Bitcoin miner Core Scientific

Over the years, the interest in bitcoins seems to have surged due to its limited supply which is capped at 21 million coins. The miners had played an integral role since its inception and got 6.25 BTC for each block mined. According to the supply schedule, the last bitcoin is slated to be mined in the year 2140, which implies that mining will be an ongoing process for the next 120 years. However, with the largest bitcoin mining company Core Scientific filing for chapter 11 yesterday, we look at the prospects of the mining as a profitable venture for Core Scientific in today’s article.

<source: Google>

Established in 2017, Core Scientific is one of the largest publicly-traded blockchain infrastructure providers and digital asset miners in North America. The company became public in January 2022, after merging with Power & Digital Infrastructure Acquisition Corp. (“XPDI”) through a SPAC transaction. By the end of October 2022, the company was controlling more than 10% of the global hashrate, which stands at around 238 EH/s as of the time of writing.

<source: Core scientific>

In terms of self-mined Bitcoins, Core Scientific stands tall among the listed bitcoin miners with 11,629 bitcoins mined from January-October 2022 compared to their peers who mined between 1800-4500 Bitcoins.

<source: Core scientific>

The Austin, Texas based bitcoin mining company filed for Chapter 11 bankruptcy last evening, which is the latest fiasco to hit the crypto market. Core Scientific (NASDAQ: CORZ), was operating 143,000 self-mining servers and had approximately $32 million in cash in October. So what led the company to file for bankruptcy in December?

Mounting Debt

While looking at their creditor discussion material presentation filed yesterday, it appears the company has $879 Million outstanding debt according to their capital structure at 2.5X leverage. However Coindesk reports that the miner’s estimated liabilities are between $1 billion-$10 billion and have between 1,000-5,000 creditors.

<source: SEC filings>

Debt commitments

According to their Comprehensive Restructuring Transaction release, the company expects to enter into a definitive agreement with Ad Hoc Noteholder Group who represents more than 50% of the holders of CORZ’s convertible notes. In return the Noteholder Group will provide commitment of up to $56 million and has agreed to support the syndication of up to an additional $19 million, which is deemed to provide adequate liquidity to facilitate the emergence from Chapter 11, and cover the fees and expenses of legal and financial advisors. 

The company shares crashed in October losing 99% of its price, when they announced that they will not be able to fulfill some of their debt commitments. From their peak in August 2022, trading at $ 3.36, they have trickled down to $0.08 as of yesterday.

<source: SEC filings>

Capital Expansion

The company went on an expansion spree despite the bear market with three Texas data Center Projects.

<source: Core Scientific>

Volatile Price movements and Power costs

Rising cost of electricity to power its data center and declining bitcoin prices are the underlying causes for the chapter 11 filings of Core Scientific. Back in September, Compute North, one of the largest operators of crypto-mining data centers, filed for bankruptcy. Soaring energy costs are eating up the revenue of the mining operations and the fall of Bitcoins prices are not helping these companies either.

In terms of power consumption, it takes an estimated 1,449 kilowatt hours (kWh) of energy to mine a single bitcoin. That’s the same amount of energy an average U.S. household consumes in approximately 13 years, according to visual capitalists. Venezuela ranks as the number one most expensive country to mine bitcoin which stands at $246,530.74, whereas it only costs $1,393.95 to mine a bitcoin in Kuwait.

Can Core Scientific make a comeback?

With no indication that Bitcoin prices are set to rebound anytime soon, we are left with a company with very little prospect of profitability. However, their mining economics seems to be a relief for their shareholders. As of Q2 2022, their cost to mine a BTC stands at $10,200, which is way better compared to the US average cost to mine at $21,089.

<source: SEC filings>

Further, according to Jameson Lopp Co-founder & CTO at CasaHODL, “Bitcoin miners earned over $9 billion in 2022, a significant addition to the $47 billion total over the past 13 years. This number assumes they instantly sell for fiat, which is most certainly not the case – miners are HODLers”. This implies that bitcoin mining is a lucrative business if consolidations are done in the right way.

<source: Coinmetrics>

Therefore, with a $75M debtor-in-possession financing offer from its holders of convertible notes on the way, core scientific could make a rebound with asset consolidation and stabilization of bitcoin price in near future.

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Disclaimer: This article was authored by Giottus Crypto Exchange as a part of a paid partnership with The News Minute. Crypto-asset or cryptocurrency investments are subject to market risks such as volatility and have no guaranteed returns. Please do your own research before investing and seek independent legal/financial advice if you are unsure about the investments.

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