decrypt.co
Texas crowdfunding platform EnergyFunders has started selling equity shares of Bitcoin mining operations through its Bitcoin Discovery Fund.
According to an SEC filing submitted yesterday, the company will sell equity in Bitcoin mining operations attached to off-grid natural gas mining rigs for $5,000 per share. The company said in the filing it will sell up to $10 million worth of shares.
That means investors can fund the Bitcoin mining for a minimum $5,000 investment and receive monthly payouts.
If Bitcoin stays within the $45,000 price range, EnergyFunders estimates investors will see returns “above 100%.” The mined Bitcoin will be distributed among investors each month, in either U.S. dollars or Bitcoin.
The first Bitcoin miner, a 1-megawatt rig, got turned on yesterday in Bee County, Texas, EnergyFunders CEO Laura Pommer, told Decrypt. She pitched it to the team at EnergyFunders as a way to monetize stranded wells, which are not hooked up to the electrical grid.
“Of course, they’re like, ‘Hell yeah.’ So we started down that path and quickly discovered that mining Bitcoin is actually fairly complicated,” she said, “Which is fine, you know. Oil and gas people never shy away from complicated operations. It's sort of our bread and butter, actually.”
EnergyFunders launched in 2015 as a crowdfunding platform to match accredited investors with independent oil and gas producers. In 2018, the company became a FINRA-approved crowdfunding platform and was able to start allowing non-accredited investors to participate in funding opportunities.
Being a regulated crowdfunding platform is an important detail here, since the fractionalized Bitcoin mining operations might otherwise run afoul of the SEC’s “Howey Test.”
The test was established by a 1946 court ruling against a Florida farmer, William John Howey, who sold shares of his citrus grove with the promise of sharing future profits with investors. Since then, three main keys from the case have been used to determine what qualifies as a security. Generally, when money or some other property is being pooled with the expectation that it will generate profit for investors through no effort of their own, then it’s a security.
SEC Commissioner Hester Pierce has long said she thinks the Howey Test runs the risk of being too strict in how it’s applied to crypto projects.
“I think it’s really making it impossible for a project to get started without falling into that Howey definition,” she told Decrypt in 2020, adding that the test has “been a quite useful framework for us to think about whether an investment contract is, in fact, a security. But it does lead to some really interesting questions about whether things that none of us might have thought are securities actually are securities.”
But EnergyFunders was able to register its Bitcoin Discovery Fund under a Rule 506(c) exemption, which is specifically for crowdfunding.
It’s the same reason Republic, which is a registered crowdfunding platform, has been able to offer what it calls “Security NFTs” that entitle buyers to a portion of an artist’s song royalties. In that case, the music artists are funding their careers by sharing the profits with NFT owners.
Pommer said the same works for Bitcoin mining.
“We have a few SEC attorneys who helped set this up. The crowdfunding status has been around for years and it’s totally above board” Pommer said. “So changing from selling fractionalized ownership of an oil and gas well to a Bitcoin mine is really no difference.”