First it was the exchanges, now it's the miners. According to a person familiar with the company's finances, Core Scientific plans to file for chapter 11 bankruptcy protection in the state of Texas tomorrow. They are one of many publicly traded crypto mining firms. The company has seen their profit margins take a hit, from the combination of declining Bitcoin price and rising energy costs.
Core Scientific is based in Austin, TX and operates in various other states. Not only has the drop in Bitcoin's price caused the company's balance sheet to take a hit, but they also cite the rising total hash rate as a cause for their financial woes. The more miners, the more competition, the smaller the piece of the mining reward for each miner.
The news really shouldn't come as shocking, as the warning signs were certainly present as far back as October:
And just a few days ago:
The foreshadowing of bankruptcy aside, the company's stock has taken an absolute shellacking the past year. A "de-SPAC" company, brought to public markets via a reverse merger with a shell company, they have seen their valuation slashed. When the SPAC merger was complete in July 2021, Core Scientific was valued at $4.3 billion. As of today, they are now worth $78 million.
From multi-billion dollar valuation to penny stock, the exact future of the company is unclear but they do plan to continue to operate and continue their mining. To paint the financial woes another way, as of September 30, 2022, Core Scientific held 1051 Bitcoins on their balance sheet. As of October 26, 2022, they were down to only 24 Bitcoins. A going concern, to say the least.
What we have here is a combination of two things: froth from the 2020-2021 stock market bull run and excessive valuation created by valuing a company when Bitcoin was headed toward all-time highs. Of course, now that crypto valuations are down and stocks are down, valuations get a massive haircut. You can see this as well in shares of Microstrategy or the Greyscale BTC Trust. Is this another sign that we're at/near the bottom, or is there still more pain to come?
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