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Another Victim of the Crypto Winter

On September 22, 2022, Compute North Holdings, Inc. and certain affiliates filed bankruptcy in the Southern District of Texas in Houston.  The company describes itself as “a leader in data centers, focused on delivering sustainable, cost-effective infrastructure for customers in the blockchain, cryptocurrency mining and distributed computing space.”  See Declaration of Harold Coulby, Chief Financial Officer and Treasurer of the Debtors (Doc. 22). It owns and operates three operating facilities that provide remote computing capacity and has rights to two others that remain in development. Its main business lines include (i) hosted cryptocurrency mining services, (b) bitcoin mining, and (c) cryptocurrency equipment sales. See Id.

The company attributes its predicament to a severe liquidity crisis that constrained its ability to complete development of two facilities that had begun prior to the distress that has marked the digital assets markets in 2022. In particular, it points to the drop in bitcoin prices to levels almost 75% below its peak in late 2021 and the doubling of costs for electricity required for bitcoin mining. See Id. The company also encountered extreme difficulties with one of its lenders, Generate Lending, LLC (“Generate”), the lender on a $300 million credit facility. Following a number of alleged defaults under the facility, among other things, Generate effectively ceased control of a non-debtor subsidiary that indirectly owns two critical facilities, including the so-called “crown jewel.” The company says that it had disputed the existence of the alleged defaults and remains in discussions with Generate regarding financing. See Id.    

With regard to its mining operation, the company says that it maintains cryptocurrency wallets which contain customer “subaccounts or subwallets” — the mining gear that is awarded bitcoin “could belong to a customer.” The wallets are maintained on the Genesis and Bitstamp exchanges. See Id. Given the opacity in this largely unregulated environment, it is unclear whether there will be any dispute regarding the ownership of bitcoin maintained in those wallets.

Like Voyager and Celsius before them, the company filed bankruptcy without arranged financing. The case will be funded at the outset with the company’s limited unrestricted cash (approximately $8.7 million).Also similar to those cases, the company plans to pursue a dual path process, either a sale of the business as a going concern or a stand-alone plan.  See Id.  

We will continue to provide updates as circumstances warrant.

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