Bitcoin miner Core Scientific files for bankruptcy and will continue mining

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Core Scientific’s 104-megawatt bitcoin mining data center in Marble, NC

Carey McKelvey

Core Scientific, one of the largest publicly traded crypto mining companies in the United States, is filing for Chapter 11 bankruptcy protection in Texas early Wednesday morning, according to a person familiar with the company’s finances. The move follows a year of falling cryptocurrency prices and rising energy prices.

Core Scientific mines proof-of-work cryptocurrencies like bitcoin. The process involves powering data centers across the country filled with highly specialized computers that process mathematical equations to validate transactions and simultaneously create new tokens. The process requires expensive equipment, some technical know-how and a lot of electricity.

Core’s market capitalization had fallen to $78 million at the end of Tuesday’s session, down from a valuation of $4.3 billion in July 2021 when the company went public via a special-purpose acquisition vehicle. or SPAC. The stock has fallen more than 98% in the past year.

The company is still generating positive cash flow, but that cash isn’t enough to pay off financing debt owed on equipment it was leasing, according to a person familiar with the company’s situation. The company will not be liquidated, but will continue to operate as normal while reaching an agreement with senior security noteholders, who hold the bulk of the company’s debt, according to this person, who declined to be named for discuss confidential company matters.

Core previously said in a filing in October that holders of its common stock could suffer “a total loss of their investment,” but that may not be the case if the broader industry recovers. The deal with Core’s convertible note holders is structured in such a way that if, in fact, bitcoin’s trading environment improves, common stock holders might not be totally wiped out. The company also disclosed that it would not repay its debts in late October and early November and said creditors were free to sue the company for nonpayment.

Core, which primarily mints bitcoin, saw the token’s price drop from an all-time high above $69,000 in November 2021 to around $16,800. This loss in value, coupled with increased competition among miners and rising energy prices, squeezed its profit margins. .

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The Austin, Texas-based miner, which operates in North Dakota, North Carolina, Georgia and Kentucky, said in its October filing that “operating performance and liquidity were severely affected by the prolonged decline in the price of bitcoin, rising electricity costs”, as well as “the increase in the hash rate of the global bitcoin network”, a term used to describe the computing power of all miners of the bitcoin network.

Crypto lender Celsius, which filed for bankruptcy protection in July, was a primary customer. When Celsius’ debts were wiped out during its bankruptcy proceedings, it strained Core’s balance sheet, in another example of the contagion effect that rippled through the crypto industry. This year.

Core, which is 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 fellow miner Marathon Digital Holdings reported exposure of $80 million. at Compute North.

Meanwhile, Greenidge Generation, a vertically integrated crypto miner, reported second-quarter net losses of more than $100 million in August and paused plans to expand into Texas. And Argo shares fell 60% after it announced on Oct. 31 that its plan to raise $27 million from a “strategic investor” no longer existed.

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