Written by 1:37 pm Bitcoin

Bitcoin miner Core Scientific files for bankruptcy

Publicly traded bitcoin mining company Core Scientific (CORZ) filed for Chapter 11 bankruptcy protection in a federal bankruptcy court in the Southern District of Texas early Wednesday morning.

The bankruptcy petition, according to the company’s announcement, resulted from a combination of a declining bitcoin price, rising electricity costs needed to power its data centers and “failure by certain of its hosting customers to honor their payment obligations.”

The bitcoin specific data processing and hosting company said in its Chapter 11 petition it has between $1 and $10 billion in estimated assets and liabilities, between 1,000 to 5,000 creditors, and its funds are available for distribution to unsecured creditors.

Shares of Core Scientific were down more than 25% in pre-market trade on Wednesday.

Core Scientific went public through a SPAC merger in April 2021. By November of 2021, shares had closed as high as $14.32 per share. The stock has dropped more than 98% this year.

Bitcoin has sold off by 65% this year, and Bitcoin mining companies have been hit especially hard, with surging energy prices also weighing on operations. Another major Texas based bitcoin mining operator, Compute North, filed for bankruptcy in September, owing as much as $500 million to at least 200 creditors.

On October 26, Core Scientific showed clear signs of duress, announcing in a filing with the SEC it would not make debt payments due in October and November. Within the next 24 hours, its stock fell by more than 76%. In recent months, Core Scientific shares have traded as a penny stock, floating between twenty and fourty cents per share.

Workers install a new row of Bitcoin mining machines at the Whinstone US Bitcoin mining facility in Rockdale, Texas, on October 9, 2021. - The long sheds at North America's largest bitcoin mine look endless in the Texas sun, packed with the type of machines that have helped the US to become the new global hub for the digital currency. The operation in the quiet town of Rockdale was part of an already bustling US business -- now boosted by Beijing's intensified crypto crackdown that has pushed the industry west. Experts say rule of law and cheap electricity in the US are a draw for bitcoin miners, whose energy-gulping computers race to unlock units of the currency.

Workers install a new row of Bitcoin mining machines at the Whinstone US Bitcoin mining facility in Rockdale, Texas, on October 9, 2021. (Photo by Mark Felix / AFP) (Photo by MARK FELIX/AFP /AFP via Getty Images)

The company has also gotten tied up in the ongoing bankruptcies of Celsius Network and BlockFi, with Core alleging the company was losing nearly $2 million a month following Celsius’ Chapter 11 filing, while BlockFi emerged in the fall as a creditor to Core, on the hook for up to $60 million in loans.

During its chapter 11 process, Core Scientific plans to continue operating its own bitcoin mining and hosting business “which remain significantly cash flow positive on a debt-free basis,” according to its bankruptcy release.

As part of the company’s restructuring, Core has also assembled a “Ad Hoc Noteholder Group” that has agreed to commit up to $75 million in loans through a “debtor-in-possession” facility. Those loans, in addition to daily bitcoin mining profits, will finance the company’s restructuring.

Distress among Bitcoin mining firms has been a consistent contributor to the largerst cryptocurrency’s sell off according to Matthew Sigel, head of digital assets with financial product issuer, VanEck. This miner lead selling is likely continue into 2023 says Sigel.

“We think it’s possible, and possibly likely that Bitcoin will test the $10,000 to $12,000 level amidst a wave of [bitcoin] miner bankruptcies,” Sigel said in a recent press briefing.

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