The number of bitcoin that a Bejing' Bitmain and Vladimir's Allrise can earn from their joint-venture mining facility at the converted former-PNC paper mill in Usk shrunk six percent this week. This changes the break-even point for electricity costs, and it will make it even more difficult for Bitmain/Allrise to generate revenue in the future. 

The potential number of bitcoin the facility can earn each day is now only 5.65. That is down 62 percent from 15 in the fall of 2021 when Btimain and Allrise went into business together and down 37 percent from one year ago.

The amount of revenue bitcoin mining can produce is mostly dependent on three factors: the price of bitcoin, the average number of bitcoin a facility's bitcoin "mining" computers can earn each day, and the cost of the electricity used to power those "mining" computers. 

This week the number of bitcoin the Usk facility could potentially earn (although the facility is not actually operating right now due to high power prices) fell six percent because other bitcoin miners around the world continue to add new "mining" computers. The decline is part of a long-term trend that is built into to bitcoin's algorithm.

Bitcoin miners earn bitcoin by correctly guessing a complex code called a hash. The number of guesses a "mining" computer or facility can make each second is called its hash rate. When it last operated in June, the hash rate, or number of guesses the Bitmain's and Allrise's computers in Usk can make each second was around 2.5 quintillion (or 2.5 exahashes in bitcoin speak). 

The bitcoin algorithm seeks to limit the total number of bitcoin that can be earned globally each day to 900. It does that by adjusting the average number of guesses required to guess the hash code and earn the reward of bitcoin (the "mining" computers don't create the bitcoin).  As other miners around the world add more computers which can make more guesses each second, the algorithm makes the hash code more difficult to guess. The difficulty level is adjusted every two weeks and has been steadily increasing. That is what happened this week. 

Furthermore, what made this week's increases in difficulty level eye-catching is thatt means that mines are continuing to add computing power even when power prices around the country are at their highest AND bitcoin prices are slumping. That indicates that even more computing power will be added this fall as electricity prices around the country recede from their annual August highs-- which means that Bitmain/Allrise's Usk facility will be able to earn less and less bitcoin each month going forward, even if they could afford the power to turn the facility on. 

That is one of reasons why bitcoin mining is a money pit. Miners have to regularly purchase new computers just to maintain a constant level of earnings, not to mention having to completely replace their entire computing set every couple of years due to obsolescence.

That means that under current conditions, the break-even point for Bitmain/Allrise's most efficient machines, which make up only about one-third of their computer power, is now at $116 per Megawatt hour. The breakeven price for the other two-thrids is closer to $85 per megawatt hour. Today's electricity futures prices will not drop below that price until February 2024. 

Our PUD commissioners and management should take note of the increasing risk to our PUD and its citizen owners from bitcoin mining under these bearish conditions when Bitmain/Allrise already cannot afford the contract they have. 

The recent collapse in Bitcoin prices should be a warning to our PUD about the risks of the crypto mining industry. 
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Last week, Bitcoin prices suddenly plunged over 10%, from over $29,000 to its current price point of $25,970 where it has been holding steady with only minor adjustments. 

This is the 3rd major price collapse in Bitcoin prices since Beijing’s Bitmain and Vladimir’s Allrise Capital initiated their efforts to convert the former PNC Papermill in Usk into the largest Bitcoin mining facility west of Texas. The first collapse came in May last year when the Bitcoin bubble collapsed in the wake of the discovery of widespread fraud throughout the industry. The second collapse last November was triggered by the discovery of illegal operations and bogus accounting by the giant crypto exchange FTX.

According to a recent analysis by Forbes, this third collapse was due to a general lack of liquidity that was stifling interest among both individual and retail investors in high-risk assets like Bitcoin.

It is worth noting that Bitcoin prices are at the same price point now as they were last May during the peak of the Bitcoin Bust.

There are several reasons to be bearish about Bitcoin's future right now.

As Forbes pointed out, there is a general liquidity crunch affecting bitcoin trading. This reflects a general reversal of the conditions that facilitated Bitcoin’s 2021 bubble. First, compared to the market exuberance that spurred bubble investment, investors have learned that Bitcoin, and crypto in general, is a high-risk asset that is fundamentally unable to do what its acolytes claim it can do. Second, high interest rates have both removed the supply of free money that fueled risky investment and created more attractive investment alternatives than Bitcoin. Third, a large portion of the value of Bitcoin was being purchased with other crypto currencies that were fraudulently valued themselves through insider pump-and-dump schemes that artificially inflated token values (the FTX token FTT is a good example of this). Over $2 Trillion of this “internet magic money” was simply deleted during the bubble collapse last year. Finally, corporate and personal bank accounts are contracting reducing the money being injected into crypto.

In addition, there is a significant risk of further “Black Swan” events like the ones that triggered earlier price collapses. Just this morning, the Wall Street Journal reported that the world’s largest crypto exchange, Binance, has been facilitating Russian crypto transactions in violation of international sanctions. According to the Journal, Binance, which is already investigation for using crypto for money laundering, may face further action by the Department of Justice. In addition, the leading corporations supplying “stable coins,” the lubricant of the crypto economy, have yet to undergo audits under widespread suspicion of cooking their books. Other large crypto companies remain financially distressed. According to the crypto trade news site CoinDesk, one-third of bitcoin miners will likely go into bankruptcy next spring due to the upcoming “halving.”

​Bitcoin sellers rely on the “Bigger Fool Theory” to cash in on their tokens. Let’s hope our PUD isn’t that bigger fool. 

Litigating the citizen-owned Pend Oreille Public Utility District (PUD) in a poorly considered attempt to compel the residents of Pend Oreille County to literally pay the bill for their failing crypto mining business in Usk, WA, will inflict massive reputation harm on the Beijing-based Bitmain that could cripple its future business in the United States. The litigation will draw the attention of national and regional news outlets who will emphasize that a Chinese-based company is suing American citizens in a small, rural county to coerce them to sacrifice their economic well-being to profit an increasingly unpopular People's Republic of China.
 
With their massive bitcoin mining facility facing financial disaster due to high power prices and negotiations for a new power contract with the small, citizen-owned public utility approaching an impasse over demands that the utility force its other ratepayers to subsidize their power bill and accept such a high level risk that it threatens to bankrupt the rural Washington county, Bitmain and its partner Allrise Capital are threatening to sue the Pend Oreille County Public Utility District in order to compel them to accept their dangerous contract demands.
 
In late 2021, when bitcoin was reaching their peak price of nearly $70,000 per token, Bitmain entered into joint-venture with Allrise Capital, a small crypto/property holding/venture capital company owned by Russian businessman Vladimir Evseev. That joint venture LLC is called Cascade Digital Mining. One year ago (August 2022), signed an “emergency” contract with the Pend Oreille PUD for up to 100 MW of electricity in order to begin operations at their massive bitcoin mining facility—the largest west of Texas—and which included over 18,000 bitcoin-mining computers with a market value of $227 million at the time they were ordered. The contract was considered an “emergency” contract because it was hastily negotiated after Bitmain and Allrise failed to find another power provider in the region who was willing to do business with the two companies.
 
The contract required Cascade Digital Mining to purchase most of its electricity from the regional Mid-Columbia power market because the required 100 Mw dwarfed the generational capacity of the small Public Utility District. The bitcoin facility alone required more than three times more power than the rest of the Washington county put together.
 
Public documents obtained through public records requests indicate that Bitmain and Allrise Capital expected to be able purchase power at about three cents per kilowatt/hour—a typical price that large bitcoin miners in other parts of the county pay. Since they signed their contract one year ago, market prices for electricity have been, on average, four times higher. Combined with the collapse of bitcoin bubble last year and series of over a dozen bad business decisions or assumptions made by facilities managers who have consistently failed to conduct basic due diligence or mitigate risks, the facility has turned into a money pit that will likely cost Bitmain and Allrise tens to hundreds of millions of dollars in losses.
 
The Chinese crypto giant is one the world’s dominant crypto companies. They are the largest manufacturer of the highly- specialized computers used for “mining” the crypto token bitcoin and they control approximately one-third of global bitcoin mining through their mining pools.
 
They make their money through the manufacture and sale of mining computers, by fees they collect from their mining pools, and from investing in their own crypto mining projects, often through joint ventures or partnership agreements.
 
A couple of years ago up to 75 percent of global bitcoin mining was happening in China, but the ecological costs and the economic distortions the industry was inflicting on the country forced the government there to limit mining operations in China—even though many of the companies involved, such as Bitmain, were often partially or totally owned by local, regional, and national Chinese governments. (Bitmain’s ownership has not been publicly disclosed). So, Bitmain began moving its operations to the US, Russia, Kazakhstan, and other countries—but mostly to the US, which is now the top country for bitcoin mining.
 
Because of its dependency on the US, Bitmain’s future rests on its ability to persuade US companies to partner with it (instead of its competitors), the local and national government to provide a favorable regulatory environment, and US utilities to be willing to enter into giant power contracts on favorable terms.
 
National news outlets such as the New York Times and Politico, and regional news such as the Seattle
Times, Spokesman-Review, and Investigate West have all recently published stories specifically criticizing the Bitmain/Allrise facility in Usk.
 
The nation-wide negative media coverage will cause enormous reputational harm to Bitmain that will make it difficult for Bitmain to operate in the US and could even trigger another wave of anti-crypto regulatory actions from a Congress and Administration already hostile to both China and crypto. Nor will other utilities be willing to offer future deals when they read about Bitmain’s perfidy in Pend Oreille County at the same time that the Electric Reliability Council of Texas (ERCOT), formerly the largest source in the world for electricity for crypto miners has place a moratorium of power contracts for crypto companies. Meanwhile a growing number of national and local grassroots organizations are forming an increasingly powerful lobby opposing bitcoin miners because of the enormous costs they impose on the communities they exploit.  
 
Bitmain does not want to draw too much scrutiny to its past actions, such as allegedly manipulating crypto currency prices, cooking its books to conceal massive financial losses when attempting (unsuccessfully) to become a public company, knowingly assisting partner companies in conducting illegal bitcon Ponzi schemes, defrauding customers who purchased their bitcoin mining computers by secretly programming them to mine bitcoin for Bitmain instead of their customers, and facilitating the shipment of mining computers to Russia which is using bitcoin to circumvent financial sanctions put in place in response to Russia’s brutal attack on Ukraine. 
 
Furthermore, Bitmain depends on advanced computer chips to produce future generations of more efficient bitcoin-mining computers that will be needed to remain competitive. The Biden-administration recently curtailed Chinese tech companies’ access to the high-end chips and technical know-how—restrictions that could easily spread to Bitmain’s computing business.
 
Bitmain’s biggest problem may be that it failed to do its own due diligence before partnering with Vladimir’s Allrise Capital. That company, apparently formed with money transferred moved from Russia and with multiple subsidiaries that appear to be little more than shell companies, included several based in the Caymen beyond the reach of US courts and regulators.
 
Allrise has been accused of money-laundering for corrupt pro-Russian Ukrainian political leaders, was ejected from the state of Nevada for illegal business operations and has itself been the subject of several breach of contract lawsuits. Furthermore, Allrise has been remarkable successful at losing money, not just in its Usk crypto project, but through investments in properties that have lost millions of dollars in value since they were purchased, and in losing investments in several other notorious crypto companies that have been subject to regulatory actions and lawsuits for their own illegal business practices. Allrise incredibly failed to even talk to the PUD about the amount of power they could get before or for months after their last-minute bid to purchase the bankrupt Ponderay Newsprint Company papermill that they converted it the mining facility.
 
For Bitmain’s sake, hopefully they will recognize the danger litigating the PUD will put them before Vladimir's Allrise draws them into a costly (not just in attorney fees) legal battle that they cannot win. 

The moment of crisis has arrived. Our citizen-owned PUD’s contract with Beijing’s Bitmain’s and Vladimir’s Allrise Capital’s Usk crypto facility (operating alternatively as Merkle Standard or Cascade Digital Mining) expires in a few weeks and the two foreign companies are seeking to threaten and browbeat interim general managers April Owen and Sarah Holderman into a sweetheart deal that will force the residents of Pend Oreille County to subsidize their enormous power bill and shoulder the huge costs of their risk.

Bitmain/Allrise have made no less than 11 consecutive terrible business decisions or assumptions in which they failed to conduct even rudimentary due diligence or risk management.This has put the $100+ million of Chinese and Russian money invested the massive bitcoin mining facility in Usk is in imminent danger. If current market electricity rates and bitcoin prices hold, Bitmain and Allrise will only be able to afford the electricity to run their facility for 3-4 of the next 18 months not counting this July, August, and September where they have already not been able to operate.

Their only hope is to get the citizens of Pend Oreille County to bail them out of the pit of their own making.

But I believe Mses Owen and Holderman have the right stuff to be the leaders Pend Oreille County needs at this moment of crisis. I believe these women will put their neighbors and ratepayers first. I have read hundreds of pages of correspondence from Bitmain/Allrise full of vitriol, false allegations, and threats. Every time, I have read them respond professionally and firmly that our PUD puts its citizen-owners first.

When a new GM takes the helm of our PUD, they will be grateful that Owen and Holderman keep the ship on course instead of charting a risky path through crypto shoals.

Please write our PUD leadership and encourage them to put the interests of their neighbors ahead of foreign crypto companies. 

PUD Commissioners
Curt Knapp [email protected]
Joe Onley [email protected] 
Dave Rick [email protected]

PUD Co General Managers
April Owen [email protected] 
Sarah Holderman [email protected] 

In a recent letter to the PUD, Steve Wood, the local front man for Beijing’s Bitmain and Vladimir’s Allrise’s massive bitcoin mining facility in Usk, laid out over 20 demands for changes in their current negotiations for a new contract to go into effect on October 1. In toto, these demands would transfer much of their financial risk of their highly risky crypto business to the citizens of Pend Oreille County and leave the PUD’s other 9,600 customers subsidizing their power costs.
 
Among the many concerning provisions demanded by Wood’s Chinese and Russian employers is that omit a recital that “recognizes the District requires compensation for risk.”
 
Another even more concerning demand is that the PUD substantially reduce the termination payment that Bitmain and Allrise would owe the residents of Pend Oreille County should they terminate their power contract with PUD early. This would result in significant financial loss to our PUD and its citizen-owners.
 
Wood’s focus on minimizing the costs to Bitmain/Allrise for breaching its contract through early termination may be an indicator that the crypto joint-venture’s negotiations are being conducted in bad faith and that they may be planning to terminate the contract early due to the ongoing “crypto winter” and a series of basic business errors that have made the facility an unprofitable money pit.
 
The Usk facility will likely not be able to even turn on their bitcoin mining computers this summer because the market price of the electricity for the 70+ megawatts needed to power is higher the value of the bitcoin they can earn leading to a financial loss of millions.
 
The already unaffordable cost of mining bitcoin is set to double next April when the Bitcoin algorithm cuts in half the number of the bitcoin the facility can earn. Hence the focus. 

In June we reported that rising power futures prices could hasten the inevitable bankruptcy for Beijing's Bitmain's and Vladimir's Allrise Capital's massive bitcoin mining facility at the converted former PNC paper mill. Since then, the situation has only gotten worse for the crypto facility-- much worse. 

We previously reported that Bitmain/Allrise would not be able to turn on their bitcoin mining machines, which consume more than three times the electricity as the rest of the county put together, in July, August, and September because the cost of the required electricity would exceed the value of the bitcoin the facility could produce. More recent prices for power futures now indicate that Bitmain/Allrise will not be able to afford to purchase market power for their facility from July through next February or March. That is eight consecutive months of no or limited revenue generation. See our previous reporting here: Harbinger of Insolvency: High prices for market power futures may hasten Bitmain/Allrise bankruptcy - PROTECT PEND OREILLE

The breakeven point, or the maximum price the Usk facility can pay for the electricity (and no other operating expenses), at the current Bitcoin value of around $29,400 is around $100-110 per megawatt hour of electricity. The chart below of current futures prices for electricity (eg the cost to purchase electricity now for use in a future month) currently ranges from $155 in September to $98 in February.  

​Allrise Capital and Beijing’s Bitmain want to avoid being held accountable for potentially violating anti-corruption laws by our Citizen-owned PUD. In a recent letter from Cascade Digital Mining CEO Steve Wood to the PUD that is a public document, Wood asked the PUD to delete contract provisions that requires Cascade and its parent companies, Allrise and Bitmain, to comply with international anti-corruption laws.

That is not a good idea for our PUD. Allrise Capital, which is owned by Russian businessman Vladimir Evseev, has been accused of money laundering for high-ranking cronies of Russian dictator Vladimir Putin by an American journalist and elections observer and the Ukrainian newspaper the Kyiv Post. The State of Nevada blocked Allrise from operating in the state after Allrise was caught issuing illegal loans and engaging in illegal business practices there. Furthermore, Allrise maintains several corporations based in the Cayman Islands that are beyond the reach of the US legal system. 

Beijing’s Bitmain has been accused of cooking its books and using its large market share to manipulate crypto prices. Several crypto trade news sites have also reported that Allrise was believed to be under DOJ investigation for its involvement in an illegal Ponzi scheme in which its business partners have been arrested. In addition, another of Bitmain’s partners was placed under US sanctions for helping Russia use Bitcoin to circumvent financial sanctions resulting for its brutal invasion of the Ukraine.

Giving Allrise and Bitmain the OK to violate anti-corruption laws is not a good idea for our PUD when our citizen-owners are the ones who will have to face the consequences.

County Commissioner John Gentle sold out Pend Oreille County.

Recently Mr. Fred Willenbrock, a founding member of the county's Economic Development Council, wrote in a Op-Ed in the Newport Miner, “I resigned from the EDC committee that was designated to find a replacement for the closed Ponderay Newsprint mill. I did that because Pend Oreille County Commissioner John Gentle, who was the county representative on the EDC board at the time, decided to send a letter to the Ponderay bankruptcy trustee endorsing Allrise Capital's offer to buy that facility over the Kalispel Tribe’s purchase offer. Allrise went on to use the facility mainly to mine bitcoin. He never consulted with the committee, which would have asked for more tangible commitments from the bitcoin miners.”

Willenbrock omitted that emails obtained by public records request between Gentle, current EDC Treasurer Russ Pelleberg and Allrise Capital CEO Ruslan Zinurov and associate counsel Brian Kim from that week indicate that Gentle and Pelleburg were taking directions from Allrise about the letters.

Willenbrock also failed to mention that these emails also show that Gentle’s wife Kim, who is also an elected POVA Commissioner, was in business relationship with Pelleberg and Monty Stahl in a plan to take down the Pend Oreille PUD, take over some of its assets, and form their own utility which they planned to use to power large-scale crypto mining in the county. The plan would have cost residents of Pend Oreille County millions of dollars but been very profitable for the Gentles, Pelleberg, and Stahl. 

A short time later Pelleberg resigned as the Newport City Manager after the city began an investigation into his misuse and/or misappropriation of public funds for the scheme, yet he serves as the EDC Treasurer.

It appears the tax payer money for the EDC is used to advance the personal business interests of public officials and its members. 

In another indication of Beijing Bitmain's and Allrise Captial's financial distress, the employment of Merkle Standard general manager Todd Behrend's, who also acts the chief executive officer of the Ponderay Industries LLC, Ponderay Real Estate LLC, and Ponderay Data LL (and likely others), employment has reportedly been terminated. 

Behrend's departure coincides with the curtailment of bitcoin mining operations at the Usk facility due to rising power costs. The cost of electricity on the Mid-Columbia Hub market now exceeds the value of the bitcoin that the Usk facility can produce. The curtailment in operations will likely last until at least October based on the current electricity futures prices. 

Behrend, who previously worked at the paper mill, was one of only six full-time employees at the Usk facility-- a number of jobs that is only a fraction of the number that Bitmain and Allrise promised the residents of the county despite skeptics pointing out that crypto companies misleading rural counties about the number of jobs they would create has been a standard practice across the United States and Canada. 

Behrend's departure indicates that Bitmain/Allrise's own employees are losing confidence in the future of bitcoin in Pend Oreille County, where power prices have been many times higher than Bitmain and Allrise expected. The facility currently has about 20,500 bitcoin mining computers installed that were worth over $200 million at the time they were delivered. Due to high power prices the collapse of the covid bitcoin bubble, the facility has struggled to generate the revenue needed to pay back even in one tenth of the value invested in the project. 

Yesterday (June 28) the PUD Commissioners held a special meeting to determine how to deal with the increasing financial risk Beijing Bitmain's and Allrise Capital's distressed crypto project is posing to our citizen owned PUD. The biggest takeaway from the meeting, of which the public portion lasted only a few minutes, is that PUD does not believe that any financial institution with a qualifying credit rating is willing to provide a letter of credit to Bitmain/Allrise. 

​Bitmain/Allrise are currently in breach of their contract with our PUD, which requires that the high-risk crypto company maintains a $16 million letter of credit from a qualifying financial institution. After Bitmain/Allrise's Silicon Valley Bank collapsed earlier this year and US Bank's credit rating was downgraded, Bitmain/Allrise former letter of credit no longer met their contractual obligations. 

Over the last two and a half months, Bitmain/Allrise have not been able to find a qualifying financial institution that is willing to provide them with a letter of credit. This appears to be an indicator that banks consider Bitmain/Allrise too much of a risk. This does not reflect well on the state of Bitmain/Allrise's current financial condition and its financial prospects. 

We have previously reported that Bitmain/Allrise's massive bitcoin mining facility in Usk has been a financial disaster for the two companies. See Harbinger of Insolvency: High prices for market power futures may hasten Bitmain/Allrise bankruptcy - PROTECT PEND OREILLE

And POC Cryptonomics - PROTECT PEND OREILLE

After providing multiple extensions to allow Bitmain/Allrise to correct their breach in contract, it now appears like our PUD is finally tiring of their noncompliance. The PUD will be proposing an alternative modification of the contract to manage the enormous financial risks the crypto firm is currently posing to our PUD's other 9,600 ratepayers who will have to pick up the millions of dollars in losses should Bitmain/Allrise default on the money they owe the PUD and enter to bankruptcy. 

The details of the new proposed provisions for managing the financial risk were not disclosed in public session, but hopefully the PUD Commissioners will continue their previous practice of putting the residents of Pend Oreille County ahead of Beijing's.