Business
Introduction Welcome to Distilling Venture Capital. I am your host, Bill Griesinger Distilling VC is a visionary podcast that provides an insightful and informed view of the key trends affecting the VC and tech startup world. My mission is to cut through and go beyond the hype that tends to dominate the tech landscape. And provide you with information you can use. Episode Introduction: Hello again everyone. Today, I have the pleasure of welcoming back to the program one of my favorite guests, JP Baric, CEO and Founder at Aurum Capital Ventures, because he is my go-to source & expert in explaining and making sense of all things crypto; BTC, crypto-mining, crypto-energy… JP thank you for coming back to join me on the show. And to reiterate so that folks know, Aurum Capital Ventures is technology/energy company engaged in multiple aspects of the crypto-mining business. And we’re going to highlight a new Fund you’ve launched for providing exposure to crypto assets, called Lucid River Partners BTC’s Very Volatile Week: I would like to anchor the conversation initially with: All that’s been going on in the news over BTC volatility and in crypto-asset category over the last week to 10 days; Recent price crash and negative commentary around crypto mining activity in general; Including effects of China’s announcements on banning mining, Elon Musk “poking the bear” on ESG concerns, and Jim Cramer, who gets it completely wrong, suggesting it points to the need for regulation of crypto b/c of “systemic” risk…blah, blah, blah JP, I know you’ll make sense of this for us and put it into understandable English! What do you make of all this? What are your initial thoughts, your take? Mike Novogratz CEO of Galaxy Digital chimed in with a short video providing some perspective and reassurance – I thought some of his comments were insightful: Mike Novogratz: “The underlying progress that is happening in the BTC ecosystem, the ETH ecosystem and crypto in general is full speed ahead. “This is not trading Tulips – this is trading a technology that is going to revolutionize how we transmit value to each other…” JP, what do you think? Is Novogratz right about this? [Galaxy Digital/Galaxy Fund Mgt. - a full-service institutional player, with asset management, capital markets, and investment banking.] Galaxy is well positioned to compete with Coinbase and Gemini around institutional funds, as well as with Fidelity on third party wealth management, as well as Grayscale on asset management. This entire business exists because of Mike Novogratz’ bet on crypto assets. Is Crypto-mining Eco-unfriendly? JP, I also wanted to spend some time discussing the energy use side of crypto-mining because, again, there is so much faulty information disseminated by folks in tech media and financial press that is just simply erroneous. Many articles recently published are suggesting crypto-mining is not environmentally feasible due to the amount of energy used…and that this is unsustainable And China is often claimed to be a geographic center of concentration for BTC mining. However, several bloggers and others point out this is not true at all… See Dec. 29, 2020 Forbes Article by Roger Huang, The ‘Chinese Mining Centralization’ Of Bitcoin And Ethereum Link: https://www.forbes.com/sites/rogerhuang/2021/12/29/the-chinese-mining-centralization-of-bitcoin-and-ethereum/?sh=25b14792f669 Take-aways from Article: The first thing to understand about this erroneous argument is: Mining pools command loyalty not based on geographic traits or even political ones, but rather, reward types, fees, and how the pool deals with bitcoin transaction fees. Mining pools might have a geographic base, but miners that pledge their hardware and their hash rate might and can switch their loyalty depending on a host of factors. Important to look at the hash rate of a mining pool not as one monolithic bloc that can be controlled and manipulated at will, but rather as a marketplace or as an aggregator that commands a fickle amount of loyalty. At any given time, if the rewards and technical conditions of mining pools change, there can be a shift towards mining pools based in Europe or North America — or anywhere else in the world. In addition, Miners are very long BTC; they wouldn’t act contrary to their financial interest to damage the ecosystem. Mining pools based in China also run contrary to State policy; The People’s Republic of China has a skeptical view towards bitcoin and other cryptocurrencies Finally, Miners are also not the only institutions that matter in the balance of proof-of-work blockchains; Nodes are run around the world. The coders/developers that build up the framework of cryptocurrencies are distributed around the world, With US-based institutions such as cryptocurrency exchanges and non-for-profits like the Human Rights Foundation providing funding “Ethereum Merger” announcement; that Proof-of-Work will merge to become Proof-of-Stake, and that the benefits are energy conservation on the blockchain to confirm transactions…What do you make of this announcement? From our October 2020 Conversation – you went into some detail regarding Energy Utilization & Economics of Crypto-Mining: JP provides a deep-dive into the interrelated metrics and dynamics of Energy and Crypto-mining. Here is what you will learn: Crypto-currency Mining involves sourcing and utilizing the most advanced equipment, for sure, which you guys provide, but also one of the key components that has a huge impact on the cost and viability of crypto-mining itself – is the cost and amount of energy consumed – and, therefore, the energy component and its costs have a huge impact on the industry and its success. Metrics/Discussion: Terahash Rate – core measure of energy usage in crypto-mining Can predict and model the Terahash rate for mining equipment. USD per terahash – how much we make on a USD basis - the speed of how fast a mining machine runs. Price per terahash dropped to 7.5 cents – when BTC crashed (March 2020). Was 13 cents per terahash prior. Amount of new machines on the network has grown – at 8 cents per TH – betting that price of BTC will continue to rise… Miners all over the world are thus, searching for most cost-effective energy costs. Cost/Mwh Rates in crypto-mining Old machines vs. New machines and economics Revisit the halving event from May 12, 2020 – when reward for mining was, by design, the reward went from 12.5 BTC to 6.25 BTC – Impact? Inflation Rate of BTC (1.8% infl. Rate) compared to USD inflation…digital currency has a lower effective inflation rate than the fiat currency! BTC price may be volatile but depends on what you compare it to New equip. is coming online line as fast as the manufactures can produce them. Most are made in Taiwan and China Coming into facilities that have power in the 4cent to 5 cent range Mining Machines: The S-9s are the older; Newer are the Ant Miner S19 Pros are Let’s talk about your new Fund – Lucid River Partners; What was the idea behind creating it? What will be its mandate/mission? How do folks find out more? Closing Remarks Contact Information for Aurum Capital Ventures Those seeking additional information and wishing to learn more about Aurum Capital Ventures: JP’s Twitter Account – @JPBaric Email: jp@theminingstore.com The New Fund - Lucid River Partners: www.lucidriverpartners.com/learn Thank you for joining me for this edition of DVC. I hope you found our discussion today with JP Baric and Aurum Capital Ventures interesting and useful. Stay tuned for my next Episode, where I will have a very special guest and accomplished expert on building successful tech companies in LatAm. Brian Requarth, who created the leading Real Estate Technology Co. in Brazil, Viva Real, will join me. He’s also an author - Thank you again and I look forward to joining you for my next Episode of Distilling VC.