One of the largest publicly traded crypto mining companies in the United States, Core Scientific, is filing for Chapter 11 bankruptcy protection in Texas early on Wednesday morning, according to a person familiar with the company’s finances.
After a year of rising energy costs and declining cryptocurrency prices, the action has taken place. Core Scientific mines Bitcoin and other proof-of-work cryptocurrencies.
The process involves supplying electricity to data centers across the country that are packed with specialized computers in order to validate transactions and generate new tokens at the same time. The operation demands expensive equipment, some technical know-how, and a lot of electricity.
Core Scientific’s market cap fell to $78 million on Tuesday
Market capitalization for Core Scientific dropped from $4.3 billion in July 2021 when the company went public through a special purpose acquisition vehicle, or SPAC, to $78 million as of Tuesday’s close of business. The stock has dropped more than 98% in the last year.
The company is still making money, but it isn’t enough to pay off the debt related to the equipment it was leasing, according to a person with knowledge of the company’s financial situation.
The company won’t go into liquidation, says this person who requested anonymity to discuss private company matters; instead, it will carry on as usual while negotiating an agreement with senior security noteholders, who are accountable for the company’s debts.
According to a filing from October, holders of Core’s common stock could suffer “a total loss of their investment,” but if the industry as a whole recover, that might not be the case.
It is designed so that common equity holders might not lose everything if the business environment for bitcoin actually improves which was reached with Core’s convertible note holders.
The company also declared that it would not pay the debts that were due in late October and early November and that creditors were free to sue the company in court if they wanted payment for their debts.
From an all-time high of over $69,000 in November 2021 to about $16,800 today, the price of bitcoin has decreased. Because of this value decline, increased mining competition, and rising energy prices, its profit margins have shrunk.