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Compute North — flying high just months ago — now part of crypto bankruptcy wave – Star Tribune

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In February, now-bankrupt Compute North looked to be on a fast track to an initial public offering.
The Eden Prairie-based company, co-founded by local tech entrepreneur Dave Perrill, had just raised $385 million to build state-of-the-art data centers for cryptocurrency miners. Bitcoin was booming. And the Super Bowl was rife with crypto ads.
Within months, bitcoin’s price collapsed and a parade of crypto companies — including Compute North — went bust. As crypto cratered, Compute North’s main lender pulled back and the company’s ambitious growth plans unraveled, bankruptcy court records indicate.
The company is now trying to restructure its finances. But that’s a tall order. It has already been stripped of two prized crypto data centers and is selling assets.
In a recent interview, Perrill said he’s not shocked the crypto market has been rocked. “Markets ebb and flow,” he said. But he thought Compute North would be on the buying end of asset fire sales, not the other way around.
“We had built up our company to protect ourselves on the downside. We were always focused on low costs, size and scale and making sure we had a cushion. What pains me is that we are not in a position now to capitalize on the opportunities we thought would eventually come,” he said.
To its proponents, cryptocurrency is the backbone of a decentralized financial system, one free of intervention from central banks and commercial banks. To its detractors, it is a medium for financial speculators and — at worst — internet criminals.
Bitcoin is by far the most popular of thousands of cryptocurrencies, and in November 2021 one bitcoin traded at a peak of $64,000. Last week, one bitcoin was going for around $16,000.
The crash has led to hundreds of billions of dollars in investor losses and has included at least nine bankruptcies, culminating in the stunning crash this month of the FTX cryptocurrency exchange — an industry titan that owes creditors billions of dollars and appears to have been epically mismanaged.
Few segments of the industry have been spared. Crypto exchanges like FTX, traders, lenders and service providers like Compute North have all plunged into insolvency or are teetering on it.
“The bigger question now is, will the [crypto] industry survive?” said Vivian Fang, an accounting professor at the University of Minnesota’s Carlson School of Management. She thinks it will; “crypto winters” have occurred before.
“I’m cautiously optimistic about its future,” Fang said. But for now, there is wreckage strewn across the crypto landscape.
Compute North’s quick rise
Compute North is one of the largest U.S. operators of data centers that house computers specially designed for crypto mining.
So is Core Scientific, which operates a large North Dakota crypto data center. That company, based in Austin, Texas, warned of a bankruptcy filing last month, saying it would miss key debt payments.
Core Scientific shares are trading around 13 cents, down from $12 in mid-November 2021. That’s the same month when Core Scientific opened a $100 million data center in Grand Forks, aided by a $269,000 loan from the city.
Compute North mostly hosts computers owned by other companies and individuals. The computers run day and night to solve a math problem — with a payoff in cryptocurrency as the reward.
Crucially, Compute North also arranges power contracts for the electricity-hungry mining machines.
Compute North was founded in 2017 by Perrill and PJ Lee, who respectively own 24 % and 23 % of the company — equity likely to be erased in bankruptcy.
Perrill is the computer guy: He co-founded his first business 30 years ago at age 14, hosting online bulletin boards out of his Waconia home. That company evolved into an internet services provider with 15 employees and about $3 million in revenue by 2006.
Lee is the energy finance guy. His EverStream Energy Capital Management, founded in 2012, focuses on investing in renewable and sustainable energy projects. Before that, Lee was a managing director at Black River Assessment Management, then an arm of Cargill.
Compute North started with two smaller crypto mining sites in South Dakota and Texas, which together drew about 20 megawatts of power. In 2021, it opened a larger crypto mining site — 100 megawatts — in Kearney, Neb.
Then in February, Compute North struck what seemed like a financing coup. It secured $385 million in debt from San Francisco-based Generate Capital to refinance loans on its Kearney facility and fuel its ambitious expansion plans.
At the top of Compute North’s list: a 300-megawatt project called Wolf Hollow, about 70 miles west of Dallas, Texas. Wolf Hollow was partially switched on earlier this year.
Compute North is also in a joint venture with renewable energy giant NextEra to develop a 280-megawatt crypto center in west Texas. Part of it came online this summer.
The quick fall
By Sept. 22, when Compute North filed Chapter 11 in a U.S. bankruptcy court in Texas, its 2022 revenue was $96 million — three times 2021’s mark. And its workforce had grown to 140, up from 30 in early 2021.
“We were just on the cusp of being the biggest company in the world doing this,” Perrill said, referring to the crypto hosting business. Indeed, Compute North earlier this year had expected to join the ranks of publicly traded crypto companies.
The outlook was rosy enough in March for Compute North to pay bonuses of $300,000 to Perrill and $240,300 to Tad Piper, Compute North’s former chief financial officer, who exited in June, bankruptcy documents show.
Perrill, who resigned as CEO two weeks before the bankruptcy filing, was paid nearly $600,000 through September 2022. (Perrill remains on the firm’s board.)
As Compute North was building in 2022, crypto prices crashed and electricity costs — driven by surging natural gas prices — soared. It was a toxic combination: Power is by the far the largest cost of bitcoin mining.
Then came the hammer that drove Compute North into bankruptcy: Generate Capital pulled back.
In the second quarter, Generate — which had already fronted Compute North $101 million of its $385 million commitment — stopped funding new projects other than Kearney and Wolf Hollow, Compute North said in a bankruptcy filing.
In late July, Generate declared Compute North in technical default, meaning that even though the company was making its loan payments, it had violated a loan covenant. The next month, Generate effectively took over the Kearney and Wolf Hollow projects.
Kearney was Compute North’s major source of cash flow. “It was our flagship project,” Perrill said.
In a bankruptcy auction, Generate Capital has since purchased Compute North’s equity in both projects for $5 million. Generate didn’t return calls for comment.
Chapter 11 allows a company to reorganize its finances while protected from creditors, unlike a Chapter 7 bankruptcy liquidation. But Compute North is operating under section 363 of the bankruptcy code – i.e. selling assets to pay creditors.
Uncertain future
It’s not clear how much will be left of Compute North to reorganize. The company owed $500 million to its creditors when it filed bankruptcy.
It’s on the hook for a $99.8 million secured loan in connection with its NextEra joint venture. And it owes $21 million to its largest unsecured creditor — and major customer — Marathon Digital Holdings, one of the world’s largest bitcoin miners.
“The goal has always been to come out of [bankruptcy] restructuring as a reorganized company and continue to grow,” Perrill said. But without the Kearney and Wolf Hollow projects, “it will be a challenging path going forward,” he acknowledged.

Mike Hughlett covers energy and other topics for the Star Tribune, where he has worked since 2010. Before that he was a reporter at newspapers in Chicago, St. Paul, New Orleans and Duluth.

© 2022 StarTribune. All rights reserved.

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Bitcoin drops to lowest in more than a week, ether slides as FTX collapse ripples through crypto market – CNBC

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Bitcoin has shot up 50% since the new year, but here's why new lows are probably still ahead – The Conversation Indonesia

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PhD Researcher in Finance, University of Bath
Senior Lecturer in Corporate Finance, University of Bath
James Kinsella works part-time as an investment analyst for Tyndall Asset Management.
Richard Fairchild does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

University of Bath provides funding as a member of The Conversation UK.
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To the delight of investors across the cryptosphere, the price of bitcoin (BTC) has rallied over 53% since its low of US$15,476 (£12,519) in November. Now trading around US$23,000, there’s much talk that the bottom has finally been reached for the leading cryptocurrency after a year of painful decline – in November 2021, the price peaked at almost US$70,000.
If so, it’s not only good news for bitcoin but the whole market in cryptocurrencies, since the others broadly move in line with the leader. So is crypto back in business?
The past is littered with various periods of market turmoil, from the global financial crisis of 2007-09 to the COVID-19 collapse in 2020. But neither of these is a particularly good comparison for our purposes because they both saw sharp drops and recoveries, as opposed to the slow unwinding of bitcoin. A better comparison would be the dotcom bubble burst in 2000-02, which you can see in the chart below (the Nasdaq is the index that tracks all tech stocks).
Nasdaq 100 index 1995-2005
Look at the bitcoin chart since it peaked in November 2021 and the price action looks fairly similar:
Bitcoin bear market price chart 2021-23
Both charts show that bear markets go through various periods where prices rise but don’t reach the same level as the previous peak – known as “lower highs”. If bitcoin is following a similar trajectory to the early 2000s Nasdaq, it would make sense that the current price will be another lower high and that it will be followed by another lower low.
This is partly because like the 2000s Nasdaq, bitcoin seems to be following a pattern known as an Elliott Wave. Named after the renowned American stock market analyst Ralph Nelson Elliott, this essentially argues that during a bear phase, investors shift between different emotional states of disappointment and hope, before they finally despair and decide the market will never turn in their favour. This is a final wave of heavy selling known as capitulation.
You can see this idea on the chart below, where bitcoin is the green and red line and Z is the potential capitulation point at around US$13,000 (click on the chart to make it bigger). The black line is the path that the Nasdaq took in the early 2000s. The blue pointing finger above that line is potentially the equivalent place to where the bitcoin price is now.
Bitcoin now vs Nasdaq in the early 2000s
The one other thing to note on the chart is the wavy line that’s moving horizontally along the bottom. This is the stochRSI or stochastic relative strength index, which is an indication of when the asset looks overbought (when the line is peaking) or oversold (when it’s bottoming).
A sign of a coming shift is when the stochRSI moves in the opposite direction to where the price is heading: so now the stochRSI is coming down but the price has held up around US$23,000. This too suggests a fall could be imminent.
Within markets, there is often a game that investors from institutions such as banks and hedge funds play with amateur (retail) investors. The aim is to transfer retail investors’ wealth to these institutions.
This is particularly easy in an unregulated market like bitcoin, because it is easier for institutions to manipulate prices. They can also talk up (or talk down) prices to stir up retail investors’ emotions, and get them to buy at the top and sell at the bottom. This “traps” the irrational investors who buy at higher prices, transferring wealth by giving the institutions an opportunity to convert their holdings into cash.
It therefore makes sense to compare how the retail and institutional investors have been behaving lately. The following charts compare those crypto wallet addresses that hold 1 BTC or more (mostly retail investors) with those holding upwards of 1,000 BTC (institutional investors). In all three charts, the black line is the bitcoin price and the orange line is the number of wallets in that category.
Retail investor behaviour
Institutional investor behaviour pt 1
Institutional investor behaviour pt 2
This shows that since the FTX scandal back in November, which led to the world’s second-largest crypto exchange collapse, retail investors have been buying bitcoin aggressively, resulting in the highest number of addresses holding at least one BTC ever. On the other hand, the biggest institutional investors have been offloading. This suggests that the institutional investors agree with our analysis.
There are those who argue that bitcoin is a bubble and that ultimately cryptocurrencies are worthless. That’s a separate debate for another day. If we assume there is a future for blockchains, which are the online ledgers that enable cryptocurrencies, the key question is when bitcoin will reach the accumulation phase that typically ends a bear phase in any market.
Known as Wyckoff accumulation, this is where the price of the asset repeatedly tests two areas: the upper bound where traders previously sold heavily enough for the price to stop rising (known as resistance), and the lower bound where traders bought heavily enough that the price stopped going down (known as support).
At the point where institutional investors decide the lower bound has proved to be sufficiently resilient – in other words, they think the price is cheap at that level – they will start buying the asset again. That moment is only likely to come after there has been a capitulation.
Of course, history does not repeat itself exactly. It may be this is the first time that retail investors have outsmarted the large institutions, and that the only way is now up.
More likely, however, there is more pain on the way. With a recession on the cards, unprecedented job layoffs and weak retail data coming out of the US, it doesn’t point to the kind of optimism that tends to move markets higher. It would therefore make sense to brace yourself for another plunge in the price of bitcoin and the rest of the crypto market.
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Copyright © 2010–2023, The Conversation US, Inc.

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Crypto Price Today Live: Bitcoin marches to $17K; Solana, XRP & Uniswap rally up to 13% – Economic Times

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