December 21 (Reuters) – Core Scientific Inc (CORZ.O), one of the largest publicly traded cryptocurrency mining companies in the United States, said on Wednesday it has filed for Chapter 11 bankruptcy protection, the latest in a string of failures to the sector.
Austin, Texas-based Core Scientific attributed its bankruptcy to declining bitcoin prices, rising energy costs for bitcoin mining and an unpaid $7 million debt owed by US cryptocurrency lender Celsius Network, one of its largest clients.
Core Scientific said in litigation that it had incurred a net loss of $434.8 million for the three months ended September 30, 2022, and had only $4 million in liquidity at the time of filing for bankruptcy.
The company engaged restructuring consultants in October and has since been negotiating with creditors over a potential bankruptcy filing.
More than a trillion dollars in value has been wiped out of the crypto sector this year with rising interest rates exacerbating concerns of an economic downturn. The crash has eliminated key industry players such as crypto hedge fund Three Arrows Capital and Celsius.
The biggest blow came after major crypto exchange FTX filed for bankruptcy protection last month. The rapid fall has led to tight scrutiny of how crypto companies hold money and conduct business.
After rapid growth in 2020 and 2021, bitcoin – by far the most popular digital currency – is down more than 60% this year, putting pressure on the crypto mining sector.
Processing bitcoin transactions and “mining” new tokens is done by powerful computers, connected to a global network, competing against others to solve complex mathematical puzzles.
But the company has become less profitable as the price of bitcoin has fallen, while energy costs have risen.
Celsius, which filed for Chapter 11 bankruptcy protection in July, owns several bitcoin mining platforms hosted at Core Scientific’s facilities. Celsius’ bankruptcy has prevented Core Scientific from collecting higher utility bills that the company earns at a rate of $900,000 per month, according to court documents.
Core Scientific said it would not liquidate and plans to go through a restructuring backed by creditors who own more than 50% of the company’s convertible bonds.
Those creditors have agreed to provide up to $56 million in debtor-in-possession financing, and convertible bond holders would eventually end up with 97% of Core Scientific’s stock if the restructuring is approved by the court.
The company’s shares have lost about 98% of their value so far by 2022, dropping its market cap to about $78 million.
The stock fell another 50% in trading on Wednesday. Shares of other cryptominers, including Riot Blockchain (RIOT.O), Marathon Digital (MARA.O), and Hut 8 Mining Corp, are all down more than 80% this year.
In its bankruptcy filing, Core Scientific said it has $1 billion to $10 billion in assets and liabilities, and between 1,000 and 5,000 creditors.
Core Scientific went public in 2021 through a merger with a blank check company in a deal that valued the miner at $4.3 billion at the time.
Core Scientific’s first bankruptcy court hearing is scheduled for December 21 at 0915 CT (1515 GMT).
Reporting by Siddharth Jindal, Maria Ponnezhath, Akriti Sharma and Manya Saini in Bengaluru, and Dietrich Knauth in New York and Hannah Lang in Washington; edited by Uttaresh.V, Maju Samuel, Alexia Garamfalvi and Deepa Babington
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