3 - 5 minute read
Bitcoin mining company Core Scientific has filed for Chapter 11 bankruptcy, according to Reuters. Core Scientific is a Nasdaq-listed company and one of the largest cryptocurrency mining companies in the United States. The company’s stock has lost 98% of its value since January, and in pre-market trading on the day of the bankruptcy filing, it lost an additional 25%. Despite the bankruptcy filing, Core Scientific plans to continue operations while it negotiates with creditors to restructure the company. Creditors have agreed to provide up to $56 million in financing. Core Scientific has assets and liabilities ranging from $1 billion to $10 billion and between 1,000 and 5,000 creditors.
Bitcoin Mining’s Problems
The main problem facing many bitcoin mining companies is the collapse in revenue. When bitcoin was first mined, each block mined yielded 6.25 BTC, which had a market value of almost $290,000. Today, those same 6.25 BTC are worth only around $105,000, a significant drop in value. In theory, mining costs should have also decreased due to a decrease in hashrate and electricity consumption, but this has not been the case. Hashrate, or the measure of the processing power of the bitcoin network, increases much more slowly than the price of bitcoin. As a result, the sharp increase in the value of bitcoin in 2021 led to a sharp increase in hashrate in 2022. However, the sharp decrease in the price of bitcoin has not yet led to a corresponding decrease in hashrate due to the lag in the reaction time of hashrate to market changes.
Core Scientific remains dedicated and committed to operate our self-mining and hosted operations as normal while we work through the implementation of our restructuring.
— Core Scientific (@Core_Scientific) December 21, 2022
Core Scientific Announces Comprehensive Restructuring Transaction (https://t.co/hDEy3i3xEl)
The Market
The United States currently has the highest hashrate of any country in the world, and industrial mining is a high-investment activity. As a result, many large miners have gone public in order to raise new investments. In the case of Core Scientific, this was not enough to prevent bankruptcy. It remains to be seen whether the company will be able to successfully restructure or if it will be forced to liquidate its assets.
The Reason for the Bankruptcy of Multiple Bitcoin Mining Companies
The main reason for the bankruptcy of multiple bitcoin mining companies is the decrease in the value of bitcoin. As mentioned above, the value of each block of bitcoin mined has decreased significantly, leading to a decrease in revenue for mining companies. This decrease in revenue, combined with the slow reaction time of hashrate to market changes, has led to decreased profitability for miners. The average profitability of bitcoin mining has dropped from $0.26 per THash/s per day in January to the current $0.06, a decrease of 77% in less than a year. This decrease in profitability has caused many mining companies to struggle and, in some cases, file for bankruptcy.
Final Thoughts
The bankruptcy of Core Scientific and other bitcoin mining companies is a result of the decrease in the value of bitcoin and the slow reaction time of hashrate to market changes. While Chapter 11 bankruptcy allows for the possibility of restructuring, it remains to be seen whether these companies will be able to successfully restructure and continue operations or if they will be forced to liquidate their assets.
