Bcause bets it all on bitcoin
On Thursday, August 8, Judge Janet Baer continued the current round of proceedings in Bcause’s ongoing federal bankruptcy case until September 4. Bcause demonstrated to the court there is hope a confirmable reorganization plan can be presented. It has not yet submitted one.
Formally, Thursday’s hearing was a continuation of the trial that started in June essentially to decide whether Wesco, the secured creditor, gets to walk away with all of the cash on hand at Bcause. Back in April, Wesco obtained an order from a Virginia court for payment of the amounts owed it by Bcause. The order was stayed by Bcause’s bankruptcy. Wesco has been strenuously objecting to the stay on its payment ever since. As a secured creditor, Wesco thinks it has a privileged claim on Bcause’s assets. Naturally, its status as a secured creditor is disputed by Bcause and all the other creditors and will be argued in court later this month.
Wesco argued in court Thursday that Bcause’s plan was deficient in a number of ways, and the judge seemed to agree. Because was supposed to provide evidence of service contract renewals to show that it would be an on-going concern, but it was clearer than before that no one is renewing. Bcause was supposed to provide evidence that its trading platform had obtained state money transmitter licenses, but they were empty handed. Bcause had in the meantime addressed its inadequate property insurance.
New problems cropped up during Thursday’s hearing. In opening statements, the attorney for Bcause’s Virginia Beach data center pointed out that, according to the terms of its lease, Bcause is required to provide a $3.4 million letter of credit by August 9. This was a surprise to the court. The landlord was also concerned that Bcause had not installed the fire prevention equipment the lease requires. While Tom Flake, Bcause’s acting CEO, had no response to the missing letter of credit, he did reassure the court that Bcause maintained a “fire watch” pursuant to which the security guard wanders the property every hour and logs it in a manual provided to the fire marshall.
Still, Bcause owes around $12 million to a number of creditors. It says it has a plan to survive and pay them back. With some forbearance from the creditors, Bcause will launch a cryptocurrency trading platform. And it revealed new plans to start mining bitcoin. Together, these businesses will throw off enough revenue to pay everyone back within four and a half years, Bcause says.
Bcause projects that it will cost about $900,000 to launch cryptocurrency trading and break even. It has already signed up about $400,000 of new investment from insiders. It has re-negotiated its contract with the Nasdaq, the technology provider. The new contract includes Bcause paying the amounts in arrears and licensing fees going forward.
SBI Holdings, Bcause’s largest shareholder and largest customer, is going to sell the company 1500 Antminer brand S9 miners at “fire-sale” prices – approximately $225 each. SBI is not using them for mining right now because they have been damaged (“burned-out” in many cases) and need to be repaired. Bcause will repair them, deploy them, and cash in on them. Wesco’s attorney questioned the reasonableness of this new plan. The attorney for the creditors committee, deprecating the trading platform’s potential to make money, fully supports bitcoin mining.
Bcause wants to expand this deal with SBI Holdings to acquire more miners from them and to extend it to St. Bitts. Flake envisions buying used miners from Because’s current customers when their contracts expire. Flake pointed out that this business is profitable with bitcoin at $11,500. In fact, Bcause’s mining business will stay profitable at any bitcoin price above $8,000, according to Flake.
How hard could this be? When was the last time bitcoin was less than $8,000? June 2, 2019.
At any rate, Judge Baer did not find for Wesco on August 8 and continued the proceeding until a final hearing in September. Wesco had argued that Bcause was simply delaying the inevitable. Wesco was not impressed by Bcause’s pivot to bitcoin mining, joking that Bcause’s next recovery plan will include “selling women’s dresses.”
The judge said she is concerned about granting Wesco’s motion because that decision would effectively obliterate the other creditors’ chances to recover anything. On the other hand, Bcause’s plan would tie the creditors’ fortunes to the price of bitcoin. Probably more than a few of them were originally persuaded to do business with Bcause based on the fact that its businesses were insulated from the price of bitcoin.
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