Nasdaq-listed crypto mining company Core Scientific has disclosed its financial struggle in a filing with the Securities and Exchange Commission (SEC), raising concerns about the possibility of bankruptcy. Core Scientific said that if it went bankrupt, stock investors could face “a total loss of their investment.”
“The Company anticipates that existing cash resources will be depleted by the end of 2022 or sooner,” Core Scientific said. “Given the uncertainty regarding the Company’s financial condition, substantial doubt exists about the Company’s ability to continue as a going concern for a reasonable period of time.”
#Bitcoin miners continue to feel the effects of increasing hash rate & difficulty in conjunction with a lower BTC price.— On-Chain College (@OnChainCollege) October 27, 2022
The longer BTC stays under these circumstances, the higher the probability for more stories like this. https://t.co/TXmOWMNymS
Several factors play into the company’s financial issue, including BTC’s low price, rising energy costs, increased global BTC hash rate and litigation with Celsius. BTC has lost more than 70 percent of its value this year, dropping from its all-time high in November to around $20,500.
The rising costs of electricity led to an increase in operational costs at the company’s Austin site. Higher global competition also increases the difficulty in BTC mining, while the hash rate affects the profit margin for the miners.
Core Scientific’s litigation issue with Celsius is caused by the bankrupt crypto lender’s refusal to pay its bills to the company for its blockchain infrastructure and hosting services, per a court filing on October 19. The crypto mining company claimed that prior to Celsius’ Chapter 11 filing, it owed Core Scientific around $2.1 million. Celsius has countered the claim, saying that Core Scientific did not fulfill its power supply and rig deployment obligations.
After the SEC filing, the company’s stock went down 77 percent on Thursday. In 2022, the crypto miner’s stock dropped more than 97 percent. Core Scientific went public in July 2021 at a $4.3 billion market capitalization. Per October, the value went down to $90 million.
Today’s $CORZ daily self-mined #Bitcoin for the last reported 24-hour period: 37.8 pic.twitter.com/qVVNWXEYBi— Core Scientific (@Core_Scientific) October 26, 2022
In the filing, Core Scientific also said it would only be able to pay debts that are due next week. It acknowledged the possibility of creditors seeking remedies, like suing the company or accelerating the debts. The crypto company warned that it could lead to “events of default under the Company’s other indebtedness agreements.” Core Scientific reportedly considers debt refinancing options to address potential issues with creditors.
Core Scientific took some other actions to address its financial difficulty. The company sold most of its BTC tokens, depleting its reserve from 8,058 in May to 24 in October. It also formed an equity line of credit agreement with B. Riley, resulting in a $20.7 million boost. The miner recently appointed its seventh director, Neal Goldman, to its leadership board.
Analysts said that the chance of Core Scientific filing for Chapter 11 was high, especially if BTC prices saw a further plunge. Nevertheless, some creditors might look to restructure the debts instead of taking the collateral due to a significant decline in the prices of mining rigs.
Bitcoin's production cost floor is rising, currently at $17K. At what other times did we see a similar rising cost basis? pic.twitter.com/nhieUDTk87— Charles Edwards (@caprioleio) October 17, 2022
Another bankruptcy case
The crypto mining industry experienced a massive slump in recent months. Before Core Scientific went public with its financial struggle, another major miner, Compute North, had filed for bankruptcy protection. Like Core, Compute North also cited high operational costs and tight competition as reasons for bankruptcy.
According to its bankruptcy filing, the Texan-based company owed a total of $500 million to 200 creditors. Compute North’s bankruptcy affected the crypto-mining sector since it also provided infrastructure for other miners. Marathon Digital Holdings, a digital asset miner, had an $80 million tie to the defunct mining company.