices going up, what are the risks to each of their executions? And so historically, that might be, do they have access to rigs? Do they have access to capital, right? Those questions are still the same.
The other factors today, I think, are, do you have actual access to the power?
Mm.
That's a big question for some of our competitors own a lot of rigs and don't have places to plug them in. Others have the right to develop data centers, like they have an interconnect permission, but they haven't necessarily built the data center. And so there's also the last question of how credible are these teams to deliver the data centers they're promising to power this? Like, literally from a construction and operations perspective. And you can almost do a scorecard on each of these. And I, I talk about this a lot with our investors because I, I think if you look at Cipher and just take a snapshot of where the business is today, and this is why I say it's a growth industry.
If you just look at our hash rate, we just had an earnings call. We reported that we're operating 7.7 exahash per second of self mining. And if you just looked at our market cap versus that amount of exahash, you would say we trade a little richer on that metric versus some of our competitors.
Yeah.
But the truth is, the market is smart, this is a growth market, and they're anticipating on a forward basis, like what's to come. We're projecting to be above 25 exahash next year, and we are building our own data centers to get there, particularly a large one down in Texas, with the exact same team we have had build our previous very large data centers, where we got an interconnect and a patch of dirt and took it all the way to be a 207 MW data center.
Mm.
Our entire construction and ops team joined from Google. They know how to build data centers. And so from my perspective, when you think about these growth targets with any company, including Cipher, you look at sort of what the projection is, and then what are the execution risk? You know, how do you discount the likelihood that that actually materializes? In our case, we have the approved, you know, the necessary approvals for 300 MW at our large data center we're building, Black Pearl. We have all the rigs necessary for 300 MW under contract, and under option contract for $14 a terahash. So extremely cheap to buy new rigs. And then we have a team that's been working at Cipher that built our last very large data center, and they built it in 11 months. And so from my perspective, you know, I would argue, and I think the market reflects this a little bit, a very high likelihood that we deliver what we say we're gonna deliver. We've always done that. I think we get credibility for that. And so, you know, there's a difference between, like, a project that's operating, that you would analyze the economics of, and a development company or a portfolio of sites that are under development, and we are very much in that second camp.
Yeah.
I would view us as having the highest level of credibility when we talk about that expansion. I think for sure, of all the expansion plans, some of them will not happen.
Yep.
I don't know who, I don't know why. It could be someone fails to get their interconnect, someone doesn't get the rigs, another place can't build a data center on time. But, you know, it would be the first time in a cycle ever that everyone delivered those plans. And so I think the investor's job is to try to discern, like, how much credibility do these plans have?
Yep, that's great. And $14 a terahash, that's basically around cost, so super cheap. Talk to us a little bit about this expansion and the cadence of hash coming online. So you're going from 7.7- to 25 by end of 2025 .
Mm-hmm.
Talk to us a little bit about the cadence. What can we expect at the end of 2024, for those who might not be familiar?
Yeah. So again, in our most recent earnings last week, we just discussed that we're completing some expansions now in the second quarter, that should take us to about 9.3 exahash in the near term. And so that is what is currently in scope for this year. Simultaneously, we are building this very large 300 MW data center. So to give you a sense, in the coming weeks, we will be operating 266 MW, generating that 9.3 exahash of self mining. And then over the next year, we project that to be above 25 exahash, operating 566 MW. So we are tripling the hash rate almost- and we are more than doubling the megawatts. And so that's a very large construction project, and that's really where our focus is. And that's how we get there. That large data center is scheduled to energize in the second quarter of next year, and we've discussed building out the whole data center over the course of next year. We'll pull that forward as much as we can, but some of that depends on just literally there's a sequencing to, like, bringing online that much electrical infrastructure, which is why we're not that specific on the finishing date and keeping it 2025.
Yep.
Over time, that timeline and scope should narrow, and we'll be able to give more and more detail. But right now, this site is literally, like, being cleared and leveled, and foundations will be going in shortly. It sort of starts there. Then it's a series of just-in-time manufacturing hurdles for all the various component parts, with the last piece being that the rigs arrive. And the way we try to set it, and the way we've done it before, is that just as the rigs arrive, there are slots to plug them in.
Yes.
Does that make sense?
Yep. And talk to us a little bit about choosing to go for more organic growth versus acquisitions. 'Cause we did see a few. Applied had a couple of sites, went for around $400,000 a megawatt seems attractive pricing. Talk to us a little bit about M&A versus choosing to kind of build ground up, and then how you think about the power contracts, though, which are obviously a key part of it.
Again, this is another one that's a popular topic of discussion these days. I talked a lot about M&A last week. We've never been busier, I would say, in terms of scoping M&A, and the reason for that is that the phone's ringing a lot, and I can tell you why, right? We just went through a halving cycle. This is like the known unknown of this business, is that you know you're gonna have this drop in revenue every four years, and we all plan around it. We have been planning for that since we started, and we've locked in extraordinarily favorable unit economics. We are known for having the lowest cost of power in the space.
It's almost all of the portfolio is hedged, and it's at $0.027 per kWh, so that makes us very strong relative to every other name in the space. And so what happens is, given that economics get squeezed around the halving, and people think about M&A, and certain business models get challenged, whether that's because they've got old rigs or limited access to capital or whatever, I think when smart bankers do, like, pro forma exercises, everyone looks better when they're blended with our power price and unit economics. So we get a lot of calls, and we look at a lot.
In the grand scheme of things, the best opportunities we've found, I think, really bring out Cipher's greatest strengths on a relative basis, which are, we have expertise in finding greenfield opportunities and taking them all the way from, like, the contract to interconnect and a patch of dirt, all the way through construction till the end product, and then monetizing the flexibility of curtailment, particularly in ERCOT. Very few of our competitors have that entire skill set, so I think the entire world of opportunities is open to us, and historically, we've found the best ROIs in those greenfield opportunities. So Black Pearl, the 300 MW site I mentioned, we bought that for $7 million. Like, it's comically cheap per MW, like, one-tenth of what some people are paying.
Mm-hmm.
So that's a lot of negotiation work to find that. On the more already built M&A side, which is... Again, there's a couple opportunities. There's sort of the-- Some of the opportunities are folks have infrastructure, but no mining, so, like, you could buy the ready-made infrastructure and show up with rigs. Other folks have an operating data center or a company with a portfolio of data centers that they might wanna sell because they're squeezed on the access to capital, or maybe they have debt or, you know, they need to update their rigs, whatever. Generally, we have not wanted to pay the valuations that folks more in those buckets wanted because we get a much better return with a little patience and starting from the greenfield.
I think the one thing, candidly, we're balancing is, I do get some pushback that, "Hey, what if Bitcoin's big run happens, like, tomorrow?
Mm.
You know, I think the hardest thing to call about Bitcoin price appreciation, even if you're a bull, is the exact timing. And so a lot of our expansion, you know, I mean, 9.3 exahash is nothing to sniff at, but 25 is fundamentally different, and that 2025 is scheduled for next year. So on the M&A side, the questions we're looking at are, you know, are there opportunities maybe where there's a distressed seller or a site that might wanna match up with Cipher and take our shares, you know, because we're, we operate very well in the space, and maybe could bring some hash rate forward beyond that 9.3 this year?
Yeah.
The answer is: we'll see. I mean, we're in a lot of data rooms. I think cost discipline has served us well on power, rigs, you know, resisting expensive debt. Like, it's sort of been our strength, and the reason why we're positioned where we are is that discipline. I get lots of excitable calls about, "You should just get something. You should just get something." I think we're excited, too, if we find a good opportunity, but we're not gonna sacrifice our discipline for that.
Understood. It is a fair question, though, 'cause if you do say the FTX collapse was the bottom- for Bitcoin, you're about, what? Two and a halfA three years into a bull cycle. When you do start thinking about 2025, 2026, it's almost - are you in kind of the depths of the bear market, then?
Well, you know, so, we look a lot at historical. You know, it's no guarantee that we're gonna see similar phenomenon, but in the previous halvings, if you look at what happens to Bitcoin price, I think everyone will know, like, "Oh, Bitcoin price tends to go up." We look at hash price, so sort of the total amount of dollars we are paid for producing our compute power. That's really the metric we run the company on, and when we look at M&A or a project or any kind of ROI projection, that's the number we look at. And so to put a little finer point on it, what you tend to see in historical halvings, that I think most people understand, is you see the Bitcoin price tend to go up.
People theorize it's because you got this supply-demand mismatch, 'cause less supply is coming to market. But for whatever reason, Bitcoin, after a few months after a halving, tends to go up. So what that does to hash price, the, the money we are paid, it causes it to go up, and generally, folks with the ability to produce mining compute power will chase that price. So the hash price goes up, more compute comes online with a time lag, and it compresses. And so we look at a million different projections and Monte Carlo simulations, but the one we generally believe in is, if you look at hash price after halvings, it tends to expand for about 18 months post-halving.
So the implication of that is that if we see historical patterns re-emerge, you would expect the revenue paid for a unit of compute from a miner to expand till the end of next year. Anything can happen. Like, that's not necessarily gonna happen, but, like, there is some consistency across cycles, and we tend to like that.
Yep.
So I think what that tends to suggest to us is, especially if you can get really good deals on CapEx, cheap rigs, right? Things like that, find a great power deal, you know, get it now, and come up online, you know, sometime in the next year and a half. And then, again, the implications of that historical pattern would be, that's when you're gonna see a crazy amount of enthusiasm because you could have really high Bitcoin prices, but hash rate going up a lot as well. And that's when you see some of the excesses emerge, like people paying $90 or $100 a terahash for rigs suddenly, and then that produces the next down market's losers. Does that make sense?
Yeah.
You know, it's all a balance, and history doesn't exactly repeat, but it usually rhymes, so that's how we think about opportunities.
Definitely seems to be the case in Bitcoin and crypto. I would say the cycles are surprisingly similar. Let's talk a little bit about total network hash rate. So, I think you used to say five-- you thought 5% was gonna come offline and it's, I think it's around there, maybe even a little touch more now.
Yeah.
Do you think... Bitcoin, I think this morning was at, like, $61K. Do you think this is kind of the early innings of some of that hash coming offline, or call it about a month in, as much flushed out as flushed out, and maybe you start to see a slow ramp back up?
So, apologies always for giving caveats, but, like, listen, just 'cause you spend all day trying to make the right guess, doesn't mean you're better at guessing necessarily. But I can tell you what we think, and everyone can make fun of me if this is wrong, in a couple weeks. But I guess, I think we saw—so hash rate's about 600 right now, maybe it's 590 or something like that, and I think it kind of, point in time, it got maybe 10% higher than that. It depends on the timeframe you look at, but, you know, it's five pers—call it 5%-10% higher. What that suggests to me is, if we have any pickup in Bitcoin price in the near term, there's hash rate already waiting to just turn back on.
Mm.
Right? So we've seen hash price, so again, what a miner makes in terms of revenue for its compute power, come to an all-time dollar low post-halving briefly, and it's bounced. I think it's at about $0.05 per terahash per day of revenue generation. That's really close to the pain point for a lot of miners. We're underneath that. We're cash flow positive in that operating environment. We'd love it if it were higher, but this is the benefit of being a low-cost producer, you know, on the power side, is we've got a lot more room than other folks. So when I think about that dynamic, even if you get a snap in Bitcoin up to an all-time high in the next month, we also know there's and that's up, whatever, 10%-20% from here.
We know there's 10% of hash rate already waiting to just flip back on-
Mm.
At that level. And then the question beyond that becomes: How much do you believe these projections for new rigs, all these people that have ordered rigs, and are they gonna get them plugged in? They're not all gonna get plugged in in a timely fashion. Some amount will. And so the question becomes, beyond that, how much can the economics get squeezed from a hash rate perspective? You know, there's certainly a lot of rig capacity. I think the big picture governor becomes access to capital 'cause it's just expensive to build big sites. You're talking about the need for big sites to move the needle on a 650 exahash.
Yep.
And then, just the timeline to get that ready. So even if you have—I think the bull case for a miner like us would be, if the choke point is access to large power interconnect, and there's many stories about this in the press, the reason—pick up The Wall Street Journal, whatever, the sort of AI data center push is sucking up all that capacity and extending those timelines. I think the really bullish case for this time through the cycle would be, you've now reached a limit on amount of power and amount of capital necessary that's gonna be the choke point on how quickly the hash rate could react beyond that 10% that's ready.
Mm-hmm.
Beyond the projects that are already being constructed. So, you know, it's harder to go further out on the predictive scale, but I think there's a chance we hit real, real-world constraints on those large numbers being able to come up quickly to match a Bitcoin price increase. Anyway, that's a nuanced answer, but I think there's a quick reaction that could, we could easily snap right back to the all-time high with a little move up in Bitcoin price. The real question is, what happens beyond that?
Yeah.
What if we go to 100,000 Bitcoin? How quickly does the hash rate come up? And I'm not sure there's much incremental hash rate. I think the, the projects that get done will get done. That's not gonna be because Bitcoin's 100,000 or not 100,000. It's really the projects beyond that. So who says, "Wow, Bitcoin price is 100,000, and hash price has expanded back to," whatever that would make it, you know, $70 or something like that, depending on how quickly, and like, "I'm gonna go raise a bunch of money and race around to try to build a data center?
Yep.
So that's why it's so hard to predict, but I think the real-world constraints are really in our favor if we get that positive Bitcoin price action.
That's great. And talk to us a little bit about these long-term constraints. So, you know, it's probably too early to start thinking about the 2028 halving, but if you think about the competition for power with AI, which seems only just gonna increase. You talk about some of the economics. For a lot of miners, it's no longer profitable. Do we get to a point where there's kind of a ceiling on hash, unless, you know, Bitcoin's obviously $1 million or, or whatever, but do you think we're getting to a point where the, the new entrants for miners are less and less, and maybe you have a handful of three to five guys who kind of have most of the hash?
So, maybe. I'll give you both versions and then leave it to people to decide, but here would be the two versions of the world. I do think that you are effectively, with this, eliminating, like, small-scale, publicly traded miners. That's not to say there won't be people with pockets of opportunity, where they go use flare gas, and they run 100 rigs or something like that. Like, yes, you can definitely do little projects like that profitably, but not at large scale necessarily. And so I think you'll see this bifurcation of the public market into the haves and the have-nots, and you've gotta have large scale. And so that's why it's so important for us, we're building this big 300-megawatt data center because it's, like, massively recategorizes what we are as a company and puts us in that sustainable scale level of miner. And then, the good version of that would be, yes, a big chunk of the competition effectively falls away 'cause you can't compete without scale. And we sort of duke it out with the other big names, but, you know, if we're better at getting cheap power, we'll consistently produce better margins, and over time, should be a better company. That's the good version. I think the bad version would be, again, in this good scenario, Bitcoin goes up, we make lots of money. If it gets too good, you'll incentivize other providers. Like, in other words, if you've got access to a power interconnect, and you say, "Well, we can go AI or Bitcoin," there is a version of the world...
I know AI is much more mainstream acceptable as a storytelling exercise, and I can tell you, we currently have no plans to do AI. I think many of our competitors are getting into it. I would challenge the return on investment that they're modeling for that, and push that I think most of them are doing that as a marketing ploy to say "AI" five times on their marketing call because they're gonna get, like, a multiple expansion and enthusiasm. Prove me wrong, I mean, maybe, maybe someone has an edge or sees something we don't see, but we've spent a fair amount of time looking at it. But imagine a future world where, like, Bitcoin goes to $250,000, and hash rate grows, but not crazy because it runs into real-world constraints.
If it's really that much more profitable, at some point, you know, other folks will. Bitcoin will lose the stigma. At $250,000 a Bitcoin, there's probably pretty mainstream adoption of Bitcoin.
Mm.
And mining, and people will say, "Well, you just make more money mining than AI, so, like, why wouldn't I do that?" And so if giant owners of generation facilities start getting in the business, they've got access to a lot more capital than your typical Bitcoin miner, and so that would be the version where it's almost too good and invites other competition in.
Yeah.
Does that make sense?
That does. Are you getting any sense right now when you talk to the different power providers out there, is there that competition with AI right now? Is that already going on?
It seems like that. It's not so much from power providers. Again, putting aside the kind of inbound M and A calls, where we do most of our origination, it's looking for places where there's an interconnect in some place like ERCOT, and so we can monetize the flexibility of mining and manage curtailment. That's really our specialty. We've got a whole energy trading stack that drives our business that really no other miner has. And so that tends to be where we look for opportunities, and often, number one, that they often aren't in the best locations for a lot of HPC in general, because they're very remote. They've got, like, stranded renewable power, and that's why it's so cheap.
And then again, the way we wanna operate it is to curtail it, to monetize the flexibility of mining, which generally does not fit in the historical, traditional use case for, like, AI, HPC in general.
Yeah.
That market is splintering, and there's becoming kind of sub-cases. So I think over time, there may be opportunities there, where our curtailment management sort of slots in, and maybe over time, that makes more sense. But most of the new sites we're looking at, generally, no, I have not seen it. But we've also gotten a lot of calls from bankers and research folks that really focus more on that side, the AI side, and are calling us, trying to understand our process for getting power interconnect.
Mm.
Because there's some of the choke point on the AI data center rollout is: We need a data center, but we need it now, and it's gonna take us three years to get the approvals in place to even put the data center in. And you guys already have these data centers and interconnects and I guess there—I know there was a research piece out there by another investment bank that sort of hypothesized that these companies like ours could almost be tear downs- for AI, right?
Oh, yeah.
Like, you buy the oceanfront, like, old oceanfront ranch house and sort of just bulldoze it to build your new glass mansion or whatever. Again, we're pretty happy with the projected returns for Bitcoin mining. I think, I know it's not as mainstream popular as to talk about AI, but the return on investment at this point in the cycle to us looks more attractive.
Yeah, that's great. We'll, we'll get to questions. I just, my last one is just on operational leverage moving forward. When I talk to investors, they kinda ask, like: Why is there so much G&A with miners?
Mm-hmm.
And just, you know, part of that is just the ramp, or the hash rate's not really there yet, but you did hires. So just as you think about G&A moving forward, are we kinda tapped there and just some operational leverage you get out of that?
Yeah. I mean, I think of our company as a bit of, it's in its adolescence. So we have kind of a unique background in that we came public as a greenfield company. And so, like, literally, we had some great power contracts and setups, but we had to go build from dirt, the data centers. And a lot of that was, you hire the really good people to bring them on board to build those data centers, and they've done that and delivered, and that's great. But the whole design is to scale. We're at about 40 employees now. We won't hire very many more than that to build Black Pearl.
Mm.
And so, yes is the short answer to your question, that, like, there's people working on construction and current operations of megawatts, which is how we think about SG&A as like a, as a KPI for the business, is what's your spend per megawatt when you run your own vertically integrated sort of construction and data center operation process? We're at 566. Even though we operate 236 today, we're currently under construction for a lot more.
Mm-hmm.
The short answer is yes, there will be minimal sort of expansion in SG&A over time, but massive operational leverage as the size of the business literally quadruples in terms of hash rate output. That's what's... Again, when you analyze the companies in this space, like, are you looking at a company with no growth? It is definitely a growth business right now because if there's no growth, yes, you could take all the costs or a lot of the costs out and just try to maximize, like, the runoff of a dying data center because the machines are getting old and, you know, whatever. You like, with the halving and expanding hash rate, that's what will happen.
Alternatively, you say, "No, we're at the front end of a cycle still with Bitcoin expansion, and we've got opportunities to grow," and it's that scale and the leverage that is really, like, the whole game.
Yeah.
So if you're not spending, I'd almost ask the opposite question. Like, if you're solving for the absolute bare bottom, bare bottom minimum SG&A, like, line up with how that expands and grows against the sort of market dynamics.
Yep. Great. Let's, let's take a couple questions from the audience. Got about four minutes left.
I have a question about sort of competitive advantages and barriers to entry in your business. I mean, looking back to the sort of, data centers of the early 2000s that had material issues and bankruptcies, like, how do you—how would you sort of, characterize your barriers to entry? Maybe you've listed a few, but just maybe you could recap that entry.
Sure. I think the biggest thing is that, from day one. Let me start with sort of what we see in the marketplace as most people's operating model. Most of our competitors, including the largest ones, it's really the same operating model that the hobbyist Bitcoin miner had 10 years ago, which is, I plug in a rig, I try to keep it on 100% of the time and operating, and let me tell you how good I am at keeping on 100% of the time and not 93% of the time. And Bitcoin prices are gonna go up, so I'll make money, and that's the model. And what's happened is most of our competitors got access to capital markets and did more of that. So like, "We're gonna buy a data center.
We'll go pay the price that whatever this utility will give us, and we buy more rigs and plug them in because Bitcoin's gonna go up," and that's the model. Ours is very different, which is to say, the most undervalued thing about Bitcoin mining at scale that I don't think investors fully appreciate, is the flexibility of its power consumption. So it is the only large user of power that, that is this large, that basically can instantly curtail, like in one minute, shut off hundreds of megawatts. And that is incredibly valuable to, to the grid overall, but in, in places that manage demand response and are managing growth and power balancing, like Texas, for example. Texas, there's a reason why all of our data centers so far are in Texas. They match that supply and demand with, you know, market price signals, right?
So what you see in Texas is, you might be near one of our data centers, and power could even be negative or might be crazy cheap, $0.05, you know, like, nothing. You know, you basically zero or they're paying us to take the power to keep it balancing. And then, and this will be especially true, we're expecting a hot summer, prices can go up 1,000x in 5 minutes. And so as the large user of power that can see that and instantly turn off and give it back, get paid for that, get even maybe paid the market price of power, which we can get at our Odessa facility, we basically have the ability to manufacture our own very low power prices and put in this floor for what we pay for power.
It makes us the low-cost producer in an early-stage commodity business, which gives us a huge advantage. The barrier to entry there is that, yes, what I described is very easy if you're talking about one mining rig. Like, no, it's easy to turn off. If you're talking about a 50-acre data center with 207 MW like we have at Odessa, that is a very complex process of automated processes, systems design, custom firmware. We have a patent on our process, like, to instantly shut it down in response to real-time market prices. So our Chief Technology Officer and his number two joined us from Point72. Our Chief Operating Officer's ex-Citadel, D. E. Shaw. Uh, we have a head of trading with over 20 years of Wall Street trading experience in natural gas and options. We have quants that then build and support that market.
It's because then you talk to our operations stack that all came from places like Google and Meta, and know how to design, like, hyperscaler quality SCADA systems and things like that, to physically operate a data center. That entire stack allows us to manage this on and off. We haven't seen anyone in the world that's produced that. And in fact, if you look at, like, ERCOT curtailment statistics that are anonymized, we know we curtail in response to market price signals better than anyone else.
Mm.
And so that is a pretty big barrier to entry and a huge amount of upside in the business. It also creates a floor. If Bitcoin goes down or prices stay, you know, in a tough zone, we're gonna be selling power more often in Texas this summer. It creates a floor to what we can produce.
There you go. That's great. We're at time right now, so, Tyler, I wanna thank you-
Thank you, John.
As always, appreciate it.
Thank you for having me. Thanks, everyone.