Crypto meltdown: one of the world’s largest Bitcoin miners was one step away from bankruptcy

Core Scientific, a Wall Street-listed company, was hurt by the falling price and rising cost of electricity. It follows the failures of FTX, Three Arrows Capital and Celsius.

Bitcoin winter claimed another victim, now the largest mining company in the U.S. (Reuters)

Core Scientific, one of New york’s largest publicly traded cryptocurrency mining companies, said it filed for Chapter 11 bankruptcy protection, the latest in a string of failures affecting the industry.

The Austin, Texas-based company attributed its bankruptcy to falling Bitcoin prices, rising mining energy costs and an unpaid debt of USD 7 million from U.S. cryptocurrency lender Celsius Network, one of its largest customers.

Core Scientific declared in court that it had suffered a net loss of USD 434.8 million in the quarter ended September 30, 2022, and that it had only USD 4 million of liquidity at the time of filing for bankruptcy.

The company hired restructuring advisors in October and has since initiated negotiations with its creditors on a possible bankruptcy filing.

This year, the crypto ecosystem lost more than $1 trillion in value, and rising interest rates in the United States exacerbated fears of an economic downturn. The slump wiped out key players in the sector, such as cryptocurrency hedge fund Three Arrows Capital and the firm Celsius.

The biggest blow came after major cryptocurrency exchange FTX filed for bankruptcy last month. Its rapid fall prompted harsh regulatory scrutiny over how cryptocurrencies hold funds and conduct business operations.

Mining companies depend on the value of electricity and the price of Bitcoin to be profitable

After rapid growth in 2020 and 2021, Bitcoin – by far the most popular digital currency – fell by more than 60% this year, putting pressure on the cryptocurrency mining sector.

Processing Bitcoin transactions and “mining” new tokens is done by powerful computers connected to a global network, competing against each other to solve complex mathematical puzzles. But the business has become less profitable as the price of Bitcoin fell while energy costs soared in the wake of Russia’s invasion of Ukraine.

Celsius, which filed for Chapter 11 bankruptcy in July, owns several pieces of Bitcoin mining equipment housed at the Core Scientific facility. Celsius’ bankruptcy prevented Core Scientific from collecting the higher electricity bills the company is racking up at a rate of USD 900,000 a month, according to court filings.

Core Scientific said it will not liquidate the company and intends to pursue a restructuring backed by creditors holding more than 50% of the company’s convertible bonds.

Those creditors agreed to contribute up to $56 million in debtor-in-possession financing, and the convertible bondholders would ultimately hold 97% of Core Scientific’s shares if the restructuring is approved in court.

The company’s stock lost approximately 98% of its value so far in 2022, reducing its market capitalization to about USD 78 million. In its bankruptcy petition, Core Scientific said it has between USD 1 billion and USD 10 billion in assets and liabilities, and between 1,000 and 5,000 creditors.

Core Scientific went public in 2021 in a deal that at the time valued the miner at USD4.3 billion.

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