March 26, 2021- On today’s podcast, we welcome special guest Tyler Page, CEO of Cipher Mining, a newly-formed U.S.-based Bitcoin mining operation. Cipher Mining recently announced a business combination with SPAC Good Works Acquisition in a $2 billion deal.
On today’s podcast, Tyler discusses:
- What initially attracted him to bitcoin and his outlook for the asset class
- The basics of the crypto mining business
- Potential ESG concerns for mining and how Cipher is mitigating this
- Key insights into the merger with SPAC Good Works Acquisition
- Why investors should take a look at Cipher Mining stock
- And more
Welcome investors to the Absolute Return Podcast. Your source for stock market analysis, global macro musings and hedge fund investment strategies. Your hosts Julian Klymochko and Michael Kesslering aim to bring you the knowledge and analysis you need to become a more intelligent and wealthier investor. This episode is brought to you by Accelerate Financial Technologies. Accelerate, because performance matters. Find out more at www.Accelerateshares.com.
Julian Klymochko: Welcome Tyler to The Absolute Return Podcast. Super happy to have you on the show today, so welcome.
Tyler Page: Hey Julian. Hey Michael. Great to see you. Thanks for having me.
Julian Klymochko: Yeah, so we’re excited to get into Cipher Mining, Bitcoin and all that good stuff today, especially, you know, myself, Mike, long-term bulls on the Bitcoin space had been involved in Bitcoin for about four years, so super excited to get into that. But prior to getting into that asset class, I wanted to give our listeners a brief background on your career, which is pretty wide ranging and starting out as a lawyer at Davis Polk, then moving to Finance Lehman Brothers, then Goldman Sachs, then moving into crypto in about 2017. Now being CEO of Cipher Mining, going public shortly. Can you tell us a bit about your background and how you got to where you are now from such a, you know, lawyer, investment banker and now a Bitcoin company CEO?
Tyler Page: Sure, it has been broad ranging past, and sometimes it in the moment, it didn’t always look so linear, but in retrospect now it does seem to line up pretty well, especially with what we’re doing at Cipher, which I can’t wait to talk about. The focus at cipher is going to be executing on this very ambitious plan and I think a lot of my experiences have given me the right background to, lead those efforts. I mean, as you touched on it, I think of my career in sort of two phases. The first half of it really was very much a traditional Wall Street, financial services sort of path. I did start as an attorney. It was great work and I worked with great people, but I realized somewhat early on, it probably wasn’t for me for the rest of my life.
And so, you know, it was a character builder and it definitely helped me learn to be more detail oriented and focus on managing a bunch of simultaneous work streams when you’re doing a big deal. And then I think, you know, I’ve sort of hearkened back to some of those lessons as we’ve gone down the path with our recent transaction with Cipher. And so, you know, it’s still paying dividends today, even though I haven’t done it in a long time. I was pretty lucky, I had been focusing in the legal world on derivatives work, and I was always very interested in derivatives as kind of a, you know, in some ways it was an early sign that I liked, you know, somewhat disruptive approaches to the conventional thinking. You know, when I started my career, it was very much the era of like the star stock picker. And so, the concept of using a bunch of large data sets and thinking about kind of market risk premiums and how to package them together was really coming into its own. And I found that to be very interesting. So, I leveraged that experience. I managed to find my way into some sales and trading desks and Lehman and Goldman, and you know, there I really learned how to talk to investors and what investors, especially institutional investors think about when they’re putting together a portfolio. And so, my job to look across different asset classes and come up with macro themed trades, packaging derivatives. And so, I could use elements of any asset class and in some ways, you know, perhaps a bit of a Jack of all trades and master of none, but I knew enough to be dangerous in a broad range of macro assets and getting to talk to a lot of investors and understanding how they think about different pieces of their portfolio from a strategic and tactical standpoint, and also their time horizon.
And I’ll come back to that cause that’s important. As it pertains to crypto, you know, the second half of my career was more entrepreneurial focused. I was at Goldman during the financial crisis and it was also just a time in my life. I was kind of in my early and mid-thirties where, you know, I felt like I had done my time at big shops and wanted to do something a little more adventurous. And launched a business that, you know, today would be described as a FinTech business at the time, folks that didn’t have that nomenclature. And at the time it was sort of like, why would you go build some operational business, but we built this hedge fund platform business. And I had to build the go-to market strategy there and got to know institutional investors focused on the hedge fund space, and that was great background. Flash forward to 2017. I was a co-founder of a business in the crypto space that built a custodian trading execution advisory service, as well as an asset management business. And, you know, the focus there was really looking at how Bitcoin in particular had evolved. You know, a lot of things in crypto had evolved sort of to be optimized for a retail audience to buy $50 dollars on their cell phone. And a lot of the kind of robustness that you’d need for those same institutional investors that I’d been spending time with for 15 plus years, you know, it just wasn’t there yet. And so, you know, learning to see what was there and focus on building that infrastructure kind of gave me an early window into really, I think what’s happening today.
When you look at the headlines, every day a big institution is getting into crypto, talking about Bitcoin in their treasury or being a service provider. And I had an early window into that adoption story. And so that all leads to Cipher, and my interest in mining, you know, within crypto. Mining is a bit of a niche part of the ecosystem where I feel like what I saw when I got into it specifically about a year and a half ago, started focusing on it, was a landscape that looked a little bit like some of the other parts of the ecosystem previously. So very fragmented not like large scale champion firms, but very dispersed, you know, not necessarily well capitalized players and its still kind of growing up, you know, it still has maybe morph beyond the hobbyist, you know, running a laptop in mom’s garage, but, but isn’t like fully industrialized yet. And so that was really what I saw and what I thought of as an opportunity. And that led me to Bitfury and ultimately Cipher.
Julian Klymochko: Yeah, it’s the same concept that I believe in the ultimate institutionalization professionalization of Bitcoin. And it’s a rare asset class that actually started with small individual retail investors. And now just, you know, a dozen years later is slowly becoming adopted by endowments, pensions and very large institutional investors. Obviously, you’re a long-term bull on Bitcoin and CEO of a Bitcoin mining company and everyone involved in the space, all Bitcoin bulls seem to have a point in time where they catch the crypto bug. So, you’ve been in the space for a while, a number of years, what initially got you into and excited about Bitcoin?
Tyler Page: Hey, you know, unfortunately it’s more a tale of regret, like some people have. It’s funny, I went down a very non-tech-oriented career path, but I’ve always been, it was a very early on the internet and even pre-internet, I actually ran a dial up bulletin board system on my home computer when I was 13 years old on a 1200 baud modem. And so, I’ve always been kind of interested in development of networks and ultimately how the internet is developed and, you know, so the story of Bitcoin resonated with me. I’m not going to claim to have been so early that, you know, I was in chat rooms with Satoshi or something like that. Because I wasn’t, I was mostly dealing with, you know, work and having kids and stuff like that, that were young at the time.
But in the early 2010s, teens, you know, I started to follow it with curiosity and interest and I think the big moment for me was, actually, you know, when MT. Gox filed for bankruptcy, I had recently sold a house and I had some capital and I was thinking, you know, I kind of followed the story because there’s a lot of volatility and a lot of smart traders I knew were interested in Bitcoin but, you know, I didn’t know how seriously to take it at the time. And I can remember distinctly after Mt. Gox filed but Bitcoin did not go to zero. I thought, Hmm, maybe there’s some staying power and I will invest like a chunk of this money from selling a house into it. And this is ultimately my story of regret, but ultimately it did kind of lead to me, you know, doing some of the things in my career later about institutionalizing the space. So, I wanted to buy, you know, a decent chunk of Bitcoin and at the time, you know, that involved, like signing up and sending your passport off to Slovenia or something like that. When I got to that moment in the process, I was like, ah, you know, I don’t know, I don’t know if I could be comfortable enough to do this. And so, it’s mostly a tale of regret that would have been a wonderful return on that. So, but that was really where I started to get into it. Once it survived that crisis is where I couldn’t get off my mind. And I actually looked at some different chances to get into the space professionally and then was just very lucky in 2017, when finally, I had that opportunity,
Julian Klymochko: Yeah, I remember my first Bitcoin experience trying to buy, and I remember mailing a physical check to a bank in Japan and just hoping that it shows up in my tracking account, which it did. So, I was happy about that but unfortunately, like most others, it wasn’t. I do regret the amount I purchased, never enough, right? So, getting more into Bitcoin and the asset class, what is your long-term outlook as a Bitcoin mining company, CEO and someone, you know, in the day-to-day trenches of Bitcoin and what makes you excited about the asset class over the next 5-10 years?
Tyler Page: So, you know, it’s always fun to talk about this question and where you think prices are going to go. I think it’s really hard to predict, and it’s fair to say, obviously I’ve pivoted my entire career towards the success of the growth of the ecosystem. So fair to say, I am confidently bullish that said in terms of time horizon and how that exactly plays out, it’s really hard to predict. The way I think about it is this, you know, today we have a network and open-source financial network to transmit and store value, and there’s about a hundred million users of that network today. And that network will be extremely valuable if there are billions of users. And I suppose, you know, the mega bull case is that everyone with a mobile phone uses this in the future as like a stateless value transfer and storage network.
And perhaps it’s even adopted by Governments. And, obviously in that scenario, the price is much, much, much higher than today. But I feel like today’s price is always a sort of a discounted weighing of possible future scenarios, right? So that’s one scenario. Another scenario is that some technology surpasses Bitcoin or somehow Governments successfully squash it or, you know, it gets hacked or something terrible happens. And there are versions of that future where it goes to zero. I think any moment in time, the price is discounting that future, what that future network could look like. And we reassigned probabilities in the marketplace every day. And that’s how we see price swings. I mean, maybe day to day, it swings around just cause it’s a very liquid risk asset, but you know, kind of in the medium to longer term it’s questions about discounting those future potential scenarios.
And so, listen, I’m very confident in the network achieving lots and lots of users, I think inevitably over some time horizon, that leads to a significantly higher price. It’s just very hard to predict that path. I don’t know how you guys think about it. I sort of shy away from making price target or time horizon calls, you know, I’ve been through a crypto winter. I know some people have been in more than I have, but you know, those can last rationally long and yet over the long-term, I’m very bullish.
Michael Kesslering: And anything within crypto is not a linear path as we have seen it, maybe directionally one can be directionally, right. But the path that it takes is certainly not linear. One thing that I did want to get into, and we will get into kind of the granular details of Bitcoin mining, but something that really caught my eye in your investor presentation was that you’re seeing that freshly minted coins can get a premium price. So, say 10 to 20%, what’s driving that is that AML concerns or institutional investors or what’s causing some of that premium demand?
Tyler Page: Yeah, so it’s hard to say exactly. I mean, I can sort of project what I think it is, but you know, who knows? The market for some reason likes it, is the answer. But I think you’re onto something that, again, if folks are thinking about the future state of the world, when you discount those possible future paths, if the development of the ecosystem could take, is there a version where sort of the provenance of your Bitcoin matters? It’s hard to think about, right? Because fungibility is a key element of Bitcoin. I certainly don’t want to live in a world where it’s like, oh, well, that’s a certain kind of Bitcoin and not the right kind of Bitcoin. That said, the marketplace does place some premium on freshly minted Bitcoins. So clearly there are concerns perhaps about a state of the world in the future where Governments decide to regulate the space and want to see the history of transactions for coins, and maybe in the same way, their AML, KYC kind of, you know, bad address lists. You could imagine a world where somehow that is applied to sort of the transaction histories of Bitcoin. I think that has deeper philosophical questions about, you know, what happens to the space, but that said they do trade at a premium. The way I think about that in terms of Cipher is, you know, look there’s wonderful business advantages to being based in the United States, just around abundance of cheap energy and being a listed company in the United States, you know, provides a lot of oversight that gives you access to deep capital markets. But in addition to that, we do have a strong rule of law and respect of contract here in the United States. And you can imagine a world where perhaps there may be future partners that we would want to work with on the FinTech side or tech side or financial services side, where they would care, maybe just because they’re risk averse that they could be working with a partner that had a stash of Bitcoin that was freshly minted and it never left the U.S. regulatory system. So hard to say exactly, but, you know, in as much as that is a thing, I think it does position us very nicely.
Julian Klymochko: So, I wanted to get into the basics and the economics behind Bitcoin Mining, I myself have visited countless operations. They’re always fascinating to see rows and rows and rows of V6 as specialized computer modules that do processing for the Bitcoin transactions and always a very loud place as well. But I find those super cool to check out and looking at your aggressive growth plan. Initial build-out, Ohio, Texas. Three sites in Texas. What’s the thinking, the strategy behind the build-out of Cipher Mining, Bitcoin Mining operations. And, you know, how do you view that as becoming successful in the Bitcoin mining space, which has really turned into a very, very large and capital-intensive business?
Tyler Page: It is a capital-intensive business, there’s no doubt. And that’s really driving a lot of the rationale behind our merger and going public. And so, we will take the cash raised in our merger and pipe transaction, and we will dedicate it to the build-out of those four sites, as you said. And so, when we look for a site, well let me back up. When we talk about mining in general, there’s really three key things you need to be successful as a miner. There are many nuanced things, but there’s three kinds of large issues. One is you do need access to power and hopefully very cheaply priced and reliable power. We have that in the United States and Cipher specifically has very good cost of power. We’re at the low end of the global cost curve at about 2.70 cents a kilowatt hour. And that’s important because that’s about 80% or so of the OPEX. And so, when you think about being the low-cost producer in as much as this is like a commodities production business, that drives that variable cost. And so, it’s important to lock that in.
The second thing you need to be successful is access to best in class equipment. Obviously as a very large well-capitalized miner where someone that any equipment manufacturer would want to work with. We have the added benefit of being vertically integrated with our majority shareholder and parent Bitfury and we have contractual terms that allow us to have preferential access and best pricing to next gen equipment. And so, when that equipment goes into mass production, we will have access that no other miner has in the world to those products. So that’s the second piece. The third piece is you need experience in deployment operations and maintenance of data centers. So, you’ve got your cheap cost of power. You’ve got your good equipment. Now you have to make sure it’s running as much as possible. And you have your uptime maximized, you know, working with Bitfury again on the operations and deployment side. Bitfury is a company that has mined over 600,000 Bitcoin over the last decade. They’ve run seven data centers in five different countries around the world. It’s fair to say that, you know, I don’t know that there is anyone with as much experience in terms of operating and maintaining Bitcoin mining data centers. And so, we’ve got them to handle that for us at Cipher. And so those are really the three keys to the business.
So, to bring it back to your initial question, we will take the capital from this transaction. We will build out those four data centers. Our plan is to have 445 megawatts up and running by the end of 2022, across those four sites. And then we will have the ability to fund a further expansion out of our ongoing operations. And so, though it will be very nice and we will have the flexibility to tap capital markets and think about financings and things like that in the future. Our base plan does not call for it. We plan to fund an additional 100 megawatts of expansion per year out of our ongoing operations. And so, if you look at our base case in our investor presentation, you’ll see, we plan to have 745 megawatts in operations by 2025.
Julian Klymochko: A common criticism that I hear about Bitcoin mining is, you know, proof of work, very energy intensive. You have, you know, tens of thousands of these specialized computers. You mentioned low cost of power is necessary because they are energy intensive. You’re sucking up a lot of power. And from an environmental perspective, how do you respond to that criticism with respect to not just Cipher Mining, but, you know, most Bitcoin mining data centers just for the block chain to be robust, we really need that energy transfer just to make it so difficult to hack, or basically impossible at this stage. And I I’ve visited many operations that were powered by hydro or renewable power, but what’s your approach in responding to the environmental concerns?
Tyler Page: Yeah, so let start broadly, and then we’ll narrow it down and focus it from there. So, I think it’s important to understand, first of all, when you talk about the industry as a whole, I think it has a really good story to tell on this as far as penetration of renewables across the industry, but I think it’s also important to keep in mind, because this seems like the most popular kind of attack vector these days for Bitcoin skeptics. I think it’s important to start at a really high level to remember this is disruptive technology. Like the hope for this is to displace and disrupt existing systems. And one thing that’s kind of unique about Bitcoin is, you know, there’s a lot of transparency into how much energy it uses, but, you know, we don’t have a lot of transparency necessarily into the things it’s displacing.
So, the first thing I’d say is keep in mind, yes, it is popular to say it’s energy intensity, but really, we should start from a framework of thinking about a net, you know, energy intensity, like what exactly is it displacing if it becomes truly usable as this open-source network? I start there. The second thing to think about then is the industry overall, as I mentioned, the penetration of renewables, the fact that there are economic incentives to seek out the cheapest power and that often the cheapest power in the world is stranded because it is renewable, you know, the nature of power is that you need it close to the population centers and transmitting it long distances is difficult. The unique thing about Bitcoin mining is that it’s very mobile, you know, if you have an internet connection, you can go to where the power is. And the truth about renewables is, you know, in certain places, the wind blows and the sunshine’s and the waterfalls with a lot of power, a lot of intensity, I should say, that’s not necessarily near the population centers. And so, you know, over time, there is a very strong environmental story, I think, for the industry to tell, to sort of swat back at this concept, that somehow it, you know, it’s not environmentally friendly. It does use a lot of energy, but if you think about the potential for its carbon footprint, it can be very friendly relative to that amount of energy it’s using. So then, you know, kind of continuing to go down the funnel, let’s talk about Cipher and the way we think about this. So, this is top of mind. So, our portfolio is about 50% natural gas and renewables.
And then about 50% where we are taking a grid mix of energy from where we are located. And so, we don’t work directly, for example, with coal facilities, we have ESG as an important topic and guideline when we think about how we build our data centers. Furthermore, as we build out our facilities, it’s on our roadmap and we are currently looking into renewable energy certificates to offset the carbon footprint that we do have and potentially not just offset it, but actually provide some extra so that we can be like a net negative. So, it was all things we’re considering. We need to be a little bit further along in our actual build-out to do that. But I think starting from Cipher, this is a very important issue. It certainly guides how we look for power. There’s a commercial element. There’s also this kind of ESG element overall. And I think it’s important to mention, you know, in addition to the art environmental aspects, you know, sometimes people forget the S and the G in ESG, you know, there’s not many projects that compare as favorably as Bitcoin does on the kind of social and governance side, you know, a truly democratic open-source financial network that could potentially help the unbanked. Has a wonderful story to tell their overall, so, at any rate, you know, on the environmental level we think it’s top of mind for us. And we want to, you know, be a thought leader in the space on that.
Michael Kesslering: That’s really interesting mentioning the S and G of the ESG side as well. And so, one thing that I found interesting is that you are expecting to be a low-cost producer, and you mentioned a key part of that being your energy supplies as that’s 80% of the total cost, but you’re looking at expecting $27 dollars per megawatt hour for your costs. Whereas some of your competitors are more in the $40 range. Can you explain where exactly some of those efficiencies will come? Is it just simply lower costs power, or are there other operational efficiencies that you’re able to find to bring down your costs?
Tyler Page: Yeah, so specifically on the power costs, it is a story of finding the right partners to work with on the power side. And so that’s a story of obviously, you know, it’s a supply and demand market. You’ve got to go to where there’s an abundance of supply and that’s really the story there. And then furthermore and safer, and leveraging the experience at Bitfury and the capabilities and experiences on our equipment. You know, we can take advantage of demand response programs. And so, we do have a certain amount of curtailment. So, for your listeners that they may not follow this as closely in the space. You know, one of the great things about Bitcoin mining is, it’s a wonderful business to be in 24/7, 365, right? You can power machines every 10 minutes, roughly speaking, a new block is created. That said, unlike, say a hospital or even a traditional data center, you don’t have to have it on all the time. You can power down and you can actually do it in a matter of minutes. And so, when there are stressful times on a power grid, you can power down your machines and curtail your usage and effectively sell power back to provide grid stability. And we certainly have that ability. And we think about that when we structure a particular contract, so that’s a part of it. And then the rest of the OPEX too, is the deployment operations, maintenance side of things on top of the power, were again, we’re working with Bitfury at very favorable terms, given our relationship with them. And so, I think we have a market leading position on that front as well.
Julian Klymochko: So, I wanted to get into the recently announced business combination with SPAC Good Works Acquisition, so congratulations on that. A big milestone for Cipher Mining, you’re valued at $2 billion dollars. How did this deal come about?
Tyler Page: Yeah, so it was really interesting. I mean, I joined Bitfury last year and, you know, I mentioned that I’d been kind of focusing on the mining space, looking for, you know, this kind of opportunity to really build a dominant player and had known of Bitfury, but didn’t know them personally, the management team. Got to know them and they saw the same opportunity set. And so, when I joined Bitfury, it had always been on our list of ideas about how to capitalize this large opportunity set in the United States. And we looked at a whole bunch of different ways to do that, sort of project finance, work with specific investors, launch a fund, IPO, do a SPAC, you know, we sort of game plan all the different ideas.
Julian Klymochko: Did you guys look at Hut 8 as a sort of blueprint? Like what Hut 8 and Bitfury did in Canada, was that sort of what you’re looking to do in the U.S.?
Tyler Page: Certainly, there’s a lot to glean from that. I mean, this is similar transaction with some differences has been done in the past. And certainly Hut 8 is an exciting company in particularly what they’ve got going on right now. I think Jamie Levitan is doing a great job up there and excited to see their progress. The setup is a little bit different in the case of Cipher because we have a non-compete with it Bitfury in the U.S. Bitfury will be Cipher majority shareholder. So, Cipher owns a decent chunk of Hut 8, and obviously it’s a very strategically important partner to Bitfury. This is a little bit different because it is true majority ownership with a non-compete. And so, contractually, we’ve also got some advantages on access to equipment and pricing that goes with that.
But definitely some similarities in learning about how such a relationship could play out. But at any rate back to your question about the SPAC. So ultimately going down the SPAC route made the most sense to us. And as we spoke to financial advisors and looked at our different options, it made the most sense, and as it pertains to Good Works in particular, they were a natural partner. Some of the principals there had experienced with the power business and Bitcoin mining in particular, and was aware of Bitfury. As you can imagine, you know, there’s lots of interesting adventurous things going on in SPACs, but you know, crypto mining is a niche story. And so, finding a partner that understood the value proposition and really the differentiating characteristics and potential competitive moats we could have at Cipher just made that conversation with Good Works really easy, and they’ve been a great partner.
Julian Klymochko: And one thing that came along with the deal, was it concurrent $425 million dollar pipe financing, certainly a large one. What was the process behind raising that capital?
Tyler Page: Well, I will say one of the many benefits but also challenges of working remotely these days in the time of COVID is that a roadshow is not like it used to be, it’s not quite the travel time it was that I’ve had on past road shows in my life. However, it is a different kind of grind in that. No jokes, had days where I had 11 consecutive one-hour meetings.
Julian Klymochko: Yeah, Zoom grind.
Tyler Page: Yeah, and so, I mean, I literally brought a pot of coffee and water and some snacks to my office and just got going and tried to wolf them down flipping off my screen, you know, for a few minutes here and there throughout the day, but it did come together. We worked with you know, our financial advisor on the transaction was, Wells Fargo and JP Morgan had the lead on the pipe placement on the transaction with Wells playing a part there as well. And they did a great job. They lined up a phenomenal lineup of investors. I’m very pleased to report that we had interest from some very significant long only investors. We do have investment from funds at Morgan Stanley and Fidelity among other many blue-chip names. And that really, I think, helped validate our story. So, the process went very well, you know, happy to say we were oversubscribed and got it done.
Julian Klymochko: And speaking of process, with respect to the business combination and the route that you guys went via SPAC, did you pursue, or have discussions with many different blank check companies, or is it a fairly competitive process or did you now have a relationship with Good Works and pursue them exclusively?
Tyler Page: Yeah, I’d say look, Good Works was in the pole position from an early spot, but we also wanted to make sure we were thoughtful and comprehensive and really understood the marketplace. And so, we did work with our advisor, you know, with Wells to help set up a series of meetings. You know, as you can imagine, and I assume, you know, many SPAC processes go like this, but we had a handful of intensely interested names but we didn’t speak to millions and millions either. We had a very narrow and focused search; I think on the types of investors that would be interested in our story. That said it was pretty quickly clear. I think the differentiating factor was that from the beginning, Good Works had a real understanding of our business, as opposed to just the financing and looking for an acquisition target. It felt very different, so we did conduct a process to make sure we were thorough and thoughtful, but Good Works was, you know, had an early lead that they maintained.
Michael Kesslering: So, looking forward post-closing of the transaction you have the capital on your balance sheet and it’s time to execute, and you do have a very defined vision of how things will look by 2025. Can you just discuss in a little bit more granular detail, how you’ll come to some of those targets in 2025 and what are the key kind of metrics for investors following along to be watching for?
Tyler Page: Yeah, absolutely. And I’d point investors to our investor deck that they can find on our website that’s filed publicly, but to highlight some of the milestones in there, you know, from an execution standpoint, I think the real KPI is, are megawatts deployed. We have a timeline by quarter in the presentation for how many megawatts we bring online and how many exit hash of compute power that will be generated by those megawatts in our estimation. And so that’ll be a measurement of our ability to get the data centers up and running. Get the equipment we forecast, being able to have and then operating those with the uptime that we expect to have. So those, you know, ultimately, we will have megawatts put to work, to produce a certain amount of hash rate we will measure. And that’ll result in an amount of Bitcoins. Now it’s hard to predict, I stress focusing on an execution milestone being megawatts and hash rate, because that’s really what we can control and the best measurement for our execution.
Bitcoin prices drive a lot of the dynamics of, you know, exactly how many Bitcoins you will spit out because it’s really going to be determined by how much compute power is on the network overall. And that in turn is driven a lot by prices, so harder to predict that stuff. And you’ll see if you take a look at our presentation, we try to look at several different potential price paths for Bitcoin. We tried to stay very conservative. It almost looks kind of funny now, there was a time when we began this process when starting with a $25,000 dollar Bitcoin price, looked a little more realistic at this point, it’s a little conservative, but you know, it is a volatile asset class. It’s important to keep that in mind.
Julian Klymochko: Oh, certainly. This is one thing that’s universal to the asset classes of volatility. And I don’t think that’s going away soon. One thing that I wanted to touch on prior to wrapping things up is once you complete the merger with Good Works Acquisition, you’ll be a newly minted public company out there trading. I wanted to give you the opportunity to give the quick elevator pitch for the stock. Why should investors pay attention to the Cipher Mining story? And what’s the value proposition as we’re seeing more and more Bitcoin companies go public say they’re attracted and investors attracted to the space. What makes cipher mining stand out as a potential investment opportunity?
Tyler Page: Well, thanks for giving me the opportunity to answer that question Julian because it is what I’m most excited about with this transaction. Look, the growing adoption of the Bitcoin ecosystem by institutions is a trend that we certainly believe will continue. And I think most investors in the space probably have to believe that, or they wouldn’t be involved in this space. So, once you sort of have that, then there’s this question of, okay, so how do I express my viewpoint? One of the biggest lessons I learned from talking to really big investors like insurance companies and sovereign wealth funds years ago about Bitcoin, was that, you know, I heard time and again, well, we’re not necessarily, at least at that point in time, as interested in a speculative asset so much as maybe providing the picks and shovels in an operating business to the growth of that speculative story.
And that’s really what mining in general is, right. If you see continued institutional adoption of Bitcoin, it follows from that, that there should be an institutionalization and increasing robustness of the underlying infrastructure and that’s our business. And so, once you focus on that aspect of it, what’s really interesting about Cipher is given our very competitive spot on the cost curve for energy, our preferential access to best-in-class machines and just the experience team we have on deployment. We are very favorably positioned to be the heavyweight champion of mining. And the mining story is interesting from an investment perspective, because if you’re thinking about getting exposure to Bitcoin, this still is a hundred vole asset. And what’s wonderful about our business model is given the low cost of overhead and being this low-cost producer that we have, that model. It enables us to be very profitable, even with a significant selloff in Bitcoin prices. And so, you know, as an operating business, we are that picks and shovels business that has a different kind of risk return profile than just buying an exposure to Bitcoin, or perhaps buying a, sort of a transaction revenue-oriented business. That’s going to go up and down with price. That’s not to say, you know, still early in the adoption cycle, you know, the market can swing prices of companies around, but over the long-term, as we build our business, we have very favorable economics with tremendous resilience to swings in prices. So, it’s a way to capture exposure to that upside story for Bitcoin, but have a lot of resilience on the downside in terms of the profitability of our company.
Julian Klymochko: I like the notion of the picks and shovels analogy. It really makes sense for the value proposition of sight for mining and know compelling way to express a viewpoint within the cryptocurrency ecosystem. So, prior to letting you go today, Tyler where and investors or potential investors find about more about Cipher Mining?
Tyler Page: Yeah, they should come to our website, it’s at ciphermining.com, C-I-P-H-E-R-M- N-I-N-G.com. And we have an investor section on there. You can see our investor materials and also contacts. If you’d like to get in touch with us, if you’re an investor or interested in the space or learning more, we’d love to talk you and tell you our story.
Julian Klymochko: Well, there you go, folks. Thank you, Tyler, for coming on The Absolute Return Podcast today and sharing the Cipher Mining story and your story as well. I found it really interesting, very compelling business that you guys are building here. And congratulations on the recently announced transaction. We like it, the market likes it. It’s exciting to see the growth story as it unfolds.
Tyler Page: Thank you so much, Juliana and Michael, I really appreciate you having me today.
Julian Klymochko: All right, us as well. Cheers. Bye everybody.
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