The Valuation of Crypto Currency Mining Property Under 11 U.S.C. § 506(a)(1)

(Excerpt) Section 506(a)(1) of title 11 of the United States Code (the "Bankruptcy Code") provides that a secured creditor's claim is "a secured claim to the extent of the value of such creditor's interest in the estate's interest in such property . . . and is an unsecured claim to the extent that the value of such creditor's interest . . . is less than the amount of such allowed claim." The valuation of collateral is determined "in light of the purpose of the valuation and of the proposed disposition or use of such property." However, the Bankruptcy Code is silent on which valuation method courts should employ. The United States Court of Appeals for the Third Circuit noted in In re Heritage Highgate, Inc. that "Congress envisioned a flexible approach to valuation whereby bankruptcy courts would choose the standard that best fits the circumstances of a particular case." The Supreme Court elaborated in Associates Commercial Corp. v. Rash that the lower courts must evaluate the "actual" use of the property by the debtor in its valuation analysis. This article analyzes the valuation of crypto currency mining assets under section 506(a)(1) in bankruptcy cases. The nature of crypto currency mining provides unique challenges in the valuation step. The mining process requires hundreds of sophisticated “miners,” potentially costing over $10,000 each, and requiring significant energy resources that are usually provided by individualized agreements with public and private utilities. Part I of this article discusses the valuation of special use property. Part II discusses potential valuation methods available to the court.