Core Scientific Files for Bankruptcy as Crypto Winter Stings

Dec. 21 (Reuters) – Core Scientific Inc. (ROE DEER)One of the largest publicly traded cryptocurrency mining companies in the United States said Wednesday that it has filed for Chapter 11 bankruptcy protection, the latest in a series of rulings plaguing the sector.

Austin, Texas-based Core Scientific blamed its bankruptcy on falling bitcoin prices, rising energy costs for bitcoin mining and a $7 million unpaid debt from US crypto lender Celsius Network, one of its main clients.

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

The company hired restructuring advisers in October and has been negotiating with creditors about a possible bankruptcy filing ever since.

Over a trillion dollars in value has been wiped out of the crypto sector this year with rising interest rates exacerbating concerns of an economic downturn. The crash has wiped out key industry players such as cryptocurrency hedge fund Three Arrows Capital and Celsius.

The biggest blow came after major cryptocurrency exchange FTX filed for bankruptcy last month. Its rapid decline has prompted rigorous regulatory scrutiny over how crypto companies hold funds and conduct business.

After rapid growth in 2020 and 2021, bitcoin, by far the most popular digital currency, has fallen more than 60% this year, putting pressure on the crypto mining industry.

The processing of bitcoin transactions and the “mining” of new tokens is done by powerful computers, connected to a global network, which compete against each other to solve complex mathematical puzzles.

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

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

Celsius, which filed for Chapter 11 bankruptcy protection in July, owns several bitcoin mining rigs housed at Core Scientific facilities. The Celsius bankruptcy has prevented Core Scientific from collecting higher energy bills that the company is racking up at a rate of $900,000 per month, according to court documents.

Core Scientific said it would not be liquidated and intends to undertake a restructuring backed by creditors who own more than 50% of the company’s convertible notes.

Those creditors agreed to provide up to $56 million in debtor-in-possession financing, and the convertible noteholders would ultimately end up with 97% of Core Scientific’s equity shares if the restructuring is approved in court.

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

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

In its bankruptcy petition, Core Scientific said it has assets and liabilities between $1 billion and $10 billion, 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 at the time valued the miner at $4.3bn.

Core Scientific’s first bankruptcy court hearing is set for December 21 at 09:15 CT (15:15 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; edited by Uttaresh.V, Maju Samuel, Alexia Garamfalvi and Deepa Babington

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