ABLs, Bitcoin Miners and Monetizing Stranded Energy

This article originally appeared in The Secured Lender. Reprinted with permission. Any opinions in this article are not those of Winston & Strawn or its clients. The opinions in this article are the author’s only.

It is very difficult to get a senior credit officer comfortable with bitcoin. Utter the words “bitcoin mining” to a group of asset-based lenders and it will not likely go over well. How has a working-capital intensive, increasingly carbon-neutral, industry with hundreds of millions of dollars of equipment, accounts receivable and real estate, received practically zero debt capital from any secured lender? Most likely, because bitcoin carries a stigma that it is (i) a mechanism for fraud used by unscrupulous executives to purchase homes in the Bahamas, (ii) inherently worthless without backing by “real” assets or a central bank, (iii) a device for criminal misconduct, (iv) a Ponzi scheme, (v) “probably rat poison squared,” and (vi) a massive waste of energy resources and deleterious to the environment that will inevitably cause the industry to enter a spiral of decline and losses. The merits and value of the above are yet to play out in the open-market, and the reality is more complex. However, it is this last critique which will be addressed herein. This article argues that bitcoin miners offer energy producers consistent, reliable demand support for wasted energy generated from oil drilling and solar and wind facilities (such energy, as described below, “stranded energy”). Consumption of stranded energy by bitcoin miners should help secured lenders underwrite loans, because it can reduce air pollution resulting from natural gas flaring and improve life cycle economics of renewable energy sources.

The rise of bitcoin mining has sparked debate about its energy consumption and environmental impact. Some say that it has negative attributes when evaluated through the lens of climate related risk methodologies, while others insist that it’s a workable investment opportunity with positive energy and climate externalities. This article suggests that by optimizing stranded energy, bitcoin miners can reduce the amount of greenhouse gas emissions caused by drilling oil wells and improve rates of return on renewable energy production. More importantly, once the negative energy use and environmental stigma begins to unravel, asset-based lenders may realize a traditional borrowing base can be built with these companies’ assets just like any other mainstream industry. This discovery would lead the asset-based lending arms of banks, finance companies, and financing subsidiaries of major industrial corporations to many opportunities to extend first-lien, senior secured debt capital to an industry operating in the physical world.

To understand how bitcoin miners can reduce air pollution and improve life cycle economics of renewable energy sources, bitcoin mining and the concept of stranded energy needs unpacking.

Read the full article (see page 34).