The New Math for Valuing Bitcoin Miners

Assalamu alaikum everyone. I hope you are doing well. Today is Friday, June 7th and Bitcoin is at 69,500. I took a hit today after stronger than expected employment numbers. But today I want to tell you about Bitcoin miners and the new calculus that is impacting the prices of Bitcoin miners they've been on quite a run as of late. And we're going to try to dig into this because they raised some questions considering Bitcoin has not been on a similar run. And typically there is a correlation between Bitcoin and Bitcoin miners. And yet we're seeing Bitcoin miners exhibit a lot of strength whereas Bitcoin seems to be stuck right below its all time highs. So what's going on here? So let me tell you about the new math that the market is coming to grips with. By the way, if you enjoy these videos, if you've made some money on some of our picks, if you just enjoy the informational aspect of them, do leave a like. I'd really appreciate that helps grow the channel helps other people benefit as well. All right, so compute used in AI is doubling around every three to four months. We've gone from a linear linear growth in demand for compute to exponential growth. And it doesn't seem like there's any end in sight to this growth trajectory. And in fact, if anything, this growth trajectory is getting more and more acute with time. So what this means is that everyone has to, in order to survive, they have to get in on the AI movement, integrate it in their products. And to do that, they need compute. And so they're searching everywhere high and low east and west. They're searching for whoever has the capacity to provide them with compute. And demand for data centers that can provide this compute has been described as absurd by people and industry. In fact, the co-founder of a data center company has warned of supply chain constraints. That is, the demand is just outstripping the supply because to increase the supply, you often need years to buy the land, by the infrastructure, make sure that it has connection, a power source that is cheap. That is economically viable. And basically the demand for compute is working with a static amount of supply because the increase in supply requires so much time. So here's some useful anecdotes. So NVIDIA CEO expects $250 billion will be spent on data center gear annually. That's every year, $250 billion Amazon.com on its own plans to invest $150 billion over the next 15 years into data centers. And as I mentioned, there are just physical blockers that are hard to overcome in the short term. Whether that's land, whether that's connectivity, whether that's infrastructure, approvals, all of these things take time. So the demand is chasing a somewhat fixed supply. Certainly when you compare the difference in speed of growth of demand with the speed of growth of supply, it seems like supply is static. So anyone with any type of compute is in demand right now. And as the founder of Corrie mentioned, it's a sprint that requires all the capital in the world. So it seems. Now, recently the Bitcoin mining world was somewhat shook by this offer that Corrie made. So the data center company made for Core Scientific, which is one of the Bitcoin miners. It offered it $1 billion to basically buy the entire company. And this is after a partnership deal that was struck between them so that Corrie could use Core Scientific's compute. And so this got the investment world thinking, hey, if, by the way, Core Scientific rejected Corrie's valuation and their offer. They didn't sell. So this got investors thinking, hey, what other Bitcoin miners are likely to receive similar offers for their compute capacity. Now we've spoken about this Bitcoin miner before on this channel. Obviously, PIF members know that we hold this as a significant position in our growth portfolio. And so we'll compare this miner with Core Scientific. So Core Scientific offered $1 billion was offered$1 billion and it has 745 megawatts of owned and energized infrastructure. This is very important to be to actually own the land on the infrastructure and have that infrastructure powered with cheap electricity. And so Core Scientific has this. It was offered $1 billion for this 745 megawatts of capacity. Iris Energy, the company I was referring to has 3000 megawatts of power and land that is value waiting to be unlocked. It is actually has the grid connections necessary to actually be used and for the infrastructure to be developed in the way of providing compute for AI. I recently Morgan Stanley valued access to power at $5 to $12 per watt. If you were to assume the $5 per watt estimate estimate and 3000 megawatts that's billion watts. So the 3 billion times the five that's 15 billion in value that could potentially be unlocked by the assets that iron currently owns. And what is the market cap of iron? Well, it is nearing one and a half billion right now. So it seems like there is a lot of upside here for Iris Energy. And this explains why this particular stock has been on fire in the last month. I think it nearly doubled in just the last month. And it is doing well even on a day like today where everything is falling, macro is being hit hard. Even on a day like today it's performing better than average. And it's actually in the green as of a recording this it's certainly performing better than other Bitcoin miners. Coin miners that have thought ahead a bit and realized he recognized the potential for their assets to be used for more than just Bitcoin mining. Stand to benefit immensely from the new evaluations that the market is assigning to Bitcoin miners. And if we just do some simple back of the napkin math, if we applied the same math to the iron megawatt capacity that was applied to the core scientific. So 745 megawatts in compute capacity for core scientific value that 1 billion at 3000 megawatts that's around 4x the 745. So the potential iron, let's say there was an acquisition that was made at the same valuation, the same offer was made to Iris Energy. That offer would come around $4 billion, which gives the stock in upside of 2.5x from here. That is without without accounting for the dilution. Now, this is something very important because there is a non trivial amount of dilution that needs to happen in order to unlock the value that we talked about with regards to using Iris. I also wanted to show you this math just to tell you a lot of people are fomoing into this stock and have price targets, you know, $40$50 I've seen. You know, around the 2x, but you also have to account for dilution. So that should get you at the at the appropriate price target. Now, I recently saw a interview with the Iris Energy CEO and it seems like there's a lot happening behind the scenes, including the estimated hash rate for this particular stock, perhaps increasing. So we're currently at 10x the hash for its Bitcoin mining. We're expected to be at 20x the hash by the end of Q3 30x the hash by the end of this year and 40x the hash in the first half of next year, which would make it basically number two or three amongst all Bitcoin miners in terms of capacity. That number may increase substantially and keep in mind the 40x the hash target that it has would only take 600 megawatts. So it would still be left with 2400 megawatts. So there's a lot of a lot of different ways that this company could unlock the value that it has in the infrastructure that is to its name. And I really liked the fact that the company is very vertically integrated. So it owns the land, it owns the infrastructure. This reduces the number of counter parties and therefore reduces counter party risk. So you're not really worried about if you had equipment least, you know, the obligations there or if you had other partners, whether the partners are going to live up to their end of the deal. And we've seen a lot of litigation in the Bitcoin mining space. So with iOS energy being vertically integrated and really controlling its own destiny is, I think, a plus. So if you'd like to follow our portfolios move for move idea for idea do become a PIF number link to do so is in the description. While it comes to them to everyone in the chat, as mentioned, do leave a like if you haven't already. And until next time, make sure to take care of yourself. Salaam alaikum and peace be upon you all.