The world’s largest Bitcoin miner, Core Scientific (CORZ), has warned that it may file for bankruptcy, citing difficult financial conditions. With this announcement, the company’s shares have dropped significantly, down 77% to trade t at 23 U.S. cents per share.
By Wednesday, October 26, Core Scientific held 24 BTC (almost $495,000 at current BTC prices) and approximately $26.6 million in cash. According to the company, this is a significantly diminishing account compared to its position on September 30, 2022, when it recorded 1,051 BTC (around $21.6 million) and $29.5 million in cash.
CORZ attributes the depleted reserve to its actions offloading more than it is mining, all towards meeting costs. For instance, in July, the company had to unload more than 7,000 BTC to support its balance sheet. Expressing this on the Thursday morning announcement:
“It is tough to estimate our future liquidity requirements, but we anticipate that existing cash resources will be depleted by the end of 2022 or sooner.”
Core Scientific has expressed anticipation for the depletion of its existing cash resources by December 2022 as the industry’s myriad pressures continue to drain its cash resources. The miner said in a Thursday filing:
“Substantial doubt exists about the company’s ability to continue as a going concern for a reasonable period. While exploring several options, we may not be able to pay any of our debts due over the next few days.”
The Austin, TX-based company will therefore be unable to make payments for some of its mining infrastructure and related financing due late October and early November 2022. When this happens, Core Scientific notes that creditors could choose to sue the miner for non-payment or resolve to claim their assets as collateral.
Boutique investment firm Compass Point has, however, opined on the matter, noting that with the significant decline in mining rig prices this year, there exists a substantial chance that Core Scientific’s creditors may settle for restructuring as opposed to confiscating the miner’s assets as collateral. Nonetheless, the investment firm cautioned on the likelihood of filing for bankruptcy if Bitcoin prices continue to plummet. The statement read:
“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.”
Financial Services Company BTIG weighed in on the matter, saying that it expects that such liquidity overhung may pose a hurdle against CORZ, preventing it from expanding its hash capacity. Should this happen, it would slow down Core Scientific’s ability to bag new hosting customers. Ultimately, this would cloud the company’s possibilities for growth, especially for its short-term goals.
Bitcoin Mining Industry Under Depression
Bitcoin’s market value has slumped since the all-time high of almost $70,000 recorded in November 2021. The flagship crypto dropped to under $20,000 in June 2022 and has since struggled to maintain above water, stubbornly hanging around the $20K region. This is evidence that miners are struggling to break even.
The difficulties facing Core Scientific reflect the debilitated state of the bitcoin mining industry. As it stands, firms are already pressed between the high cost of electricity and plummeting BTC prices. Following the announcement of possible bankruptcy, shares in S, the Nasdaq-listed business, went down 70% in early trading on Thursday, October 27, according to NASDAQ data. At press time, Bitcoin is trading at $20,576 on CoinGecko.
CORZ is not alone in this state of depression, given that market rivals like Compute North have already thrown in the towel. In September, Computer North filed for bankruptcy with debts totaling as much as $500 million owed to more than 200 creditors.
Besides the prolonged decrease in BTC price and the increase in electricity costs, CORZ also cited an increase in the global bitcoin network hash rate and the litigation with Celsius as additional reasons for its current state. According to court documents filed earlier this month, Celsius owes CORZ millions of dollars in unpaid electricity tariffs. In the court filing, Core Scientific disclosed that it loses almost $53,000 daily in covering what the bankrupt crypto lender has declined to pay.
According to Core Scientific, filing for bankruptcy will be the last resort if the move to raise capital proves unsuccessful.