Recently released public data indicates that the bitcoin-mining joint venture between Beijing's Bitmain and Vladimir's Allrise Capital has been a financial disaster of epic proportions. The data indicates that after its first two years, the operation is over $100 million underwater with little prospect of making up the loss through further operations in Usk. In the last two years, the operation has generated around $37 million in after-power-cost revenue against a total investment in the site of approximately $150 million.  The $37 million number represents total revenue after power costs but does not include any other expenses such as taxes, personnel costs, or other fees, so the actual amount of revenue that can be applied against investment costs is actually smaller.

The joint venture, along with Bitmain's partner company Bitfufu, have been operating a massive bitcoin mining operation at the former Ponderay Newsprint Company paper mill site in Usk, Washington. Bitmain, Bitfufu, and Allrise each operate miners at the Usk site through a dozen different limited liability corporations. The LLC Merkle Standard operates as the front-office for the joint venture while the LLC Cascade Digital Mining contracts for the facility's power with the Pend Oreille Public Utility District.

Bitfufu, operating through the LLC Ethereal Tech US Corporation, reported last November that it was near bankruptcy due to the site's "highest in the world" bitcoin mining costs. Usk Bitcoin Miner reported being near bankruptcy: “We’re completely negative” - PROTECT PEND OREILLE

How we calculated revenue. Using public data on the amount of power the facility has used each month and the amount they paid for that power, we are able to calculate the approximate amount of revenue the bitcoin mining operation has generated over the last two years. Determining mining revenue is a relatively simple mathematical function. Bitcoin "mining" consists of using large numbers of highly specialized computers to guess a 64-digit code. Different models of these computers can each make a certain number of guesses-- usually more than 100 trillion per second. At its peak, the Usk facility operated about 20,500 of these computers and used 83 MW of power. The difficulty of guessing the code is adjusted every two weeks (on average) so that some computer somewhere correctly guesses the code once every ten minutes (on average). To increase the probability of being the miner guessing the code, only a small number of companies can actually conduct the "mining." The Beijing-based Bitmain is one of those companies and it conducts roughly 30-40 percent of the global bitcoin mining (the percent varies from week to week). These major companies pay smaller companies, like Allrise Capital, a portion of their daily take in bitcoin to operate mining operations on their behalf. 

Since we know the amount of power used, the number of computers that can operate with that amount of power, the number of guesses all the computers in Usk can make (e.g. the Hashrate), the number of guesses it takes on average to earn bitcoin (the difficulty level), the number of bitcoin the facility can earn each day, and the value of bitcoin, we can calculate the revenue. Revenue is calculated over 2-week periods to account for the changes in mining difficulty. See the table below. 

When they "win" bitcoin, miners also get to earn a small amount of additional bitcoin from charging fees to process a "block" of transactions on the "blockchain." This amount is typically less than 5% of the value of the bitcoin they win. The rate for these fees is currently 3.6% of bitcoin winnings, so this would add around $1-2 million to total revenue, which is why we listed $37 million instead of the $35 on the chart above. We should also note that actual earnings may be lower than our estimate because we favored the miners in any assumptions we had to make and always assumed they were operating their most efficient mining computers.

How we estimated their investment costs. Again, we relied on public data and news reporting. Allrise capital paid a little over $18 million for the PNC mill site. Representatives have publicly stated that they made $4 million in improvements to convert the mill to a bitcoin mining facility. Finally, we used the personal property accounts for each company at the site to determine the cost they paid for their mining computers. The Personal Property accounts show a value last year of $88,168,437, but this value includes at least one year of depreciation. When we adjust for the depreciation of computers, the value of the equipment is $117.5 million. This number is roughly half of the $227million market value of the computers when they were first delivered to Usk in the spring of 2022. An additional 2,500 computers were added to the facility later were not likely counted in last year's personal property calculations. These computers likely had a value of around $10 million. 

This gives an all-in investment for the facility of $149.5 million. 

The Chinese/Allrise joint venture have poor prospects for recovering more of their investment cost from continuing operations at the Usk facility. Bitcoin mining computers typically only last two to three years and many of the machines initially installed in Usk are obsolete models that can no longer generate positive revenue. After the "Halving" last April, an every-four-year event in which the amount of bitcoin miners can earn is cut in half, bitcoin mining profitability is currently at all-time lows and Bitcoin coin prices have stubbornly refused to breakout to the moon. Power prices are increasing as cold weather approaches. In past years, the operations have relied heavily on getting large amounts of federally subsidized power from the Bonneville Power Administration to operate through winter months, but the BPA has become increasingly reluctant to their subsidized power to foreign crypto operations instead of Washingtonians struggling with high heating bills. It appears that the BPA will continue to reduce the amount of power they provide this winter as well. 

The best bet for Chinese/Allrise joint venture is to move their operations from Usk to faculties in other states with less expensive power as they appear to be doing. ​Merkle Standard prepares to move crypto mining operations from Usk, WA, to new sites in Tennessee, Oregon - PROTECT PEND OREILLE

Merkle Standard, the front office LLC for the joint venture bitcoin mining operation by Beijing's Vladimir's and Vladimir's Allrise Capital, is preparing to move most of its Bitcoin mining operations from its current facility in Usk, WA, to new sites in Memphis, Tennessee, and Christmas Valley, Oregon. 

Merkle is currently completing the installation of a number of Bitmain's "Ant Boxes"-- 40ft shipping containers each modified to house around 200 highly specialized bitcoin-mining computers. Once the electrical installation of the Ant Boxes is completed, Merkle will likely begin moving thousands of its computers from Usk to Memphis. There are over four dozen 20ft shipping containers and several 40ft shipping trailers parked at the former PNC paper mill site waiting to be loaded and shipped. 

The Memphis location can support up to 45 megawatts of mining operations, or about 75% of the 60 megawatts  Merkle has been contracting for over the last year. The joint venture used up to a maximum of 78 megawatts at its operational peak in late Spring 2023, but many of its computers have become obsolete and can no longer earn more in bitcoin than the cost of the electricity to run them. According to local news reports, Merkle's five-year power contract with Memphis Light, Gas & Water went into effect August 1.  Bitcoin mines coming to Memphis and Tennessee (wuot.org) 

The crypto mining operation in Usk has been a financial disaster for Allirse, Bitmain, and the Chinese miner Bitfufu which also operated bitcoin mining computers in Usk. Last August, Merkle Standard CEO Steve Wood told Pend Oreille PUD that they would need to reconsider their operations. A few months later they purchased the new locations with access to cheaper electricity in Memphis and Christmas Valley. In a press release printed in the Newport Miner last February, Merkle Standard announced that they would be moving most of their bitcoin mining operations to other locations. At the same time, they told the PUD they planned on only keeping 26 megawatts of their river-water-cooled machines. The rest of their computers are air-cooled.

The water-cooled machines are difficult to relocate because they require a massive supply of fresh water to operate.  However, it is not clear if Merkle will be able to continue to operate their water-cooled machines in Usk because that model of machine is nearly obsolete and requires power rates lower than 6.5 cents per kw/h jsut to break even on their power bill under current conditions. Merkle's plan was based on the assumption that they would receive 26 MW of federally subsidized power from the Bonneville Power Administration in the winter of 2024-2025-- power that is much cheaper than what Pend Oreille County residents pay for their power. However, the BPA has been reducing the amount of subsidized power it provides to Pend Oreille County, and the Chinese-sponsored joint venture might not get the amount of power it was planning on last February.