Bitcoin mining: another company goes bankrupt

Bitcoin mining company Core Scientific has filed for bankruptcy. 

Reuters reported that today Core Scientific filed for Chapter 11 bankruptcy. 

Core Scientific is listed on the Nasdaq stock exchange under the symbol CORZ.O, and is one of the largest US cryptocurrency mining companies. In pre-market today, the stock lost 25%, but it had already lost 98% since January. 

There have been two big collapses, one between late April and late June, coinciding with the collapse of the crypto markets due to the implosion of the Terra/Luna ecosystem and its aftermath, and another between late August and late October culminating in the -68% on 27 October. 

So it is not strange that today the stock loses “only” 25% after the news of the bankruptcy, because it had already lost almost all of its value in the previous months. Moreover, in theory Chapter 11 allows companies to restructure, so there is a vague possibility that the company will sooner or later return to business. 

Core Scientific is based in Austin, Texas, and said it will not cease operations for now because it hopes to enter into an agreement with its creditors to restructure the company. The company also added that creditors have already agreed to provide up to $56 million in financing.

The company claims to have $1 billion to $10 billion in assets and liabilities, and between 1,000 and 5,000 creditors.

Some time ago it landed on the stock market through a merger, thanks to a deal that valued the company at $4.3 billion. It then ran into serious trouble due to the bankruptcy of Celsius Network in June. 

Bitcoin mining’s problems

While Bitcoin mining in itself has no problems, there are several mining companies that are facing issues. 

The problem is related to the collapse in revenue. Indeed, every block mined in this cycle always yields 6.25 BTC. But while at the beginning of the year these had a market value of almost $290,000, today they are instead worth only a little more than $105,000, or almost three times less. 

Theoretically, in such a scenario, costs should also have been reduced, thanks to a reduction in hashrate and thus in electricity consumption, but this has not been the case. 

The fact is that hashrate increases much more slowly than price, so the sharp increase in the value of BTC in 2021 produced a sharp increase in hashrate in 2022. In contrast, despite the sharp reduction in price there has not yet been a sharp reduction in hashrate precisely because of the lag with which hashrate reacts to the rapid changes that occur in the markets. 

Indeed, the all-time high in hashrate occurred in early November, with a level that is less than double that of November 2020, which was before the last big bull run began. 

At that time, the price of BTC was about $11,000, so in November 2022 the increase in hashrate as a percentage matched that of the price, taking November 2020 as the reference. 

The current level is about 10% lower than the all-time high in the first half of November, which is why miners are currently in great difficulty. 

It is enough to mention that the average profitability of Bitcoin mining has plummeted from $0.26 per THash/s per day in January to the current $0.06, that is, with a dry loss of 77% in less than a year. It is therefore not surprising that there are so many struggling miners, especially those who are forced to bear higher costs. 

The market

It is worth adding that the US is now the single country in the world with the highest hashrate, and that industrial mining is a high-investment activity. For this reason, many large miners have decided to go public so that they can easily raise new investments. In the case of Core Scientific, this was not enough, and now it will have to be seen whether the company will be able to restructure itself or will be forced to close and liquidate. 

It is worth noting that in the event that BTC’s market value rises in the coming months, Core Scientific may become profitable again, so it is by no means ruled out that if it can get over the bad patch in the future it may be able to restructure and become operational again. 

However, it is also not out of the question that other crypto mining companies may also fail, as the problem of collapsing profitability is common to virtually all of them. 

In the meantime, the Bitcoin protocol relentlessly continues to add a new block to its blockchain every 10 minutes or so, because it is not relevant how many miners there are: in theory it could even take just one, although in that case, the risk of a 51% attack would be quite high.