Bitcoin Mining CEO Says Large Investors Are Angling To Enter The Industry This Crypto Winter
- December 24, 2022
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Mike Colyer joined Foundry as its founding CEO in October 2019. In this discussion we touch on how Foundry is navigating this crypto winter and the especially challenging environment that it presents to bitcoin miners. Colyer also shares thoughts on what it is like to be a Digital Currency Group portfolio company and how Foundry does business with other subsidiaries such as Genesis Trading and Grayscale. He also shares some key predictions for 2023.
Forbes: Can you please explain Foundry’s lines of business?
Mike Colyer: At Foundry, we’re focused on empowering decentralized infrastructure. Half of our business is focused on proof-of-work. The other half is focused on proof-of-stake. On the proof-of-work side, we provide all kinds of services to the miners. Our goal is to grow the North American mining ecosystem, and we support miners by providing services such as FoundryX, which is a marketplace for buying and selling machines, logistics services, deployment services and an academy. We now have miner management software and we run the largest pool in the world, which is the Foundry USA pool. The other part of our original business was equipment financing. We were one of the largest equipment financiers in the marketplace in late 2020 and early 2021. We also provide staking services for 20-plus protocols. We’re really focused on ether (ETH) right now. Both of our businesses are really geared towards institutional grade customers. We don’t have any retail focus. We’re really working with the large publicly traded mining companies, and then on the staking side, we’re focused on providing staking services to the institutional staking clients.
Forbes: What is it like being a portfolio company within Digital Currency Group?
Colyer: Foundry is a wholly owned subsidiary of the Digital Currency Group (DCG). About three years ago Barry Silbert, the founder and CEO of DCG, decided that institutional money was going to flow into bitcoin mining and he really wanted to create a company that could help those institutional investors navigate the mining space. I started in late 2019, and in the last three years, we’ve grown Foundry from a blank sheet of paper to 170 employees focused on helping to build out the mining ecosystem. Being part of DCG has been great in the sense that Silbert lets us think long term, in terms of decades, and is not really worried about month to month, quarter to quarter results. He also helps us figure out how we can leverage the DCG brand, its balance sheet and its portfolio companies to bring value to the decentralized infrastructure space. We’re kind of the technical arm of the DCG ecosystem. We have a lot of engineers, we have a lot of folks who are super passionate about decentralized infrastructure and it’s been great being part of the DCG ecosystem.
Forbes: Can you talk a little bit more about how you interact or do business with some of the other DCG portfolio companies?
Colyer: When we were originally getting Foundry started, we worked very closely with Genesis. They were able to provide capital to get our equipment financing business off the ground. We don’t have any exposure today with the Genesis lending business. In our equipment financing business, we’re going to end the year with less than $3 million of loans left on our books. We stopped lending about a year ago to miners; we just felt like it was getting risky and we started winding down that portion of our business. We also worked very closely with Greyscale to build out the Grayscale Digital Infrastructure Opportunity, LLC, which is a vehicle to help institutional investors invest in the mining ecosystem. We’re entering a new phase of the mining cycle. Mining goes through a four-year cycle and we’re now entering a phase where there’s a lot of distressed assets or distressed miners, and there’s opportunity to re-enter the space. We’ve worked very hard with Greyscale to build a product to help people navigate the ecosystem. Genesis has a very strong trading and derivatives desk and we use their services to liquidate the bitcoin we’re mining.
Forbes: Can you give an example or two of how the financing business supply chain logistics business works?
Colyer: Most of the equipment is made in Southeast Asia by Bitmain and MicroBT and there is typically a six-to-nine-month delay between when you have to put your deposit down and when the machines are actually shipped. In our equipment financing business, we had requested customers put 20% down, we’d provide the 80% financing, and we placed orders for those machines. We had pretty aggressive terms on the loans, a 12 to 18 month payback period and a high-teens interest rate. Logistics is a big deal in terms of getting the equipment into the United States and lugged in. So we built a logistics business to help miners, which a lot of times don’t have really large teams.
Forbes: Let’s turn to the crypto winter. How is Foundry approaching this difficult mining environment?
Colyer: We’re in crypto winter and the miners are struggling, especially the ones who took out a lot of leverage. Our goal is to again, continue to support the mining ecosystem. We are participating in the various bankruptcies, trying to keep projects alive, keep moving them forward. We just completed the Compute North bankruptcy process, which is a great team that got over leveraged. They had some great sites and projects that we want to keep moving, including a miner management software suite for enterprise scale mining. We were able to hire that team, and we want to be able to bring that software to the rest of the industry. There’s also a lot of people on the sidelines who are interested in investing in these distressed assets and they just don’t know how to navigate the space. People say it’s crypto winter, but there are some very large, mainstream, investors that are looking at investing in this ecosystem.
Forbes: What are your thoughts on some of the regulatory headwinds facing bitcoin mining in particular?
Colyer: Obviously, we were very disappointed with Governor Kathy Hochul for signing the moratorium bill in New York. We think it’s bad legislation, a bad signal to send and a bad direction to go in. We have a whole public policy team and we’re really focused on helping educate policymakers around our industry. The reality is we find that people don’t understand what we’re doing and why we’re doing it. But once they do, they light up. We hope that by putting a lot of effort into educating policymakers, they can write better legislation and create better policies to support the industry, as opposed to being scared of it and trying to chase it away. Bitcoin mining is an innovation in and of itself for our electrical grid. We’re working with some of the largest energy providers in the country. They’ve been running a lot of experiments, a lot of pilot programs over the last couple of years. Bitcoin mining is a large controllable load. And our electrical grid needs to be stabilized 100% of the time. Bitcoin mining provides that controllable load stability to the grid. As we add more and more renewable energy sources, you’ve got to balance that with controllable loads. I don’t want to have to turn my lights off or my air conditioning or my heating, just to control the electrical grid. I’d rather have the bitcoin miners turning their machines on and off. What we’re finding is that it’s probably one of the greatest innovations that has hit the grid for a long time and the energy companies are getting really excited about it. I just think long term it’s going to be a part of our core infrastructure as a nation. Batteries do the same thing, but you can’t do batteries at scale today. I think bitcoin mining is going to be that bridge to get us to the future of renewable energy. It’s super exciting and as people start to understand that it becomes less scary for them.
Forbes: Any predictions for 2023?
Colyer: I think that 2023 is going to be a long, difficult year for bitcoin miners, and we’re here to support them through our miner services. On the staking side, I think eth staking is going to dominate the headlines through 2023. We’re long-term bullish on the space. We’ve been through many crypto winters in the past. So this is a good time to keep your head down and keep building.
Forbes: Thank you.