On Wednesday, one of the largest publicly traded crypto mining companies in the U.S.A., Austin, Texas based Core Scientific filed for Chapter 11 bankruptcy protection. This comes after a year of steep declines for the value of cryptos, coupled with soaring energy costs. During the same period, the company's stock has done even worse, tumbling some 98% although the company does continue to generate positive cash flow. They are also one of the largest providers of blockchain infrastructure as well as hosting.
The company went public in July, 2021 through an SPAC or 'Special Purpose Acquisition Vehicle' with a value of $4.3 Billion. By the end of trading on Tuesday, the company's market cap had fallen to just $78 Million.
The company took on enormous debt to finance its operations through leasing programs for its equipment. Their Bitcoin mining date center in Marble, North Carolina is huge, at 104 Megawatts. The company also runs operations in North Dakota, Georgia and Kentucky so you can just imagine what their power bill amounts to.
While most common share holders are likely to get wiped out if Bitcoin prices don't increase or worse yet, drop even lower, the company has notified shareholders of the possibility they may not lose all if Bitcoin rises. I'll bet they're keeping their fingers crossed.
Another thing that affected Core Scientific was the bankruptcy of crypto lender Celsius last July. It so happens they were a Core customer and when they went bankrupt and their debts wiped out, that added significantly to the strain on Core Scientific resulting in a $7 Million loss, until it too was forced to file for bankruptcy this week.
Yesterday, published an article announcing Core Scientific received court approval for a $37.5 Million loan from a group of existing creditors and are hoping for another similar loan next month as the company is 'open to better offers from other lenders'.
BlockFi, another crypto lender that went bankrupt just a few weeks ago, was part of a group providing $54 Million in loans to help finance Core Scientific's equipment purchases. We can see from this example the inter-connection and how, like a house of cards, can all come tumbling down if just one of them experiences financial troubles.
As for Core Scientific, they don't plan on liquidating and continue to run operations. Stakeholders continue to have faith in its operations. They might have good reason to have faith in the company going forward.
Another miner, Compute North went bankrupt in September while another miner, Marathon Digital Hodlings reported $80 Million in exposure to Compute North. Greenidge Generation reported a net loss of $100 Million in the second quarter this year while Argo shares have fallen more than 60% after announcing that a plan to raise $27 Million from a key investor fell through.
It seems to me that a 'battle of the miners' has officially begun and it will be survival of the fittest. One of the best ways to reduce costs for such massive mining operations is to generate your own power. It would be fairly easy to set up shop beside a river and divert a small amount of water through piping to feed generators, thereby creating all the electricity needed (without any pollution). Such a system would pay for itself in no time. By connecting to the electrical grid, miners are at the mercy of the big electric companies.
This is not a new concept. In the 1800s, grist mills were all lined up along waterways to turn their water wheels to generate power, which in turn was converted to mechanical power for saws, drills, grinders, you name it.
Core Scientific has a very good chance of surviving the crypto downturn of late but likely, we will see some miners go the way of the do-do bird. Also, if Bitcoin improves, this would lift the company out of its debt woes. With the way things are going around the world, this appears likely as massive national and personal debts explode ever higher. As currencies collapse (they always do in the end), Bitcoin, along with a little bit of gold and silver will surely reap the benefits.
As we are now only 2 days away from Christmas, I'd like to wish all my followers and visitors a safe and happy holiday and to take this opportunity to thank you for all your comments, likes and tips over the last year. YOU ARE AWESOME!
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