Why is Core Scientific, the largest bitcoin miner in North America, on the verge of bankruptcy?
Original editor: TSE (Ting Speed Energy) Kate Li
This article is named by TSE, a North American mine service provider, and the content does not constitute financial advice, nor does it represent Wu's views and positions.
Core Scientific, one of the largest publicly traded crypto mining companies in the U.S., which reportedly has a 457 MW operation, filed a statement with the SEC last week citing the possibility of future bankruptcy, the company also revealed , it will not pay the debt due in late October and early November, and its stock price plummeted 77%, further expanding the mess facing Core.
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History introduction
Core has been operating mining farms in North America since 2017, both self-mining and hosting services. Core has mines in Georgia, Kentucky, North Carolina, North Dakota and Texas, and expects to begin operations in Oklahoma in the coming quarters.
Core is very secretive and rarely discloses transaction details to the market. At its inception in 2018, a document revealed that the startup was raising a $40 million investment round, and three months later, it was revealed that founder Aber Whitcomb was raising a massive $100 million round that could grow to $2.5 million. billion, but he declined to provide details on how the investment would be used.
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Source: Core Scientific at Marble, North Carolina facility
Afterwards, Core and an affiliate of private independent energy company Tenaska Energy, Inc. reached an agreement to build a 300 MW data center in Denton, Texas. Core promised to invest $200 million in the project, which is expected to be completed by the end of 2022. The facility will be completed.
In addition, Blockcap, which was founded in 2020 by former Core executives, has so far purchased 42,000 mining machines from Bitmain and Canaan, of which 12,000 have been put into operation. The company plans to add another 18,000 mining machines by the fourth quarter of 2022, and then add 12,000 by 2022, all hosted in Core's own mines.
According to the news statement on Core's official website, the company expects to operate about 325,000 mining machines (combined with self-mining and hosting) in its data center by the end of the year, and there are plans to purchase about 90,000 mining machines. The pressure of capital and interest payments is increasing, and whether more than 320,000 mining machines can be deployed as scheduled is still a question mark.
Before June 2022, Core implemented the HODL strategy (long-term holding of Bitcoin). After June, mining machine orders, mine capital expenditures, and debts were like three mountains, forcing Core to start a large number of Sell bitcoins.
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Source: Hashrate Index
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Situation Analysis
Private and publicly traded crypto miners owed as much as $4 billion in debt as of July 2022 to finance the construction of sprawling facilities across North America, according to industry participants and data compiled by CoinDesk.
Core is also a member of the crazy expansion. As mentioned earlier, it is expected to deploy over 320,000 mining machines by the end of 2022. What is the concept? Excluding the hosting machine, the total value is roughly estimated to be nearly 1 billion US dollars (according to the spot market price, if the purchase time node is earlier, the purchase cost of the mining machine may be more expensive). This is just the amount of the mining machine, without considering the mine construction expenditure, the electricity cost of the large-scale deployment of the mining machine, and the interest on the loan.
If the currency price remains high and the miners can pay the electricity bill, then Core can still maintain cash flow and implement its grand plan step by step.
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News: Celsius Network fails to pay Core Scientific, causing financial turmoil
Celsius, once one of the biggest players in the crypto lending space, offering nearly 19% annual returns, filed for bankruptcy this spring.
Core had an agreement with it to provide the infrastructure. According to the agreement, both mining machines and mining revenue belong to Celsius, while Core only charges electricity and hosting fees.
In the filing, Core asked the court to compel Celsius to pay overdue bills or to allow it to perform under contracts. "Celsius is either required to abide by the contract, or Core and Celsius must terminate their relationship before Celsius causes another business partner (Core) to enter bankruptcy proceedings."
The game is not settled yet. US judge Martin Glenn will preside over their hearing next month, and the specific results remain to be seen.
Caused by a series of factors such as Celsius' arrears, it is a high debt that is difficult to repay. According to statistics, Core's total debt principal amounted to about US$1 billion, including investment bank B. Riley, MassMutual Barings, and crypto lender BlockFi. As of October 27, Core owed them US$75 million, US$65.6 million, and US$60.7 million, respectively. .
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Interpretation
The price of Bitcoin has fallen from an all-time high of more than $69,000 in November 2021 to around $20,500, a loss of nearly 70% in value, which, combined with fierce competition among miners and rising energy prices, has squeezed mining profit margins.
The majority of Core's loans were used to buy mining machines and build farms, and most of them began in the second half of 2021, when Bitcoin prices were rising (peaking at nearly $70,000 in November) and miners were racing to develop their business.
A bull market always magnifies desire and reduces risk control ability. It has to be said that under the big market in 2021, many people have a floating mentality, crazy expansion, and crazy increase in leverage: Last year, the overall investment cost of mine construction remained high, and the average market price may be 250,000-500,000 US dollars/MW. Mergers and acquisitions The valuation of the mining farm can even reach 1 million US dollars/MW; the unit price of buying a mining machine is between 55 - 105 USD/T (the price of S19J Pro falls within 20 U/T). Under the double attack, the initial asset investment was huge and the income plummeted, making it difficult for many mining companies to continue.
The specific purchase price of Core has not been disclosed, but we can know that it still needs to pay Bitmain in cash every month. When the cash flow cannot keep up, then its default on Bitmain is confirmed. Coupled with the increase in energy and electricity prices in the United States, the operating costs have increased. Even if the original bitcoins are continuously sold to replenish cash, the stock will eventually be exhausted, and almost no one in the capital market will replenish blood transfusions for mining companies. cash out.
Under multiple pressures, the Celsius incident was like the first domino to fall, triggering this series of crises.
Will Core really go bankrupt? We have no way of knowing, but here is a passage from Compass Point for your interpretation:
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Reference article:
https://www.theblock.co/linked/95124/blockcap-us-10000-bitcoin-miners
https://medium.com/blockcap/bitcoin-miners-worth-more-than-150-million-have-just-been-bought-up-by-two-firms-fb90264830ba
https://www.coindesk.com/business/2022/06/29/crypto-miners-face-margin-calls-defaults-as-debt-comes-due-in-bear-market/
https://www.theblock.co/post/180546/massmutual-blockfi-are-among-bitcoin-miner-core-scientifics-biggest-creditors?utm_source=rss&utm_medium=rss
https://www.coindesk.com/business/2022/07/05/core-scientific-sold-over-7k-bitcoins-for-about-167m-in-june-sees-more-sales/
About TSE
TSE Qingsu Energy (www.tsedata.com) is committed to being the North American mine service provider who understands Chinese miners best.
Having been deeply involved in the natural gas industry in North America for many years (former business website: www.topspeedenergy.com), TSE can produce natural gas for its own use and build a 100% natural gas isolated network mine, which has cost advantages and ensures business diversification. It utilizes 100% clean hydropower energy in Canada. As well as mixed grid power resources in Texas, Ohio, North Dakota and other places in the United States, a world-class mine is built, and the operation and maintenance team works in three shifts. It promises a 1-hour response time and ensures the stability of miners' equipment around the clock.
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