Greenwashing

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You have only to scan Molly White's Web3 is Going Just Great to realize that you will never find a more wretched hive of scum and villainy than the cryptosphere. Everywhere you look you find lies, grift, fraud, and theft. Below the fold I discuss the latest example, in which a coal company marketing itself as "zero-carbon Bitcoin mining" is just the start.

The legal way to make money from the wretched hives of scum and villainy in the markets is selling short. Recently, a startup called Hunterbrook has developed an innovative business model for doing so. Matt Levine explains:

Hunterbrook hit upon a differentiated media business model:

1. They would start a newsroom (Hunterbrook Media) to publish general news and investigative journalism.
2. There’s no paywall and no advertising.
3. But before each investigative piece is published, the newsroom would send it to Hunterbrook’s affiliated hedge fund (Hunterbrook Capital), which could trade on the news.
4. The hedge fund’s trading profits can — they hope! — pay the journalists’ salaries.

One way to think of this business model is that Hunterbrook is essentially an activist short-selling hedge fund, like Hindenburg Research: It investigates companies, finds problems, shorts the companies, and then noisily publishes its investigation to draw attention to the problems. But whereas Hindenburg is straightforwardly a short-selling firm, Hunterbrook’s news site is at least theoretically independent of its hedge fund, and if it publishes enough good general news then perhaps it can become more widely read and trusted — and have more stock-price impact — than a pure hedge fund.

Hunterbrook's latest investigation is entitled COAL, CRYPTO, AND FALSE BRANDING: INSIDE TERAWULF’S GREENWASHING MACHINE. Here is Terawulf's pitch:

The future is #ZeroCarbon ♻️⚡️ and $WULF is ahead of the curve.#Bitcoin #BitcoinMining #SustainableMining pic.twitter.com/3aq4OipWld

— TeraWulf (@TeraWulfInc) February 28, 2024

Hunterbrook reveals that Terawulf's claim to run on renewable power is false:

• TeraWulf Inc. (NASDAQ: $WULF) brands itself as a “zero-carbon Bitcoin miner” — and claims its commitment to renewable energy will help it land AI data center contracts. But the New York Power Authority, which supplies 45% of the facility’s energy, told Hunterbrook Media: “None of the power that NYPA provides the firm can be claimed as renewable power.”
• The rest of TeraWulf’s power is sourced from the New York grid, which is less than half zero-carbon, according to the New York Independent System Operator, the organization responsible for managing the state’s wholesale electric marketplace.
• The only way TeraWulf can legally substantiate its zero-carbon claims is by purchasing renewable energy credits (RECs), according to New York and federal regulators, but a TeraWulf spokesperson confirmed that the company has not done so. “Without the REC, there is no legal claim to the renewable attributes of electricity,” a spokesperson for the New York State Energy Research and Development Authority confirmed in an email to Hunterbrook.

But lying about renewables is just the tip of the iceberg. Hunterbrook reports that they lied to get permits:

The team behind TeraWulf promised New York State that it was “not targeting bitcoin or any other cyber currency” in a 2019 application for its facilities seen by Hunterbrook, despite seizing on the idea of bitcoin mining as a strategy as early as 2018.

Hunterbrook is skeptical about Terawulf's commitment to zero-carbon mining because:

The company’s management team, including CEO Paul Prager, trace their roots to Beowulf Energy LLC, an operator of fossil fuel plants that previously revived a struggling coal plant to mine bitcoin. The same TeraWulf executives who claim TeraWulf’s mining is zero-carbon likely continue to manage this coal plant.

Prager apparently has a lavish lifestyle:

Prager has been known to split his time between a “five-bedroom Fifth Avenue co-op” in Manhattan and a sprawling 250-acre estate on Maryland’s Eastern Shore, according to a 2021 profile in Washingtonian. This estate, called Maiden Point Farm, is described as “more like a small village with 20 structures,” including a “main house, English-style gardens, a pool, a tennis pavilion, a squash court,” and even a private gas station for his car collection, which includes multiple Ferraris.

How is this funded?:

Hunterbrook’s analysis of the company’s SEC filings shows TeraWulf’s operations are deeply entwined with a constellation of entities under Prager’s control, making it difficult to discern where TeraWulf ends and Prager’s other interests begin.

Beowulf Electricity & Data, a company owned and controlled by Prager, provides TeraWulf with “infrastructure, construction, operations and maintenance and administrative services necessary to build out and operate certain Bitcoin mining centers” — functions that TeraWulf claims are “readily available from independent entities.”

In 2023, TeraWulf paid $20.3 million to Beowulf for these services, representing 38% of TeraWulf’s combined operating and administrative expenses. It also accounted for more than half of the company’s $29.4 million operating loss for the year. The trend continued into 2024, with TeraWulf recognizing $3.5 million in related party expenses in the first quarter alone, amounting to 21% of its operating and administrative expenses for the quarter.

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Prager apears to have another way to fund his lifestyle:

In recent years, Prager has received a significant quantity of TeraWulf shares — through both the related party transactions and financial activities. And in an open letter published early in 2023, he shared that he hadn’t “sold a share” as “evidence of my conviction.” But since mid-2023, Prager has significantly reduced his claimed ownership of the company through a series of stock disposals.

His reported ownership has dwindled, with his holdings falling to around 10 million shares compared to more than 30 million shares in 2023.

Executives of Bitcoin miners have a history of looting their companies. Two years ago Paul Butler wrote in The problem with bitcoin miners:

There’s one group of people for whom bitcoin mining is an extremely lucrative business: executives. Last year, one MARA executive earned over $220 million in cash and stock-based compensation, in a year when the company’s total revenue was $150 million. RIOT’s top five executives collectively took home a more modest $90 million in a year with a net loss.

How was this possible?::

This, I think, points to the crux of the problem. Investors have been happy to provide capital to these companies, looking for anything in the public markets that provides some exposure to bitcoin, without paying much attention to what the companies are doing.

I don’t think it ends well.

It certianly looks like everyone except Hunterbrook wasn't "paying much attention to what the companies are doing".

Like many miners in the wake of One Heck Of A Halvening, Terawulf is trying to pivot to AI. Hunterbrook notes that:

TeraWulf has not resisted the hype, with the management team suggesting it could land a similar deal. CFO Fleury specified in an earnings call earlier this year that, by leasing out all of the 300 available megawatts at Lake Mariner, the company could bring in $300 million to $450 million in hosting revenues a year. TeraWulf’s revenue last year was $69 million.

But this won't happen any time soon:

TeraWulf doesn’t yet have AI-ready facilities, unlike competitors who made the switch to HPC data center hosting years ago. But TeraWulf announced it is on track to build a 2 MW experimental AI data center by the third quarter of this year and plans to build another 20 MW data center with a target completion date of the end of 2024.

I have only hit the highlights of Hunterbrook's work, you should go read the whole thing.