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Bitcoin mining ‘is going to continue to flourish in the U.S.,’ Riot Blockchain CEO says

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Riot Blockchain CEO Jason Les joins Yahoo Finance Live to discuss the demand for bitcoin mining in the U.S., energy usage, and the outlook for cryptocurrency.

Video Transcript

[MUSIC PLAYING]

BRIAN CHEUNG: Welcome back to Yahoo Finance Live. Taking a look at crypto, which is on the move this morning, in the same vein that the overall equities markets are on the rise, you could see a lot of the cryptocurrencies also getting a boost when you take a look at Ethereum, up 10%. You also take a look at even some of the meme coins, right? Shiba up 5%. I'm also looking at Doge right now, up almost 4%.

And of course, we're also watching what's going on in Bitcoin as well, rising higher, about 3.75% as well. If you take a look at some of the crypto stocks on the move as well, you can see a lot of green across the board as well. A lot of this also on the backs of an interview that we had here on Yahoo Finance yesterday, where Gary Gensler at the SEC suggested that he could waive some rules to regulate crypto. But regardless, crypto very much on the move on this Friday.

AKIKO FUJITA: Well, and cryptocurrency certainly-- and we're not just watching the currency there, but also Bitcoin miners on the back of some headlines coming out of Texas, with miners based there voluntarily shutting down their operations in light of an energy surge with temperatures soaring there.

Let's talk to one of those companies that's voluntarily ramping down its mining production. We've got Riot Blockchain. Jason Les is the CEO of Riot Blockchain. Jason, it's good to talk to you today. You know, I saw the headline, and I immediately thought about the conversation we had last year when you said, these are the moments when Bitcoin miners can be a little more flexible. How has this affected your mining operation when you think about just how stretched the grid capacity in Texas is right now?

JASON LES: Yeah, like we talked about, Bitcoin mining is this very unique load. There's really nothing else out there like it where miners like Riot will consume energy 24/7, 365, and have the flexibility to shut off, or work as only as long as the block that we previously found for the Bitcoin blockchain 10 minutes before. So we secured a large amount of energy by making a significant financial commitment to the grid and ERCOT. And with that energy, we participate in different grid programs to respond to high demand.

There's alerts that go out. Bitcoin miners like Riot shut down in response. We do that as a part of our commitment to our communities. We do that to be good corporate citizens. And we do that to get the benefit of these programs to reduce our energy cost in future years. So it is really a win-win-win scenario. We help incentivize additional generation in the grid, and we have the flexibility to shut off. And we help reduce our costs by doing so.

AKIKO FUJITA: Well, and reports are that as a result of the shutdown, you've added about 1% additional to the grid capacity in Texas. But I wonder for those who aren't as familiar with how these contracts work, you can kind of break that down for us because as you've said, you have the ability to sometimes sell back and when power is needed. But not all miners have the same contracts in place.

JASON LES: That's correct. So we have the ability to do that because we've secured blocks of power with different power providers in the ERCOT grid. Those come with very significant financial commitments. We're buying energy for 10 years. And we have collateral requirements around that. So because we have that block, that power is ours. And we operate like a virtual battery, virtual power plant, where when it is more economical, we shut off our mining operations. And we can sell that power back to the grid. We mine less Bitcoin, but we help reduce our power costs, and we provide more load to ERCOT.

BRIAN CHEUNG: Jason, Brian Cheung here. Can you tell us about the demand side of the equation here? When it comes to the macro picture, we've been looking at the crypto space broadly, despite the fact that it's a green day today, having a pretty nasty spill in 2022. Does that have any weigh on the business operations and business decisions to shut down some of the operations that you have and kind of pulling back a little bit on the mining?

JASON LES: Yeah, it does impact the economics. I mean, there's a calculation you make here. We can look at Bitcoin mining revenue on a dollar per megawatt hour basis. So for the leading hardware right now, Bitcoin mining, for [INAUDIBLE], generates about $130 a megawatt hour. So when you are looking at power prices relative to that revenue figure-- and that's whether you have a block of power secured or not. For example, you're a miner that's just real-time procuring power, if the price of power is above 130 megawatt an hour, it doesn't make any economic sense to mine.

So all-- so whether you're real-time buying or you're making a decision with your block of power, you are looking at your revenue opportunity with Bitcoin. You're comparing that to the opportunity in the market. And you're making an ongoing decision on how to allocate your power.

AKIKO FUJITA: So, obviously, there's a big question mark here on how long this decline, this winter, whatever you want to call it, in crypto, lasts. But I'm looking at the economics here. I mean, does that suggest, if you're talking about a power surge, more costs going there, but the mining payoff not being there, because prices are dropping? Does that suggest further declines in mining activity, at least in the US?

JASON LES: No, I think mining is going to continue to flourish in the United States, particularly in grids like ERCOT in Texas, a very business-friendly environment, a great power environment. We-- even though Bitcoin mining economics have gone down, there's still tremendous opportunity here.

And grid programs like 4CP, like CLR, all the programs that ERCOT offers, helps miners reduce their energy costs. And it incentivizes more generation development in that grid. So I think we will continue to see expansion, but we're going to see expansion by more and more efficient operators. Efficiency and power strategy is going to be key to those players who want to be successful.

BRIAN CHEUNG: So I guess, Jason, to elaborate on that, that implies that you still see opportunities for increasing the capacity, even if they're not all actively turned on right now. As you mentioned, you want to have the flexibility to be able to turn on and turn off. So is Riot Blockchain still looking to increase production sites and mining sites, even if they're not all turned on right now?

JASON LES: You're absolutely right. So we have what is, we believe-- as far as we're aware, the largest facility in North America and what we will believe will soon be the largest in the world, our Winstone facility out in Rockdale, Texas. We're expanding that to about 700 megawatts right now. We had just, in recent months, announced a new site we're building about two hours away that's going to be even bigger than that, one gigawatt when fully completed. So absolutely, we are continuing to scale our business, continuing to scale our power strategy, continuing to scale our positive presence in the ERCOT grid.

AKIKO FUJITA: And along with the announcement you made last year on Winstone, and we saw a huge surge coming into Texas, especially from those miners that were shut down in places like China. The governor there, Greg Abbott, really sort of embraced it and said, you're all welcome here.

And yet, when you look at the numbers today, we're talking an additional six gigawatts of capacity on the Texas grid as a result of the miners. Is there a potential for some backlash on the other end? If we're already talking about temperatures rising, the grid being maxed to capacity, it's not like those temperatures are necessarily going to come down. Is the concentration in Texas maybe-- was there a little bit too much there?

JASON LES: Well, I think the more efficient operators that come in, the more positive impact we're going to have on that grid. So remember that as Bitcoin miners come in, and we are making a financial investment in this grid, in this power market, we are helping incentivizing additional generation development.

And when especially renewable generators have the visibility into the marketplace that know that there's increasing number of buyers of power at all those off-peak hours, that helps drive a lot more of these projects. So Bitcoin mining is a great asset. And it will continue to strengthen ERCOT, as more and more miners deploy over the coming years.

AKIKO FUJITA: OK, we'll be watching that story really closely. Jason Les, always good to talk to you, CEO of Riot Blockchain.