Since our last update and given the continued market realities that are playing out we have determined a tentative action plan that we believe is best for investor returns.
First, a brief update on our research and the present state of things.
For the last few weeks, we have not been running the ether mine. This is because we’ve determined that we are breakeven +-10% at ETH $286. At the time of this writing, ETH is at $230. If we were to continue to mine, we could accumulate ETH, however, we would be wearing out the equipment (at 3-4% useful life per month) and burning through our remaining cash at significant losses to pay for utilities. Running at breakeven, we anticipate we would have enough cash to last one year. On this note, if the market and other relevant conditions dictate, we could always in the future turn back on instantly and be mining. So we are not losing out on customers, industry visibility or opportunities because the mine is off. And our expenses now are limited to rent, insurance and other small amounts.
Over the past few weeks we have been studying the results of previous bubbles bursting in various investment classes bursting and the ensuing bear markets that follow. We have done so in an attempt to try to understand by analogy what the remaining life of the Fund may look like. While we continue to think that ultimately blockchain and cryptocurrency have a very relevant future and there are currently many interesting and utilitarian case studies arising almost daily, the market and technical considerations (including difficulty/block reward) are currently working against and have been since we began building out of the mine.
While of course, it is impossible to predict with any degree of certainty how things will play out, with respect to bubbles in other asset classes, the steeper the drop from peak to trough, the longer the recovery. Looking at a number of S&P bear markets, the average length is 20.78 months and it is reasonable to assume the crypto bear market could last 9-32 months or longer.
So, if we were to continue mining full-force today, given past bear markets, it is very unlikely that we would ever get close to pay-back by mining alone. In order to maximize the chance of pay-back and hopefully profits, we recommend a “pivot” in order to preserve and generate cash, protect the useful life of the rigs and related equipment that may be useful in the future, and thereby extend the life of the Fund.
Here is an outline of a proposed plan:
- Selling Antminers – We have been selling the antminers and believe it is best to liquidate all of them. We have explored hosting mining in other states with very low power rates and Dave has visited a number of them. We looked at 6 locations, reviewed agreements and negotiated with 3 of the locations, however given the state of mining, selling the antminers even at a deep discount will get cash in the bank faster and with more assurance than utilizing them to mine.
- MasterNodes – Using some of the current cash amount on hand + the amount from antminers and invest in MasterNodes. A Masternode is a crypto full node (computer wallet) that supports the network by hosting an entire copy of the coin’s ledger in real time. In return, the Masternode will receive crypto coins as a reward. While this may seem exotic on its surface, it requires minimal expenses and is more-or-less comparable to a crypto dividend stock. The most widely-known Masternode is Dash. In order to establish a Masternode, we would need to purchase and stake (agree not to sell) 1,000 Dash coins. In return, we receive an 11.19% monthly “dividend” deposit of Dash. The theory here is that it’s great to mine when prices are high and great to buy when prices are low. If we buy low and accumulate coins, presumably when the recovery ensues the prices of our coins will increase.
- A few very important points: the Dash coins that we purchase to set up a Masternode never leave our possession. They can be moved or spent at any time – doing so simply removes the Masternode from service and makes it ineligible to receive dividends.
- Beyond having 1000 Dash, all it takes to set up is a VPS installed with Linux and a dedicated IP address. Dave Warner has spent significant time personally setting up Masternodes.
- We would compound these Masternodes. Despite not being able to predict where the crypto markets will go, if we compound Masternodes and/or buy future coin (PoS potential or not) while prices are low, we anticipate being able to buy a good number and variety of masternodes and have a considerable stock of coin for PoS staking, respectively.
- Buy “Stakable” Crypto – Take a portion of the cash on hand and buy crypto. Same assumption as above. Buy low and wait.
- Optimize Mine – Make the mine more efficient; therefore, (a) sell off all of the miscellaneous pieces of equipment that will presumably not be used, (b) continue to work with Consumers Power to lower the rate, and (c) opportunistically sell parts from the legacy rigs.
- Build Cash Reserve – Take the cash from points (a) and (c) above and keep as a cash reserve; maybe leave in BTC or ETH as liquidity for expenses for Mine.
Start mining only when it is profitable to do so.
In order to pursue any pivot plan, we will need to issue an amendment to our Fund Operating Agreement as this differs from our original plan, which was to mine only and distribute ETH or mined coin currently to investors. We will ask all investors to consent to an amendment.
Here are some resources on the subject of masternodes:
What is a MasterNode? – Dash, the most prominent masternode. Please watch the 11-minute video, as it is a good explanation of masternodes.
Management encourages your feedback and views regarding the Fund, our challenges and the recommended plan of action outlined above. We will be scheduling a meeting later this month at Thornapple Pointe. We will have more comprehensive data on each of the recommendations we have presented, why we want to pursue them, and what things potentially look like if/when we do at that time.