The Canadian company that runs the large bitcoin mining facility in Bonner has shut down completely and initiated bankruptcy proceedings.
HyperBlock Inc., based in Toronto, said in a series of press releases late last week that its 20-megawatt datacenter just east of Missoula is now offline and all cryptocurrency mining operations have ceased.
The publicly traded company (HYPR on the Canadian Stock Exchange) has been leasing a massive warehouse at the old Bonner mill site for the past few years.
In a press release on May 13, HyperBlock announced to shareholders that the Bitcoin algorithm “halved” on May 11, which “significantly reduced Bitcoin mining compensation rewards earned by the Company.”
The company said that algorithm halving occurs approximately every four years to create scarcity by limiting the number of bitcoin in circulation. The halving cut the company’s rewards for mining each block by half, HyperBlock said.
“The Company cautions that this has resulted in making its operations uneconomical, based on current Bitcoin pricing, overall network hashrate, and the Company’s ability to continue to access reliable, affordable power,” the press release stated.
HyperBlock also announced that its electricity provider, Energy Keepers Inc., indicated that it would terminate a long-term contract with HyperBlock effective on May 14. In the May 13 press release, the company said it would explore power supply alternatives and said an “inability to secure power would require it to pause or cease mining operations.”
A manager at the Bonner HyperBlock facility could not be reached for comment, nor could a company spokesperson at the headquarters in Canada.
Steve Nelson, a co-owner of the Bonner mill site, declined to comment on the situation. Missoula County officials have confirmed that they’re aware the company has ceased operations.
Energy Keepers Inc. is owned by the Confederated Salish and Kootenai Tribes, and distributes hydroelectric power from the Seli’š Ksanka Qlispe’ dam on Flathead Lake. A request for comment from the company was not returned on Monday.
On May 14, HyperBlock confirmed it was shutting down.
“The Company’s electricity provider terminated its long-term power contract with the Company effective May 14, 2020,” another press release said. “This termination, combined with the impact of the recent Bitcoin algorithm halving, which cut the Company’s mining rewards in half, and the Company’s generally deteriorating working capital position, have made it unable and uneconomical to continue operations.”
On Friday, May 15, the company announced that it was no longer able to meet its financial obligations and had appointed a Licensed Insolvency Trustee to seek settlement with its creditors under the Canadian Bankruptcy and Insolvency Act. Two independent directors, Ronald R. Spoehel and Bryan Reyhani, resigned immediately from the company’s board that same day.
The bitcoin facility in Bonner started out as a company called Project Spokane, LLC, Montana’s first cryptocurrency mining operation, in April 2017. That company was then bought by HyperBlock in July 2018.
In December 2018, the company had more than 13,000 servers whirring in the warehouse next to Highway 200 in Bonner. The company was mired in controversy during most of its run in Missoula County.
First, residents of the area complained of the loud humming noise created by the cooling fans on the warehouse. The company applied for $135,000 in Tax Increment Financing from the Missoula Development Authority Board in 2018 to pay for new, quieter fans.
The company also applied for and was granted permission to seek compensation for creating 65 high-paying jobs through the Montana Department of Commerce’s Big Sky Economic Development Trust Fund, but later backed out of the contract and never got any taxpayer-funded assistance.
In April 2019, the Missoula County Commissioners adopted emergency interim zoning regulations on cryptocurrency mining for one year. Essentially, the commissioners wanted any new or expanded crypto-miners to create new renewable energy sources rather than tapping into existing energy sources, to comply with climate change goals.
HyperBlock was already using 20 megawatts a year, which is about a third of all electricity consumed in Missoula County in a year, and had announced that it could scale up to 60 megawatts. County energy analysts argued that although it sourced hydroelectric power, the company was still contributing to climate change because it wasn’t paying for the creation of new renewable energy.
“My first thought was sadness for Steve (Nelson) who runs the Bonner Mill development,” Slotnick said. “I know that he and his partners have done an incredible job turning a wasted former industrial site into a place that creates jobs and produces things people want. It’s really sad to see this potential loss there for them.”
Slotnick said Brownlow informed him that HyperBlock hasn’t vacated the building and has told county officials that it doesn’t have plans to leave permanently yet.
“So it doesn’t sound like they will leave a big hole in the development park,” Slotnick said. “It’s a really unique building. It’s so big and so open and uninsulated. It’s designed for something where you don’t need heat and you need a whole bunch of big, open space. It does have train tracks.”
Slotnick said the county’s decision to impose interim zoning regulations was mischaracterized by some as a “moratorium” on crypto mining expansion.
“We were in no way attempting to damage the company,” he said. “You can mine all the Bitcoin you want, you just have to create your own renewable energy for that expansion. They were such a heavy energy user. At its peak they were using a third of the energy of the entire county. Hospitals use a big gob of energy, but they employ hundreds of people.”
Jim Valeo is a member of the Missoula Development Authority board and voted against using Tax Increment Financing for the fan blades back in 2018. He said he’s not surprised the company shut down.
“The fundamental question is, is it a really a business or just a game that rich people play?” he said. “I viewed it as a fad, and we don’t finance fads with taxpayer money.”
He said at the time he voted against approving the use of the TIF money, he had absolute conviction that he was doing the right thing.
“That’s not what TIF is supposed to be used for,” he said. “(HyperBlock) was not a particularly productive business, they don’t employ many people and they are terrible consumers of energy.”
Valeo said he’s a huge supporter of Steve Nelson and the revitalization of the mill site.
“They’ve done a superb job out there,” he said. “Nobody’s been a stronger supporter of what they’ve done out there than I have.”
“It’s easy to get sucked into something (Bitcoin) until you turn the cards over and see the other side,” he said.