Jonathan Kirkwood: Over the past four years, we have invested over $100 million in more than 30 companies in the Bitcoin field. This includes vertically integrated miners, whether in oil and gas, renewable energy, colocation, on-grid or off-grid companies, or other companies building connections with financial services, such as Strike, Unchained Capital, and Fold.
Forbes: Do you only invest in the Bitcoin ecosystem?
Kirkwood: We like to think of it as investing in technology companies that leverage the Bitcoin stack. You might have companies like Fold that offer Bitcoin rewards. They use the properties of assets to attract customers to use their products and services, but you also have other companies like Strike that provide instant global finality and settlement using the Lightning Network. We find that very interesting.
Forbes: What about exchanges? Obviously, they have to integrate with the network, and many also integrate with Lightning for deposits and withdrawals.
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Kirkwood: They are slowly doing that, and some of them are working with companies we have invested in.
Forbes: What kind of investments do you make? What do you look for in investments?
Kirkwood: Our North Star has always been Bitcoin winners, building great products and services that we want to use. We write checks for early-stage companies, starting from a minimum of $200,000, where there is just a founder researching the idea they are working on, all the way to Series B. We led Strike’s Series B last year, where they raised $80 million and over half came through our strategic partner.
Forbes: What types of services do you provide to portfolio companies?
Kirkwood: Between myself and my partner Grant Gilliam, we sit on seven boards. We also have two additional partners, Marty Bent and Matt Odell. One very unique thing we do, which we started last year, is conducting portfolio retreats. We find Bitcoin to be a very interesting model because it’s an open, permissionless system. It’s tearing down the walled gardens. In October, we bring all portfolio companies together. They all work in different sectors of the economy, but they all interact with Bitcoin in some way. So there’s this initial bond of friendship that exists and it’s easy to fuel the synergy. We’ve seen real dividends from the events we held over the past year.
Forbes: I think people misunderstand Bitcoin as something that was released into the world 15 years ago and hasn’t really changed much of the static, rigid stuff. Obviously, that’s not the case. How do you see the evolution of the Bitcoin ecosystem? When they talk about what’s next, what are you trying to sell to your future LPs?
Kirkwood: We see Bitcoin as an ecosystem that is still in its infancy and emerging. Since 2013, the US government has always held Bitcoin as a commodity – it will be considered a commodity and taxed accordingly – and this has remained consistent over the past decade through different governments and regulatory bodies. So, on a risk-adjusted basis, we see Bitcoin as a very low-risk asset, and as Bitcoin adoption spreads, the number of dollars and users entering the space will grow exponentially. With the arrival of these users, infrastructure will be built around the network and assets, which will capture value. We identify and target early movers and companies that are building the technology to meet the needs of new users entering the Bitcoin ecosystem. Those different infrastructure plays or their technology will eventually become the backbone of the entire ecosystem, whether it’s mining, financial services, Lightning Network or other layer services, consumer applications, or emerging markets. Each of these buckets will have its initial movers, who will gain such a huge advantage that trying to replace them will become almost insurmountable.
Forbes: Why has the adoption of Bitcoin not really taken off, especially from a payment perspective?
Kirkwood: This is not a one-year or five-year timeframe. We believe that Bitcoin will become the next world reserve asset. The world is currently in turmoil. We believe that the world has not yet determined the world reserve asset. In the past 40 years, as the US fiscal market approached its limit, we ended that era. Therefore, now, in the next 10, 20, 40 years, when Bitcoin climbs to become the world reserve asset, we believe there will be massive adoption.
A significant recent signal is BlackRock’s entry into the Bitcoin spot ETF. I think what it is doing is lowering the threshold for financial institutions and financial advisors, as they no longer have professional risk. In the past 15 years, mainstream media has classified Bitcoin as something only used by criminals on the black market or for money laundering. But now, with BlackRock lowering the entry barrier for these institutions, I think this is an important signal. I don’t think BlackRock would act unless they believe they can catch it. The second idea is that it reduces the friction for anyone, anywhere to sell Apple stocks and buy Bitcoin ETF with just two clicks of the mouse.
Forbes: How does all this fit into your strategy? How much utility does Bitcoin need to deserve the digital gold narrative?
Kirkwood: Let me answer that this way: look at what Strike is doing, its Send Globally payment service. This example highlights the second part of the Bitcoin network or the Lightning Network. We need five years of maturity and continuous building of the Lightning Network to bring it to today’s level. Yes, Strike allows users to send value globally through the Lightning Network. But the really interesting part, I think, that people don’t understand is what they allow businesses to do. Suppose a Nigerian company wants to buy products from Ghana. But they can’t move or don’t want the Naira currency. They want USD. Now, through Strike’s Send Globally, the Nigerian company can convert its Naira to Bitcoin, move it to a US bank account where it exists in the form of USD, and then use the USD to purchase those inputs in Ghana in order to establish and grow its business in Nigeria. All of this happens instantly. It has nothing to do with the price of Bitcoin, because it happens in a second. All of this is because it is a final settlement network.
Forbes: What are your thoughts on BRC-20 tokens, Ordinals protocol, and Bitcoin meme tokens?
Kirkwood: Block space is a limited resource. I wrote an article about block space at the end of last year, and I didn’t realize that you would have ordinal or BRC-20 coming out three months later and that we would have innovative ways of using block space. Do I think ordinal or BRC-20 have been novel and investable so far? I don’t think so. I am waiting for more clarity, actual market time for people to decide. But I do think it has value and will have use cases.
Forbes: I want to return to the mining industry. Do you invest in public or private miners, or both?
Kirkwood: Mostly private, but we do have a public miner. We usually look for the best, like Upstream Data.
Forbes: What is currently the most important aspect of mining for you?
Kirkwood: I think the most important aspect is rack space. Who has the ability to build low-cost rack space in highly attractive geographic locations. What TVA (Tennessee Valley Authority) is doing is very attractive because they are really inclined towards Bitcoin miners and the plans they offer. One of the companies in our company is focused on de-industrializing areas that are rural, so the regulators in these cooperatives seek us out and say, well, we have 10 megawatts or 20 megawatts for you. So we come in, we co-locate a 10 megawatt site. We offer to buy the power that otherwise the cooperative would have to reduce the amount they buy. Then that would increase the rate that the end user pays. That’s why they seek us out, because we come in either maintaining the current end user’s rate or lowering it, as well as being able to shut down or put energy back onto the grid during peak times.
Forbes: Many miners are now clamoring to enter the field of artificial intelligence. What are your thoughts on this?
Kirkwood: I classify it as distributed computing because Bitcoin is the first distributed computing that can easily be shut down and the network continues. The rendering power that AI requires will be the same. You will be able to see it a few years from now, I fully anticipate where LLM, you’ll be able to watch a movie until you’re ready to watch it. But in order to provide the massive computing power required to render to a billion people on Earth. If you go back 15 years ago, building a 50-megawatt site for a data center was huge. Now that’s almost average. So, I think we’re going to have to increase rack space by a factor of a thousand over the next decade to meet the demand for distributed computing.
Forbes: Will there be some companies that only do Bitcoin mining and want flexibility? How can they do this in a cost-effective way?
Kirkwood: I think there will be multiple revenue streams. Right now, a data center only has one revenue stream, you’re getting energy and you’re using that energy to generate hash values. We’re now going into a place where you have two revenue streams, where the second add-on program is the program where you return power to the grid. So, I’ve locked in a five-year, 5-cent power contract and then sell back to the grid at 15 cents during peak times. You’ll add the quantity of AI, so you’ll have 30%, 20%, 40% (depending on where the market falls) for AI in the same container with these Bitcoin miners. So, you have multiple lines very close in time for these Bitcoin miners to use.
Forbes: There is about a year left until the halving. I would like to hear your thoughts on how the halving will impact the entire investable Bitcoin ecosystem.
Kirkwood: We have made great strides in the first quarter of 2022 to ensure that all our companies have enough runway to sustain until the second half of 2024. The halving, BlackRock ETF, the upcoming election cycle, and the expected Federal Reserve interest rates in the second half of the year are all expected to create a perfect storm for Bitcoin and the mid-term of 2024.
Then the second part is that 90% of the total Bitcoin supply has already been distributed. So, in the past 15 years, I think it has been rich in Bitcoin, which is swirling in the market and easily accessible. The next 10% will not be distributed in the next 120 years. The next 5% will not be distributed in the next ten years. So, if you look at the next ten years, you will see a significant decrease in the Bitcoin supply. This will make Bitcoin even scarcer, and over time, it will become more valuable.
Forbes: Are there any interesting use cases or Bitcoin-related innovations on the horizon that you think people should be paying attention to?
Kirkwood: I think we need to pay attention to Nostr. This has to do with Bitcoin providing the best way to build businesses from scratch. If you think of Bitcoin as a company, then the asset has accumulated a market value of $600 billion without a CEO and marketing budget. I believe Nostr, as an open-source communication protocol, will also be so in the next ten years. We will use Bitcoin to transfer value on this open communication layer in exchange for value, so that eventually Twitter, Meta, and Instagram will all become Nostr clients, operating in the open permissionless network built by Nostr.
Forbes: Thank you.