Bitcoin miner Core Scientific issues bankruptcy warning and the stock is down 97% for the year

Core Scientific, one of the largest publicly traded crypto mining companies in the U.S., raised the possibility of bankruptcy in a statement filed with the Securities and Exchange Commission. The company also disclosed that it will not make its debt payments coming due in late Oct. and early Nov.

Core’s stock was down as much as 77% on Thursday following the filing.

Since listing on the Nasdaq through a special purpose acquisition company, or SPAC, Core’s market capitalization has fallen to $90 million, down from a $4.3 billion valuation in July 2021 when the company went public. The stock is now down more than 97% this year. In the event of a bankruptcy, Core says that 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 crunch math equations in order to validate transactions and simultaneously create new tokens. The process requires expensive equipment, some technical know-how, and a lot of electricity.

Core, which primarily mints bitcoin, has seen the price of the token drop from an all-time high above $69,000 in Nov. 2021, to around $20,500. That 70% loss in value, paired with greater competition among miners — and increased energy prices — have compressed its profit margins.

The crypto miner said its “operating performance and liquidity have been severely impacted by the prolonged decrease in the price of bitcoin, the increase in electricity costs,” as well as “the increase in the global bitcoin network hash rate” — a term used to describe the computing power of all miners in the bitcoin network.

The filing also blamed “litigation with Celsius Networks LLC and its affiliates” for Core’s financial struggles. Celsius was once one of the biggest names in the crypto lending space, offering annual returns of nearly 19%, until it filed for bankruptcy this spring.

Despite selling nearly all its bitcoin in June, the company is down to $26.6 million in cash. Though Core self-mines bitcoin to re-stock its own coffers ($770,000 worth of bitcoin on Wednesday), the company still warns it could run out altogether by the end of the year, if not before.

The Austin, Texas-based miner, which has operations in North Dakota, North Carolina, Georgia, and Kentucky, says that it may “seek alternative sources of equity or debt financing.” The company is also considering asset sales, as well as delaying larger capital expenditures, including construction projects.

As for its creditors, Core wrote in the filing that they were free to sue the company for nonpayment, take action with respect to collateral, as well as “electing to accelerate the principal amount of such debt.”

Analysts believe Chapter 11 bankruptcy is a real possibility.

“With the substantial decline in mining rig prices in 2022, we believe there’s a significant chance the creditors holding this debt decide to restructure instead of taking possession of the collateral,” wrote analysts from Compass Point. “Still, without knowing how discussions are going with CORZ’s creditors, we think a scenario where CORZ has to file for Chapter 11 protection has to be taken seriously, especially if BTC prices decline further from current levels.”

Core — which is one of the largest providers of blockchain infrastructure and hosting, as well as one of the largest digital asset miners, in North America — isn’t alone in its struggles. Compute North, which provides hosting services and infrastructure for crypto mining, filed for Chapter 11 bankruptcy in Sept., and at least one other miner, Marathon Digital Holdings, reported an $80 million exposure to the bankrupt mining firm.