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Swan Bitcoin recently unveiled its newly formed Bitcoin Mining Business Unit as the parent company of the Bitcoin Financial Services Firm aims to go public within the next 12 months. Joining us now to discuss is Haa Zag, the chief investment officer at Swan Bitcoin and head of Swan Mining. Hello, Haa. Hey John, how are you doing? I’m very good. Thank you. I just came back from a week long vacation, so I’m just fully relaxed and ready to have this conversation. How are you doing? Very good, very good. I just came back from a week long business trip. So there’s a lot happening at Swan as you know, one of us is more relaxed than the other. But yeah, but we’re going to have a great conversation here. Uh Talk to us about this newly announced mining unit and the plan to go public in the next 12 months. Yeah. No, it’s, it’s super exciting times for us at Swan and I’ll tell you like, I’ve done a lot of things in my career. This is probably like the, the wildest one by by far we build the mining operation in pretty much record time in six months, we, we went from zero to a little bit about 4.5 x of hashes and accounting. We have machines acquired in order to go above eight. So it’s been super, super exciting. But this is all part of something bigger. We’ve been developing swan institutional and expanding Swan institutional throughout the last year. And mining is of course, one of the the biggest parts of that so far, talk to me a little bit about the decision that went into the mining unit. What kind of decisions were you making behind the scenes? What kind of conversations were being had and what ultimately led to Swan saying? Ok, this is a business we want to get into. Yeah, this actually started even before mining. So as we know it, one business of just buy, letting clients buy Bitcoin, right? We don’t even have a sell button. So clients just buy Bitcoin with us is a business that the long term rates are gonna go to zero. And actually we’re gonna be driving that trend towards rates, going, going to zero and fees going to zero, right? So long term, this is a product that has a marginal cost that it’s close to zero. And as we know anything that has marginal cost close to zero in the in a long enough time frame, it runs to zero. So we’ve been for a while thinking about sources of diversification of revenue for for Swan and there are a lot of different fronts we’re working on. Uh But if you look at Swan, one of the things that it’s really, really strong with the company is our brand and the talents that we attract. Uh So through last year, we had massive amount of conversations and there are different areas that we’re talking about, you know, investors coming to us, clients, coming to us and mining was something that was always recurring and coming back. So we started around June of last year, looking at passive investment in a mining company. And through the process of analyzing that, you know, we got more and more excited about certain things that we were seeing in the mining industry, you know, from the margins to seeing where it was in the cycle to see where the other companies were and said, well, why not make a move here and see if we can raise capital to actually go into mining, right? And it started small uh but quite very quickly, we were go to secure, I think a good amount of capital we started deploying and you know, the rest is history. We are where we are. But uh along this path, we developed Swan Institutional. So mining is part of Swan Institutional and inside Swan Institutional, we have different things as well. We’re doing asset management, we’re gonna be doing Bitcoin back lending. Um We’re doing in investment management with, with clients uh you know, launching an R A uh there’s an uh starting to have something that looks and feels a lot like investment banking that we’re building inside the institutional. So, again, super, super exciting times for us. Uh I keep saying that a lot of the things that I’m seeing on the, on the Bitcoin space right now, they go back to what I saw in the banking industry, like in the late nineties, early two thousands, a lot of talent coming in a lot of opportunity. Uh And yes, so this is how, how we got where we are. Um And as I said, it’s, it’s great to see, you know, that the team was able to deliver, implement everything in record amount of time. And, you know, super excited for this year. Have I want to talk about your experience in trad I in just a second. But I have to ask you why diversify into mining when all the mining companies are diversifying and looking at other ways to supplement their business, it feels a little bit backwards when we, we look at this at face value. Yeah. And I think, you know, when you look at what we did and when we started timing is everything, right? So when we started ASIC prices were like in the bottom of the bottom, right? So we’re looking at the machine prices and thinking about acquiring. So we had the opportunity to buy machines or, you know, top notch machines, high quality machines at very low historical prices. When you look at the, the the public mining companies or the mining companies have been around, some of these have been buying, you know, machine as at like 90 $100 per terra has. And we are looking at machines, you know, at 12 $15 per tera has so significantly lower. So it got very attractive to us to acquire machines and to build the fleet at those prices. The other thing is we were able to secure capital at a very, very low cost. It’s like a capital that looks much more like equity. So we shared the upside, it’s segregated from Swan. So it made a lot of sense sense for us as a company to build something like that where, you know, we have an upside on an industry that we like, we want to be close to. We’re getting, we think at the very low end of the cycle, you know, and looking ahead at where we think Bitcoin prices are gonna be. It’s a leverage play in Bitcoin at the end of the day. Right. And we’re here exactly for that. Where do you think Bitcoin prices are going? Yeah. You know, I don’t make predictions after being in Bitcoin, let me write to you said, where you think the Bitcoin prices are going to be now you much higher, significantly higher. So I, well, I’ll tell you this, I wrote, uh there’s another thing that we’ve built last year, which is called Nakamoto portfolio.com. Uh It’s a set of tools from Swan that financial advisors can come in, can put portfolios in, can see how Bitcoin would react on their portfolios, how much they should size the allocation of Bitcoin. But there is one piece in there that is called the Schroeder model. Uh where I compare Bitcoin with different asset classes. And what would happen if Bitcoin captured the monetary premium of assets like gold real estate even at very small amounts. And if you run the numbers there, you can see that, you know, the potential for Bitcoin prices are significantly higher than, than where we are, you know, orders of magnitude higher. Now, on price predictions, it’s very, very hard to predict prices in Bitcoin, right? And I guarantee that anybody making a price prediction is going to be wrong. Uh Eventually they’re all gonna be right at some point. But in the short term, knowing exactly when things are gonna happen is just, it’s, it’s impossible because it’s a very, very small asset. You know, it’s we’re in the infancy of the uh of Bitcoin and trying to see, you know, where you’re gonna see the supply and demand changing. It’s just very, very hard to do at this point. Now, from uh the mining units perspective, how are you preparing for the having we know the having is coming up in Q two this year, rewards are gonna be slashed in half from a business perspective. How are you looking at that? Yeah, I think as I said, one of the advantages we have is that we have a very new fleet since we bought machines throughout last year, our machines are very efficient. We’re able also to secure low energy costs in most of our sites. So if we look, that was part of all of our calculations as we were going through these sites and look at energy cost for us, right? First thing that came to our mind is like, OK, so what happens, we know we’re profitable before the having, what happens after the having and not only after the next having, what happens after the following having? Right. So we’re building the business with all of these things in mind. And the obvious thing is we need to the efficiency in machines. That’s something that we’re gonna have to uh improve a long time, but securing low energy costs. That’s the the key for being a sustainable miner in the long term. And so far, I think we have some very good contracts in hand. I want to talk about Swan’s financial services business now, you know, we just got the approval of the spot, Bitcoin ETF in the United States that’s had a ripple effect on Bitcoin and crypto services across the globe. Have you seen any new interest from um from customers since the approval of the ETF or how has that affected business over at Swan. Yeah. Uh, like this is, it, it’s game changing, I think for all of us. Right. I’ll tell you, as you said, coming from the thread. I part of the world, uh, don’t, don’t hold that against me, but that’s what I did. Uh, I’m starting to see a lot of people that had no interest in Bitcoin for a long period of time. You know, Cio s of big banks that I’ve known they’re starting to ask questions around. Ok, so I see the ETF is out there now, maybe it’s something I should be allocating to my client’s portfolio. How should I think about sizing it fundamentally asking questions about Bitcoin. Why do I see Bitcoin, you know, is the best asset to have in a portfolio in the long term as the best collect that you can have. So definitely, I would say in terms of the the the change in interest and demand um that that’s changing significantly, right? If you think about it, we now have the biggest asset managers in the world all making marketing for Bitcoin, right? We’re gonna have Bitcoin in ads everywhere. Um They are all trying to sell their own ETS. But at the end of the day, there’s one thing in common, they’re all selling Bitcoin, they have to talk about the fundamentals of the assets, right? And when we look at where we are in the in the macro cycle, I think as I said, it’s the perfect assets to, to hold and it will capture the vast amount of the monetary premium that we’ve seen flowing to assets for the last, you know, several decades. Right? I want to get your opinion on this. It’s a question that’s come up since the approval of the ETF some folks are saying, you know, this, this brings an aspect of centralization to Bitcoin that there wasn’t before we’re going to have large asset managers, many of them um from the trad five world holding large amounts of Bitcoin. How do you think of that? And if you are going to tell one of your trad five friends who are now interested in Bitcoin about what’s going on? Uh What, what would you say? Yeah, I think, you know, the first of all talking about the concentration, it is a risk, right? And uh what we want to see in Bitcoin and part of why also we went into mining is to provide diversification and everything, right? So we need to have diversification in terms of wallets, addresses, you know, the users and everything else. Uh I’m not that worried in the long term about having a large player, a substantial part of it coin because that doesn’t give them any power right? At the end of the day, the nodes are the ones that run the code and the ones that’s really determine where Bitcoin is gonna be heading. Uh We’ve seen that again already in the in the block size wars. Right. So, even if uh Blackrock or whoever it is has 10% of Bitcoins, which they won’t. Right. Uh It’s not a problem at all. It’s not like they can, this is not proof of stake where they can vote with, uh, with their shares, their shares, just give them economic expo exposure, but it doesn’t give them any voting rights to anything in Bitcoin. So, on that, on that aspect, I’m not worried at all. You know, there’s some talk about, well, maybe they can drive, uh, a fork at some point again, not worried about that. I think the money and the forks will flow through where they need. And we’ve seen there’s enough historical evidence, that’s where, where we’re going to be heading, right? Um, when I talk to my thread, five friends and, you know, when they come to questions for me, it’s funny like a lot of them are still in the early days. You’re still asking like the questions that most of us had maybe 567 years ago. Uh, can governments ban it? Right? Can I buy less than one Bitcoin? How do I do self custody? It’s actually good to see that a lot of them that actually have interest on the, on the ETF or asking? Ok. So I, I got into the ETF but I heard about it. I can also hold my Bitcoin. How do I do that? And that’s part of trying to get them to understand how to do it and how to do self custody. Right? Uh Again, I think it’s the, that’s the beauty of Bitcoin is an asset that you can hold yourself different than anything else that, uh you know, we, we’ve ever seen, let’s, let’s uh take a little walk down memory lane and, and draw on your experience as a banker in the traditional finance world. If you gather up all that experience and your experience in the crypto world, where do you envision the intersection of Trad and crypto heading? How are these two areas of the financial world going to coexist in the future, do you think? Yeah, I think, you know, uh definitely, as I said, in the beginning, we’re seeing a shift where traditional people that were in the traditional system, they are moving towards, I think Bitcoin and uh and trying to understand, you know, how it works. And I think everything that we saw being built on the traditional system, it’s going to replicate and it’s going to be replicated better on a Bitcoin standard. So that means that, you know, from custody as we discussed through asset allocation, through lending, these are all businesses that people are going to be doing over Bitcoin, right? And this is exactly why we created Swan Institutional is to leverage that and to build on that and to help clients to to get an understanding how to do, right? So we’re looking at uh you know, financing and E A transactions in Bitcoin. We’re looking at asset allocation, Bitcoin, same areas that the banks have built. So we look at, you know, I worked at gold money. We had GS AM that did asset management, right? We had investment banking and it’s the same thing. We’re rebuilding the same thing, but on the Bitcoin standard. Um and I think it’s gonna be better, it’s gonna be faster. it’s gonna be, you know, the 10 X, what we we’ve seen in the past and as a new, any new industry, the exciting part of all of this, it’s the only the things that we haven’t even envisioned that are gonna happen, right? Uh The fact that you have something that is decentralized, that it’s much faster that it’s outside of traditional rails uh gives us a lot of opportunities that we probably haven’t even thought about and are going to be happening, which again that occurs in any new technology, right? And whenever a new technology is created, everybody thinks about the applications comparing to what the last technologies were were around, right? We saw that with the internet where when email came in, people just thought about, you know, the internet is being in place for email where this will be the new post office, the electronic post office. And they couldn’t envision there was much more to that, that, you know, the worldwide web would be developed and it’s the same thing with Bitcoin. I think we are in the email area of Bitcoin and we are going to be saying, you know, applications that are gonna blow our minds in the, in the next few decades around it. And this is why value it’s, you know, it’s so depressed right now because the, the upside is much bigger than you can imagine have what we gotta wrap soon. But I have to ask you, is there a risk in your opinion that we replicate some of the bad parts of the tra traditional financial system in this new system that we’re building. And if there is a risk, I see you nodding along. How do we start to think about uh avoiding that? Yeah, there are risks and that has happened and it has been happening a lot, right? Uh people trying to capture Bitcoin, um I think the beauty of it, it is definitely something that keeps me up at night thinking about, you know, what the risks would be, is this going to become an asset that is centralized, you know, within governments and it can only get in on ramps and off ramps or centralized, right? Uh It’s all temporary, Jen, I think at the end of the day, they’re gonna try it, right? They’ve tried in different ways, right? Bitcoin has been, how many times it has been banned in China? How many times Bitcoin mining has been banned in China, right? And the reality is that this is open source. It’s decentralized. It’s a software that anybody can run in a computer. It’s just unstoppable. So I think everything that we’re gonna see and we are gonna see. I think barriers that we’re gonna have to overcome eventually in a long enough time frame, they’re all gonna be gone. Haa, thanks so much for joining the show this morning. It was a pleasure chatting with you. My pleasure. Thank you. That was Chief Investment Officer at Swan Bitcoin and head of Swan Mining Haffa Zachary.
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