Harbinger of Insolvency: High prices for market power futures may hasten Bitmain/Allrise bankruptcy

​Rising prices for electricity futures on the Mid-Columbia Hub power market may hasten bankruptcy for Beijing’s Bitmain and Allrise Capital’s massive bitcoin mining facility in Usk, WA. At current future’s prices for nine out of the next twelve months, the price of the electricity needed to run their 18,000+ voracious bitcoin-mining computers will be higher than the value of the bitcoin those miners can earn at the current bitcoin price of around $30,000.

For the next several months, Bitmain/Allrise may not even bother to turn their machines on.

Electricity futures allow utilities and other large customers to lock in a price for electricity at a future date as a way to hedge risk against even higher prices. When the futures date arrives, actual spot prices may be higher or lower, but futures prices therefore represent the consensus expectation of actual future prices by participants in the market. 

Because Bitmain/Allrise require more than three times more electricity than the rest of Pend Oreille County but together, they have to purchase the bulk of their electricity from the Mid-Columbia Hub (the regional power market).

The blue line in the chart below shows the current (as of June 26) futures prices for a megawatt of electricity. The red line shows the current electricity break-even price for Bitmain/Allrise’s bitcoin mining operations in Usk at the currently high price of bitcoin-- $108 per megawatt. This price varies with the price of bitcoin and the number of bitcoin the Usk facility’s miners can earn each day (currently around 6 bitcoin per day). Next April, the break-even point will drop to $54 per megawatt (under current conditions) due to the halving of the number of bitcoin the facility can potentially earn each day. 

Each month that the blue line is above the red line is a month where the revenue Bitmain/Allrise will not be enough to pay for the electricity to power their machines, let alone the more than a hundred million dollars in other expenses they have yet to pay back.
 
There are two factors that may somewhat mitigate, but will not stave off, the ominous future. First, about one-third of the Bimain’s machines can continue to operate at power prices roughly $20 to $30 higher than the older-generation computers that make up the bulk of their computing power. Second, they have been able to purchase some electricity at a lower cost (around $60 per megawatt) directly from our PUD during the winter months when our PUD has excess power to sell—but not nearly enough to run the facility at full capacity.
 
In conducting this analysis, we made several assumptions. First that futures prices would reflect actual power prices in the future, but futures prices for each month have actually been increasing as the purchase month grows closer (e.g. the futures prices for power in August is actually much higher now than it was two months ago reflecting a market expectation that August prices will be higher than current future prices. Second, we assumed that price of bitcoin would remain stable at around $30,000. The current price level is elevated above its one-year and one-month average and crypto continues to face increasing challenges. Third, we assumed that the number of bitcoin the Usk facility can earn each day would remain constant. It will likely continue its multi-year trend of declining over time. So, we expect actual conditions to be worse than when assumed, but they could become better.
 
We previously reported that Bitmain/Allrise were facing a financial disaster of their own creation—largely due to gross negligence on their part in failing to conduct reasonable due diligence about the feasibility of their business plans. See POC Cryptonomics - PROTECT PEND OREILLE
 
Today’s data shows that that disaster may be even closer than anticipated.