US bitcoin miner Core Scientific files for bankruptcy

One of the largest US-listed bitcoin miners has filed for bankruptcy as companies battle falling token prices and rising costs for the energy-intensive business of churning out cryptocurrencies.

Core Scientific filed for Chapter 11 bankruptcy protection in Texas, where it is based, on Wednesday. The company said it planned to keep operating and producing bitcoin while it hammered out a restructuring deal with its lenders and creditors.

The Nasdaq-listed crypto miner is a constituent of the Russell 2000 Index, a widely held benchmark of smaller US companies, meaning its bankruptcy will hit the portfolios of many investors and deepen the woes of the crypto industry.

Its market value reached almost $3bn in April but has since fallen to less than $100mn, according to FactSet data.

Line chart of market value ($mn) showing the rise and fall of Core Scientific

The company operated facilities in five US states where computers churn through complex equations in a race against other bitcoin network participants to create new units of the cryptocurrency.

It is one of several listed crypto miners whose stock has been hit as their profits are squeezed between tumbling prices for crypto tokens and rising global prices for the vast amounts of energy burnt in the mining process.

Core Scientific began trading in January following a deal with a special purpose acquisition company backed by BlackRock. Its stock is down 98 per cent this year.

The company said the bankruptcy filing “was necessitated by a decline in the company’s operating performance and liquidity suffering from the prolonged decrease in the price of bitcoin, the increase in electricity costs . . . and the failure by certain of its hosting customers to honour their payment obligations”.

Core also suffered from the bankruptcy of crypto lender Celsius Network, which collapsed in the summer. The two companies have been locked in a dispute over hosting services Core provided to Celsius, which added to the miner’s financial strains.

The price of bitcoin, the largest cryptocurrency, has fallen more than 65 per cent this year against the dollar, hitting two-year lows. London-listed miner Argo Blockchain has shed 97 per cent this year. Valkyrie Bitcoin Miners ETF, which tracks a portfolio of listed miners, has fallen about 80 per cent since it launched in February.

Core has up to 5,000 creditors and between $1bn and $10bn in assets and liabilities, according to court filings. The company owes about $73mn to its 30 largest unsecured creditors, including unpaid taxes and energy suppliers. Its largest unsecured claim is $42mn owed to financial group B Riley, a lender to the crypto miner.

In a public letter last week, B Riley said Core Scientific had borrowed hundreds of millions of dollars as part of “an aggressive, ill-conceived strategy by the company to continue to build out power facilities and expand”. 

“These loans were made when the price of bitcoin was significantly higher than it is today and the theoretical pay-off on miners was significantly faster,” chair Bryant Riley said.

Michael Bros, senior vice-president of Core, said the company “disagreed” with Riley’s letter, according to a statement filed in court.


Business Asia
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