- Core Scientific was valued at more than $4 billion last summer, but is down 985 from its all-time high
- Rising electricity costs are driving up prices, falling bitcoin prices are hurting revenue
- With hashrate near all-time highs, the entire mining industry is struggling
crypto Winter is continuously making its prey. Bitcoin miner Core Scientific is the latest to fall victim to Chapter 11 bankruptcy.
BitcoinDecreasing pricing has substantially reduced revenue and, while cash flow is still positive, revenue is not sufficient to cover operating costs. The goal is for the company to reorganize rather than liquidate outright under the Chapter 11 process.
Core Scientific has been struggling all year, along with miners across the industry as they get squeezed on both ends – falling revenues as bitcoin prices soar and rising costs as a result of rising electricity costs around the world.
The stock was trading at a market cap of $4 billion last summer, but has now fallen 98%, to its current market cap of $70 million.
Shares tripled in short order last week when financial services company B. Riley offered to provide the company $72 million in non-cash financing. The stock has since given up some of those gains.
The mining industry is struggling
Across the industry, miners are finding it tough. The cost of electricity and the price of bitcoin are the two most important inputs to a bitcoin miner’s bottom line, and both have moved significantly against them this year.
So too is the hash rate, which is near year-highs for most of the year. A higher hash rate means that more computing power is demanded to verify transactions on the bitcoin blockchain. While a higher hash rate is seen as a positive because it increases the security of the network – it will cost more energy and time to maintain the network – it also puts a burden on miners’ profit margins.
When the hash rate hit a record high of 250 TH/s in early October, blockchain analytics company Glassnode warned that “miners are on the verge of somewhat acute income stress”. This latest story about Core Scientific proves just that.
The number of bitcoins held by large mining pools has also been steadily declining this year, given the miners’ reserves.
Mining Stocks Are Leveraged Bets on Bitcoin
It’s a poignant reminder that the revenues of these mining companies denominated in bitcoin are clearly extremely volatile stocks. Unfortunately, this year has brought the perfect storm, which has not only led to a drop in bitcoin price, but also rising costs in the form of electricity, meaning miners have been hit doubly hard.
Looking at share prices, many companies have fallen even more than the price of bitcoin, which as I write is trading at $16,800, down 64% on the year. Many mining companies are looking at losses in comparison to 2022.
He hopes that 2023 will bring better luck. But for Core Scientific, Road Head is more ambiguous. Now embroiled in the Chapter 11 process, it will hope to restructure and weather the storm, but there’s no getting around the fact that the market is likely to remain turbulent for miners at least in the medium term.