Editor’s note: A version of this story first appeared in the February issue of Wenatchee Valley Business World. See more from the publication at wenatcheeworld.com/wvbusiness.
EAST WENATCHEE — In some ways, mining Bitcoin is like drilling for oil.
“If you can’t cover your cost at $50 a barrel, you’re not going to be around long enough to enjoy the $100 a barrel spikes,” said Malachi Salcido, one of North Central Washington’s most prominent cryptocurrency miners.
Bitcoin, the world’s most popular digital currency, has seen its share of dips and spikes over the past decade. In the past year alone the price quintupled, breaking the $50,000 mark for the first time in February
For the few dozen cryptocurrency miners in the Wenatchee Valley, it couldn’t come soon enough. Last January the Douglas County PUD approved a new policy that raises their power rates 10% every six months for five years.
Add on regularly needed technology upgrades and the effects of the COVID-19 pandemic, and some mining operations were looking at much bleaker financial outlooks when the price was still hovering somewhere under $7,500 last year.
“Basically, time was running out for us given that the electricity price was going up. We were getting close to just breaking even; and then luckily, the Bitcoin price shot up. That does put us in the black for now, but there is quite a bit of infrastructure cost that we have to recoup from a year-on-year basis,” said Raymond Walintukan, director of mining operations for Bitmain, which operates a mine in East Wenatchee.
As the price of a cryptocurrency rises, so does the interest from miners of all sizes looking to grab a piece of the pie.
It’s why some mining operations, like Bitmain’s 12-megawatt facility mine near Pangborn Memorial Airport, focus their efforts on mining as fast as possible when the price is low, Walintukan said.
“When the price does go up, more people turn on their machines, so the yield comes down,” he said. “Then, we end up mining less over time, so the best strategy would be to mine as much Bitcoin as you can while the price is low because no one’s mining the coins. Then, you sell it when the price is higher.”
In those low periods they’ll switch out their powerful computers to the latest models to maximize output. That’s an easier proposition for Bitmain — they also manufacture the machines. The Chinese company is one of the world’s largest cryptocurrency hardware producers.
Even so, their mining operation in East Wenatchee spends somewhere between $10 to $30 million a year on new equipment, Walintukan said.
It’s a constant rush to have the latest and greatest computer network, which is needed just to keep pace with the competition, Walintukan said.
“You might yield 10% less Bitcoin every month and that’s just because everybody is buying new machines,” he said. “It’s like an arms race where you have to keep up with it.”
Those machines commonly run 24/7, seven days a week — meaning they frequently need repair and maintenance. For Bitmain, that’s another revenue opportunity.
It ran a repair facility in Malaga for a while before scaling it down as the Bitcoin price fell and the company restructured. The company projects the price will be high enough, and consistent enough, to take another run at a repair operation.
It’s now expanding three repair centers in the country: one on the east coast, one in the center of the U.S. and one in the Wenatchee Valley. Walintukan is already recruiting and training local workers.
Rough estimates say there may be 60,000 cryptocurrency machines in the U.S. that need repair, Walintukan said. Shipping them domestically rather than over to the company’s headquarters in China saves customers time and money, he said.
“Any of those machines that need repair on the western seaboard would come to Wenatchee,” he said.
In 2018, Politico Magazine described the mid-Columbia Basin as a would-be “El Dorado” for the miners that flocked to the area to prospect for digital riches.
Many miners remain but the local industry’s landscape has changed significantly since then, Salcido said.
“At this point, it appears that the kind of wild west, gold-rush stampede phase is over,” he said. “I think that was done probably about a year ago.”
Salcido entered the industry in 2013 and his company Salcido Enterprises now has several facilities in NCW, including Cashmere and East Wenatchee. It’s that scale which has allowed Salcido to maintain through the cycling cryptocurrency prices, he said.
“There will continue to be increased interest but the difference between now and 2016 to 2017, which is when it was really on the radar and consciousness of the general population, is it’s really an economies of scale opportunity,” he said. “People can’t run machines out of their garage so it’s only going to be relatively large and relatively well-established operations that are going to be in the space going forward.”
Salcido expects that consolidation will help the power utilities, keepers of miners’ most valuable resource, get their arms around the industry.
“Now, utilities can continue to execute on their strategy of managing risk for what’s best for the most,” he said. “I would suspect over these next years it gets a lot easier for them to interact with a few relatively large data center-like customers. There’s just a lot less risk.”
And leveling off the explosive growth of the past few years was one of the primary drivers behind Douglas County PUD’s power rate changes in 2020.
“Certainly, we didn’t have an unlimited resource for them; and at that time, and probably now, they would be seeking an unlimited amount of resource to pursue this,” PUD General Manager Gary Ivory said in a January interview.
The PUD had 22 cryptocurrency customers last year compared to 27 the year before. Its revenue from that customer class also dipped from around $7.1 million to $5.6 million.
But with the volatility of the market and the effects of the pandemic, those changes are hardly conclusive. Also, only one of the five year’s worth of power rate increases has gone into effect so far, meaning the long-term effects aren’t fully known.
New cryptocurrency miners or even larger data centers that move to the county seeking power will now need to buy it on the wholesale market rather than the PUD-run Wells Dam.
Existing customers have gone up or down in power usage within their existing contracts, but the PUD has not yet entered into a wholesale contract with a new customer, Ivory said.
“We want businesses and residents in Douglas County to grow and to flourish here for generations to come,” he said. “We hope to be here for generations to come to help that growth happen and if we gave it away to just a few small customers, it just didn’t make sense to our commission or our constituents.”
Salcido’s future growth is all about infrastructure. His facilities support global cryptocurrency networks — as their usage increases, it adds further value to his work.
“People don’t really understand that it’s machines on shelves that make a cryptocurrency network function,” he said. “So our longterm business plan is we would be an operator in the Central Washington region that is one of the locations that elevates the network that runs cryptocurrency that people utilize around the world.”
One recent example is PayPal, which in October announced a new service that allows customers to buy, hold and sell cryptocurrency directly from their PayPal accounts. It can also be used as a funding source at the company’s 26 million merchants.
“The shift to digital forms of currencies is inevitable, bringing with it clear advantages in terms of financial inclusion and access; efficiency, speed and resilience of the payments system; and the ability for governments to disburse funds to citizens quickly,” President and CEO Dan Schulman said in a news release.
Tesla, which is owned by cryptocurrency advocate Elon Musk, this year purchased $1.5 billion in Bitcoin and plans accept the currency as a payment for its products, CNBC reported. The move, and Musk’s outspoken support of cryptocurrencies, has also pushed the coin’s price up.
As consumer use grows, Salcido expects his primary revenue to shift from selling cryptocurrency to the fees that are collected when those consumer transactions happen on the network. It’s comparable to the transaction fees collected by Mastercard or Visa, he said.
While the pandemic has had negative impacts on large swaths of the economy, it’s also pushed many consumers and businesses to embrace digital tools. That helps reinforce the usefulness of a digital currency network, Salcido said.
“It’s accelerated technology adoption so we’ll end up benefiting from that. We are benefiting from that, just in the immediate term that doesn’t translate into dollars that pay the bills,” he said. “... The utilization of cryptocurrency is really just beginning. This is still the very early beginnings of the adoption and lifecycle of cryptocurrency.”
WENATCHEE — A public hearing on homeless housing is likely to occur next month after the Wenatchee City Council asked for an ordinance to help fund a potential sleep center and provide low-barrier housing.
“I think this is a great idea to move forward and I think we really need to get the public’s engagement as much as possible with this,” Councilman Keith Huffaker said at the end of Thursday’s council work session.
Mayor Frank Kuntz, though he conceded he doesn’t get a vote on the matter, said the city would need to partner with one of the ‘three biggies’ — East Wenatchee, Chelan County or Douglas County — for him to be a yes. And the rest of the council seemed to agree.
Kuntz said both Chelan and Douglas counties are not like to partner with the city.
“I have a hard time doing this by ourselves, we need another government entity to do this together,” Kuntz said. “Our best bet is the city of East Wenatchee. (Mayor Jerrilea Crawford) is aware of this conversation and I think those conversations are taking place with their council members — who meet for a work session Feb. 25.”
Kuntz proposed drafting an ordinance for a 1/10 of 1% sales tax contingent on either East Wenatchee or one of the two counties coming together to pool resources and tackle the issue.
“Just like that it makes it so we’re saying ‘we’re here, and we’re looking for a partner,’” Kuntz said. “On Feb. 25 we’ll know.”
Councilwoman Linda Herald opened the discussion by explaining that while the current programs in place for the homeless (Lighthouse Ministries and St. Jude’s Landing) are helping decrease the number of homeless overall, they are not having any impact on the chronically homeless — defined by the U.S. Department of Housing and Urban Development (HUD) as an “individual with a disabling condition who has been continuously homeless for a year or more.”
“There are currently no low-barrier shelters in Chelan or Douglas counties,” Herald said. “And the current shelters won’t admit them simply because they are drug and alcohol addicted and they’re faith-based organizations and will not give them shelter.
“I’ll just say this, the county commissioners for Chelan and Douglas counties have not given us any support on this; they have not taken a look at (House Bill) 1590 — implemented last June, which allows cities to levy a local sales and use tax to provide affordable housing — nor do they intend to.
The councilwoman said most of the chronically homeless population suffers from mental illness and drug and alcohol addiction. “We have a serious problem and it is only going to get worse,” Herald said. “We are not going to be able to walk away from this, we need to do something.”
Wenatchee housing program coordinator Sandra Van Osten said that on any given night in Chelan and Douglas counties, there are 350 or more homeless people — 266 of whom are classified as sheltered and a group of about 84 who are out on the streets.
“About 43 of those are chronically homeless, and that’s the group that is most vulnerable to disabilities or health issues and have lived for extended periods on the street,” she said. “Those are the most visible groups in the community. And due to some recent rulings (Martin v. City of Boise), law enforcement has their hands tied. Unless there is a viable low barrier option available, it’s unconstitutional to (forcefully remove or arrest them).”
Wenatchee Police Chief Steve Crown echoed those sentiments, saying that using the criminal justice system to deal with homelessness is like slapping a Band-Aid on the problem.
“It’s highly expensive and not efficient,” he said. “We feel really strongly that sleep centers — like the ones in Moses Lake and Walla Walla — are the best solution for that short period where we are trying to get them into additional programs and get them into that next level of stable housing around the city,” the chief said.
“It helps us do the humanitarian things; getting them to a place where they can try to get some sleep, wake up the next morning and then that is where wraparound services need to be ready to go and be aggressive about it.
“We have too many service providers expecting people to walk in the door or pick up a phone. We cannot approach homelessness in that fashion, it is a loser every day of the week.”
EAST WENATCHEE — Wenatchee Valley’s two fire districts are expected to be run by the same chief over the next year, during which time they’ll explore the feasibility of a merger.
Douglas County Fire District 2 commissioners signed an authorization Thursday that allows the district to negotiate with Chelan County Fire District 1 in hopes that its chief, Brian Brett, will lead both districts.
“It’s pretty much in the attorney’s hands to draft up a contract,” said Commissioner Dave Fennell while discussing the next step of the process in an interview. He added, “I would definitely say we’re moving forward.”
The eastside fire district is in a transitional phase after the commission fired Chief Dave Baker in late November for an unspecified difference in philosophies in regard to the district’s future. The district is currently led by interim Chief John Glenn.
Brett was an assistant chief with Douglas County Fire District 2 before crossing the Columbia River in 2018 to join Chelan County Fire District 1 as its heir apparent to retiring Chief Mike Burnett. He was named chief in 2019.
“We want a district that dominates every incident we respond to and, however this turns out, that is the kind of attitude and preparedness level we aspire to for both districts to have the capabilities to accomplish,” Brett said at the meeting.
He said he was honored to potentially help lead his former employer and that he could help lead administrative work.
“All I can offer you is to work on budgeting, planning and forecasting in the near term and to build a team,” Brett said. “Operationally, things are going to be static or improve slowly.”
Douglas County Fire District 2’s territory roughly runs from East Wenatchee to Rock Island, while its counterpart, Chelan County Fire District 1, covers Sunnyslope to Malaga and into Wenatchee Heights.
Brett, presuming the motion will be approved, asked for patience in the near-term as firefighters adapt to change and added that some will have a heavier workload, particularly if commissioners want to combine the districts into a regional fire authority (RFA).
“If you want to examine the feasibility of an RFA, these are the short-term sacrifices we have to make,” Brett said. “At any point during this process we can stop with the feasibility, rebuild your administration and I can return to Chelan County 1. We are here to assist and help, not to impose.”
Wenatchee Valley fire officials last discussed a regional fire authority in 2012 but costs were deemed too high for the would-be merger of Douglas County Fire District 2, Chelan County Fire District 1 and the Wenatchee Fire Department. The Wenatchee Fire Department was annexed into Chelan County Fire District 1 in 2015.
Fennell, cautioning that he didn’t live in the area in 2012, said the districts are financially more stable now to make a merger realistic. And the districts often respond together to the same incident.
“I think the overall feeling across the valley is we run so many calls together, it just makes sense,” Fennell said.
Fennell wasn’t sure when the agreement to bring in Brett would be finalized, but he hoped it would be done soon.
When asked if the potential was part of the differing philosophies that led to Baker’s termination, Fennell said it “certainly was not part of any decision that had to do with him.”