Former President & CEO of Largest Bitcoin Mining Company, Clark Swanson-Interviewed by Cointelegraph

Bitcoin "halvings" historically are fraught times for BTC miners given the threat of plunging profits, and even bankruptcy as their block reward is halved. Is that still the case in 2024?

With each halving event, bitcoin miners must adapt to a lower-margin environment. Those miners experiencing the volatility of the market forces, combined with the halving and collateralized equipment financing is a recipe for industry consolidation. In many cases, it will present opportunities for miners with strong balance sheets looking for distressed assets. In the most recent bull market of 2021, we witnessed the expansion of the mining sector, much of which was financed by way of asset-backed loans. This debt fueled growth and has become a popular way in which miners have been able to expand their operations and infrastructure. While many miners were able to sustain the turmoil of the last bear market, overly leveraged operators were far less fortunate. However, generally we have seen these mining fractures later in the post halving market cycle.

During the 3rd halving which occurred on May 11, 2020, bitcoin showed its durability as the hardest money in the face of economic chaos. During the Covid-19 pandemic, bitcoin reached new highs and gradually assimilated into the mainstream narrative as "digital gold".

It's also important to recognize with each cycle there are different macroeconomic factors that have influenced market behavior. In the halving prior to May 11, 2020 we saw the beginning of institutionalized investment and regulatory agency interventions which helped to stabilize the market. Since then, the case for bitcoin entering the 4th halving which will occur at the end of April, 2024, has never been stronger. What is different today from historical halvings are the ETF's which have dramatically changed the bitcoin ecosystem. According to US Global Investors, as of February 29, 2024, bitcoin ETF's reached $43.2 billion of investment in comparison to gold ETF's which held $93.3 billion. The institutionalization of Bitcoin took less than 60 days, a stark contrast to the 20-year history of gold ETFs, which originated in 2004. These rapid inflows signify a demand shock to bitcoin's limited supply, especially as the issuance rate is set to decrease to 450 bitcoins per day after the halving. This reduction will drive prices even higher and blunt some of the market forces that have traditionally posed challenges for miners.

Bitcoin's time has come.

The next 10 years for the bitcoin miners can be compared to the gold rush of the 1800's. While there were several gold rushes that began in the 19th century, it was really the 1848 Sutter Mill discovery in Coloma, California which provided the greatest catalyst for a phenomenon that rippled the globe. This discovery sparked people from around the world to flood into California and with it came a profound impact on the economy. The resulting economic impact led to expanding infrastructure and the development of a support ecosystem that reached deep into industries like agriculture, transportation and banking. Today we are similarly witness to a growing phenomenon of decentralized finance, blockchain innovation, and the integration of healthcare, real estate, and other systems to the blockchain.

Assuming the industry comes through this halving -- i.e., survives in good form -- should we expect to see more institutional and/or corporate interest in owning Bitcoin, in your view?

To answer this question effectively, one should consider the asset class and opportunities to invest in stores of value.

Gold has held its position as a premier commodity for storing value for millennia. One key reason for this is its low stock-to-flow ratio, calculated by dividing the total amount of gold mined throughout history by its annual production rate, resulting in a ratio of approximately 66 years. Alongside its industrial applications, gold's enduring value stems from its relatively scarce annual production compared to the vast amount already mined. This characteristic has provided gold with stability and security, meeting the precondition necessary for establishing trust and confidence as a reliable store of value.

By the end of 2035, approximately 99.83% of all bitcoins will have been mined. The final Bitcoin is expected to be mined around the year 2140, at which point the total supply will reach its maximum limit of 21 million bitcoins. It cannot be inflated, counterfeited, or altered without consensus. It is decentralized, borderless, permissionless, programmable and resilient. The marketability theory of money holds that the easier it is to transact, the more pronounced it will become as "money". This theory demonstrated gold has a long evolutionary process which spans thousands of years. It's success as a store of value and marketable "money" was due to its ability to be more marketable than that of any other good.

As of January 2024, we have witnessed the beginning stages of gold demonetization from bitcoin. Bitcoin can be zipped inexpensively across time and space, in a matter of seconds and the ability to transact in real time is available 24 hours a day, 365 days per year. What may not survive in "good form" is gold. As we have already witnessed, the market's preference, if nothing else, has demonstrated a move away from gold towards bitcoin. Institutional adoption is clear by the signals we have witnessed since the bitcoin ETF's and more institutional and corporate interest can be anticipated particularly in light of corporate balance sheet transfers that rebalance cash to protect shareholder value from inflation.

If so, what form would this take? Might we see institutional investors and/or corporates purchasing BTC directly (like Tesla), getting Bitcoin exposure indirectly through spot market Bitcoin ETFs, or by purchasing shares in Bitcoin proxies like MicroStrategy (or public BTC mining firms)?

Tesla's adoption of bitcoin arose from Elon Musk's curiosity around the innovation of money, an acute understanding of fiat currency debasement, and an affinity for technological innovation, among a myriad of other reasons. Michael Saylor on the other hand, with whom is one of my personal mentors, recognized the limitations that existed throughout all asset classes in the world and selected bitcoin as an apex commodity to shield his own balance sheet from various forms of inflation.

With the approval of ETF's, investors and/or corporates can now easily transact to get portfolio exposure and diversification with bitcoin. This is the preferred method to garner exposure in the same way corporations and investors have elected to buy gold ETF’s over personal custody of physical gold. Of course, there are companies that may prefer to take custody of their own bitcoin, but that comes with certain responsibilities that can otherwise be outsourced to managed money, such as wallet software, private keys, secure storage, backup and recovery, etc.

On the other hand, mining firms serve a different investment paradigm because they carry managerial risk. Although miners offer additional leverage on bitcoin, many of them have reached an intersection of value where investors may be better off buying bitcoin or an ETF on a risk adjusted return. Investments in miners may be considered for other reasons. Innovative miners will undoubtedly discover new ways to adapt and deliver value to the blockchain, pioneering the industry of decentralized finance. Those that reach the prominence of technological innovation will generate superior returns for shareholders. Just like we have seen in every industry, the future of bitcoin mining will face consolidation and, in the end, the largest hashrate will disproportionately favor the largest miners.

As an investment thesis, smaller public miners with management that have a proven track record offer superior return investment optionality. As the Chairman & CEO of one such miner, called Blockmetrix, Inc., we plan to grow exahash by more than 300% this year alone. After raising $70 million in 2021, the company has built a platform similar to what Blockcap had achieved in the last cycle, four years ago. However, the environment has changed since 2021 and small miners must also be more mindful of variable costs, the most significant being power. To that end, Blockmetrix has already built a10 megawatt facility and operates approximately 6,000 rigs with plans to reach 40 megawatts and 2.66 exahash by the end of 2024.

Overall, do you expect the halving to have a positive effect on the price of BTC, as well as a boost in Bitcoin adoption, in 2024 -- both before and after the actual halving event?

The halving will certainly have a positive effect. Historically, Bitcoin halving events have been associated with upward price movements which are compounded by the reduction in the rate of new bitcoin issuances. Unlike during prior halving’s, we have also never had a 10x liquidity catalyst - the market for ETF's. Increasing demand has created this supply-demand imbalance that continues to drive prices higher, contributing to price appreciation that we have seen prior to the 2024 halving.

Ultimately my view of the halving is only a net positive to bitcoin because without it, implied scarcity would be factored at a different discount rate, the outcome of which would have dramatic price variance to what we have seen today. It is the finite supply and the halving of bitcoin which are characteristics which help make bitcoin the hardest money ever created. It also may be the first man-made money to survive more than 200 years.

This is to inform the readers that the famous American Entrepreneur, and Former President & Ceo of one of the world’s largest Bitcoin Mining Companies, Clark Swanson has been Interviewed by Cointelegraph on March 7, 2024.