Chinese bitcoin miners are heading to Texas. Riot Blockchain CEO Jason Les joins Yahoo Finance's Zack Guzman and Akiko Fujita to discuss.
AKIKO FUJITA: Well, the crackdown of Bitcoin mining in China has led to a global migration of sorts, with miners scrambling to find new real estate to set up their operations. Here in the US, Texas has been a big beneficiary of that crackdown, in part because of its cheap energy prices. And for more on what's playing out in Texas, let's bring in Jason Les. He is the CEO of Riot Blockchain, which of course also owns Whinstone in Texas, the largest mining operation in North America.
And Jason, it's great to talk to you today. I'd love to start by talking about the impact this mining crackdown has had directly on your company, because I know when we spoke before, you said that you've been fielding a lot of calls from Chinese miners, who are just saying, look, where can I go in the US to set up my operation.
JASON LES: Sure, yeah. So I would say it's had a positive effect in two ways. First and foremost, Riot Blockchain is a miner of Bitcoin. We are competing with miners around the globe to get that fixed number of 900 Bitcoin that are up for block reward every day for successful miners. So with the competition leaving China, with that big chunk of the global competition leaving, that has made mining Bitcoin, I should say, less difficult, and more-- there's more Bitcoin up for grabs for miners who have been unaffected by that.
So first and foremost, as self-miners, we are getting a bigger piece of the pie than we could have before. Second, with the acquisition of Whinstone, Riot is now in the hosting business. We not only deploy our own machines, but we host Bitcoin mining hardware for institutional clients.
So with the exodus of miners from China, there have been-- even before that event, there has been a tremendous interest in hosting space. Infrastructure for Bitcoin mining is in short supply, and we have been fielding a lot of interest. We are deciding how to manage that still, you know, the capacity, first and foremost. Like I stated, we are a Bitcoin miner. We want to utilize capacity for ourselves, as well. But we're evaluating these hosting opportunities in parallel.
ZACK GUZMAN: Yeah, it looked like it was getting easier as we saw those miners move off-network. As they moved back on, difficulty moving back up as expected. I don't know how short-lived that little spate of, as you said, less difficulty there is going to last. But when you dig into it, obviously, Texas is uniquely positioned, kind of the way the grid's built down there and how it all works. We've seen other jurisdictions, though, New York, state assemblyman there trying to push a Bitcoin mining ban for three years. I mean, how do you kind of explain to people that this is a net positive when you move into jurisdictions and see miners now moving into Texas to really grow it out, when there could be jitters around is my energy bill going to go up.
JASON LES: Yeah, so I mean, there are two positive points to that. One, in grids like ERCOT, loads like Bitcoin mining help stabilize that grid. You have a lot of intermittent generation sources from wind and solar, which are great and are plentiful in Texas, and growing, but you need loads-- flexible loads like Bitcoin miners to be buying that when the energy is in low demand, and being able to shove off when the energy is in high demand. Having that flexibility helps stabilize that grid and gives a better energy experience for all users in that market.
And second, I've got to talk about the jobs that Bitcoin miners create. We were just going through the drone shot of the Whinstone facility out in Texas. Bitcoin miners are agnostic to the location that they deploy, and where you typically find that opportunity is more remote zones. So we can come in areas like Rockdale, Texas, and we create a lot of good jobs in this new industry. Whinstone is the largest employer in Milam County, where that facility is located. So I think there's a really positive impact that Bitcoin miners have, both on stabilizing the grid and creating jobs in areas that are a bit more remote and could use them.
AKIKO FUJITA: Jason, let me press you a bit on the impact to the grid because, as you've said, Bitcoin miners, because they are flexible right now, wouldn't necessarily be a strain on the grid, the thinking being that, when it's surging, Bitcoin miners can basically shut down their operations, whether it's an hour or a few hours, sell back to ERCOT, and make money on the back of that, as well. But what's to say that that flexibility remains in place as the industry grows? I mean, aren't these miners inherently competitive? You come at a loss, right, when you have to shut down the operation, even if it's for a brief moment.
JASON LES: Yes. You're no longer mining Bitcoin when you shut down, but you do have the opportunity to make revenue in a new way by selling power back. Miners like Riot-Whinstone, we took a risk by securing power at-- part of our power strategy is a fixed power purchase agreement. We are buying that power, no matter what, for several years. So in that sense, we can operate like a virtual power plant because we own that power, and then we can sell it back. So these times when energy is in very high demand and short supply, that market price for energy shoots up, and it becomes a pretty easy financial decision to sell power instead of mining Bitcoin.
ZACK GUZMAN: Does it start to get into a different-- I mean, obviously, you know, it seems pretty simple. Bitcoin mining always kind of seems simple. You just want to go somewhere where your energy costs are lower than what you expect to make on the mining side. But then when you kind of factor in the sale of energy back into the grid, I suppose it could open a door to some other issues, particularly in Texas.
I mean, you know, I'm out here. Wasn't too long ago when the grid was really dealing with some problems in the wintertime. And you know, it could raise new questions about where miners get caught in that discussion when lives might be on the line. Does that maybe shift the way that you think about it, as a public company, about where you might go next, and kind of how it's a little bit more difficult than how it may have been in the past.
JASON LES: Well, I mean, we're very happy to be operating in Texas. First and foremost, Texas is a very business-friendly environment. They're a very Bitcoin-friendly environment. And they have what we believe is an ideal energy grid model. When you look at events like what happened in February, where there was a shortage of power and there was-- you know, residents were in real hard times, really suffering, not having access energy, Bitcoin miners were not using energy in that time. The market price of energy was very high during that period because there was not enough being generated. Bitcoin miners were not operated.
So in these really high demand time periods, Bitcoin mining is not a strain on what's going on. I want to make sure everyone knows that. Bitcoin miners are not using energy when it is in short supply. Bitcoin miners need cheap energy, and you only find cheap energy when there is an excess in supply. So with this flexibility, you can rely on Bitcoin miners to be buying energy when it is not in high demand.
And that's really what helps a lot of these renewable generation sources, like wind and solar. They're producing energy that they have to sell. They cannot store them. They cannot, you know, just save it to sell later. So Bitcoin miners, having that flexibility to buy at these different times and then sell at these other times, helps create a better energy environment for grid participants.
AKIKO FUJITA: And finally, Jason, what does all this mean, in terms of the exodus out of China, what does that mean specifically for Riot Blockchain? I mean, we've been talking so much about your operation with Whinstone, but obviously you've got an operation in New York, as well. We were showing that chart there, where, you know, more than 60% of mining operations were based in China prior to the crackdown. Now, you've got a whole pie that you can tap into. How do you capitalize on that?
JASON LES: You know, Riot over the past several months, so far beyond when this Chinese exodus of mining occurred, we had said our mission is to create a larger footprint for the United States in Bitcoin mining, a larger footprint for the United States in Bitcoin infrastructure. And we have been accomplishing that by rapidly scaling and growing our operations. This exodus of mining from China just ends up serving as tailwinds for us.
This is really putting the United States on the map now. We think that's great. We think that where there was users of Bitcoin, where Bitcoin is being used in commerce and a store of value here in the United States, there should be underlying Bitcoin infrastructure, as well. And that's what Riot and miners like Riot in North America provide, this kind of-- this underlying Bitcoin infrastructure that drives consensus in Bitcoin. So for Riot, what this means is, like we touched on in the beginning, a bigger piece of the pie of those fixed Bitcoin rewards. Competition is down, and we're going to be seeing it grow in the United States going forward.