Shares of Bitcoin Miner Core Scientific Plunge After Bankruptcy Warning

The biggest bitcoin miner in the world, Core Scientific (CORZ), warned that if its financial situation doesn’t improve, it could have to consider filing for bankruptcy. The warning caused its shares to drop 77%, reaching as little as 23 cents. The miner predicted that current financial resources would run out by the end of the year, maybe before.

“Substantial doubt exists about the company’s ability to continue as a going concern for a reasonable period of time,” it said in a recent filing.

The miner is looking into various tactical options for raising more money. It has retained PJT Partners LP as a financial adviser and Weil, Gotshal & Manges LLP as legal counsel. According to Core Scientific, if the potential capital raise strategies fail, the company could seek bankruptcy protection. It is mentioned in the filing that the Austin, Texas-based business would forgo payments due in late October and early November 2022 on a number of its equipment and other financings. The creditors may sue the company for non-payment or take action concerning collateral.

According to a report from Compass Point, there is a good likelihood that the creditors holding this debt would choose to restructure rather than seize the collateral because of the considerable decrease in mining rig prices in 2022. Without knowing the status of negotiations with CORZ’s creditors, it is believed that a scenario in which CORZ must seek Chapter 11 protection must be regarded seriously, particularly if BTC prices continue to fall from their present levels.

BTIG downgraded the stock to neutral from buy: “We expect this liquidity overhang to prevent CORZ from expanding its hash capacity and delay the company’s ability to secure new hosting customers, which clouds the company’s near-term growth prospects,” said the investment bank.

The issues faced by Core Scientific are a reflection of the depressing situation of the bitcoin mining sector, where businesses are constrained by high power costs and a flat bitcoin price. Compute North, a competitor of Core Scientific, declared bankruptcy in September after owing up to $500 million to at least 200 creditors. 

In November of last year, the price of bitcoin reached an all-time high of almost $70,000. Since then, the largest cryptocurrency in the world by market value has fallen precipitously, reaching a low of under $20,000 in June. Since then, it has stubbornly remained around the $20,000 mark, making it difficult for miners to break even.

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