A row of bitcoin mining units in a container at a Cleanspark facility in College Park, Georgia, on Friday April 22, 2022.
Elijah Nouvelage | Bloomberg | Getty Images
Core Scientific, one of the largest publicly traded crypto mining companies in the US, has raised the possibility of bankruptcy in a statement filed with the Securities and Exchange Commission. The company also announced that it will default on its debt payments due in late October and early November.
Core stock was down as much as 77% Thursday after the filing.
Since listing on Nasdaq through a Special Purpose Acquisition Company (SPAC), Core’s market capitalization has fallen to $90 million, compared to a valuation of $4.3 billion in July 2021, when the company at the stock market went. The stock is now down more than 97% this year. In the event of bankruptcy, Core says, holders of its common stock could suffer “a total loss of their investment.”
Core Scientific mines for proof-of-work cryptocurrencies like Bitcoin. The process involves powering data centers across the country, packed with highly specialized computers that process mathematical equations to validate transactions while creating new tokens. The process requires expensive equipment, some technical know-how, and a lot of electricity.
For Core, which mostly mints Bitcoin, the token’s price has fallen to around $20,500 from an all-time high above $69,000 in November 2021. That 70% drop in value, coupled with increased competition among miners — and increased energy prices — has weighed it down profit margins.
The crypto miner said its “operational performance and liquidity have been severely impacted by the ongoing decline in the price of bitcoin, the increase in electricity costs” as well as “the increase in the global hash rate of the bitcoin network” — a term that has been used been describe the computing power of all miners in the Bitcoin network.
The filing also blamed “litigation with Celsius Networks LLC and its subsidiaries” for Core’s financial woes. Celsius was once one of the biggest names in crypto lending, offering annual returns of nearly 19% until it filed for bankruptcy this spring.
Although the company sold nearly all of its bitcoins in June, it’s down to $26.6 million in cash. Although Core itself mines Bitcoin to fill its own coffers (Bitcoin worth $770,000 on Wednesday), the company nevertheless warns that it could be fully phased out by the end of the year, if not sooner.
The Austin, Texas-based miner, who has operations in North Dakota, North Carolina, Georgia and Kentucky, says it may “look at alternative sources of equity or debt financing.” The company is also considering selling assets and delaying major capital expenditures, including construction projects.
Regarding its creditors, Core wrote in the filing that they are free to sue the company for non-payment, take action regarding collateral, and “Decision to accelerate the principal balance of this debt.”
Analysts say Chapter 11 bankruptcy is a real possibility.
“Given the significant decline in mining asset prices in 2022, we believe the creditors holding this debt have a significant opportunity to choose to restructure rather than take possession of the collateral,” analysts at Compass Point wrote . “However, without knowing how discussions with CORZ’s creditors are progressing, we think that a scenario in which CORZ has to file for Chapter 11 protection must be taken seriously, especially if BTC prices continue to fall from current levels. “
Core — one of the largest blockchain infrastructure and hosting providers, as well as one of the largest digital asset miners in North America — is not alone in its struggles. Compute North, which provides hosting services and infrastructure for crypto mining, filed for Chapter 11 bankruptcy in September, and at least one other miner, Marathon Digital Holdings, reported an $80 million exposure to the bankrupt mining company -Company.