Core Scientific files for bankruptcy as crypto winter bite

DEC 21 (Reuters) – Core Scientific Inc (CORZ.O), one of the largest publicly traded cryptocurrency mining companies in the United States, announced on Wednesday that it had filed for Chapter 11 bankruptcy protection, the latest in a series defaults sector.

Austin, Texas-based Core Scientific attributed its bankruptcy to falling bitcoin prices, rising energy costs for bitcoin mining, and a $7 million unpaid debt from US crypto lender Celsius Network, one of its largest customers, back.

Core Scientific said in court filings that it suffered a net loss of $434.8 million for the three months ended September 30, 2022 and had only $4 million in cash at the time it filed for bankruptcy.

The company hired restructuring consultants in October and has since been negotiating with creditors about a possible application for insolvency.

More than $1 trillion in value has been wiped out of the crypto sector this year as rising interest rates exacerbate worries of an economic downturn. The crash eliminated key industry players like crypto hedge fund Three Arrows Capital and Celsius.

The biggest blow came after major crypto exchange FTX filed for bankruptcy protection last month. Its rapid fall has prompted strict regulatory scrutiny into the way crypto firms hold funds and conduct business.

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

The processing of Bitcoin transactions and the “mining” of new tokens is performed by powerful computers connected to a global network and competing against others to solve complex mathematical puzzles.

Bitcoins can be seen in this illustrative image taken on September 27, 2017. REUTERS/Dado Ruvic

But the business has become less profitable as the price of bitcoin has fallen while energy costs have skyrocketed.

Celsius, which filed for Chapter 11 bankruptcy protection in July, owns several bitcoin mining rigs hosted at Core Scientific’s facilities. Celsius’ bankruptcy has prevented Core Scientific from collecting higher energy bills, which the company is accumulating at a rate of $900,000 a month, according to court filings.

Core Scientific said it will not go into liquidation and intends to conduct a reorganization backed by creditors who hold over 50% of the company’s convertible debt.

These creditors have agreed to provide up to $56 million in equity financing and the convertible bondholders would ultimately receive 97% of Core Scientific stock if the restructuring is approved in court.

The company’s shares have lost about 98% of their value so far in 2022, which has shrunk its market cap to about $78 million.

The stock fell another 50% in trading on Wednesday. Shares of other crypto miners including Riot Blockchain (RIOT.O), Marathon Digital (MARA.O), and Hut 8 Mining Corp have all lost more than 80% this year.

In its bankruptcy filing, Core Scientific said it had $1 billion to $10 billion in assets and liabilities and between 1,000 and 5,000 creditors.

Core Scientific went public in 2021 through a merger with a blank check company, in a deal that valued the miner at $4.3 billion at the time.

The first hearing in Core Scientific’s bankruptcy court is scheduled for December 21 at 0915 CT (1515 GMT).

Reporting by Siddharth Jindal, Maria Ponnezhath, Akriti Sharma and Manya Saini in Bengaluru, and Dietrich Knauth in New York and Hannah Lang in Washington; Editing by Uttaresh.V, Maju Samuel, Alexia Garamfalvi and Deepa Babington

Our standards: The Thomson Reuters Trust Principles.

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