Robert Steinadler, 2 months ago
Core Scientific was once the biggest Bitcoin miner that went public. According to a report from CNBC, Core is going to file for Chapter 11 bankruptcy. The effects of miner capitulation already climaxed since most miners already had to sell their BTC reserves to add more liquidity. In the case of Core Scientific, there were many signs that foreshadowed its bankruptcy.
Why is Core Scientific bankrupt and is it possible for the company to recover?
On October, the 26th, Core issued a so-called 8-K form that was published by the SEC. The purpose was to inform investors that the company had little reserves of cash left and would most likely run out of liquidity if the situation wouldn’t change.
Increasing costs for electricity and a plummeting Bitcoin price crushed profit margins from both sides. Core Scientific is not the only company suffering from these harsh market conditions. Only two events could save its business. Either the Bitcoin price needs to jump above $20,000 or energy prices needs to drop.
Both events are not impossible, but highly unlikely to happen overnight. Therefore, Core was left without a choice and had to throw the towel. Operations will continue and there remains a glimpse of hope that a restructuring is possible and the company could surive.
It appears that bankruptcy could also protect Core Scientific from the wrath of its investors. Several law firms in U.S. noticed shareholders through press releases that they can possibly claim damages from Core. The deadline for shareholders is January 13th to petition the court for lead plaintiff status.
The lawsuit was filed in the United States District Court for the Western District of Texas and alleges that Core scientific broke several securities laws. The allegations made are reading as follows:
“In particular, the Core Scientific lawsuit alleges that (1) due in part to the expiration of a favorable pricing agreement, the Company was experiencing increasing power costs; (2) the Company’s largest customer, Gryphon Digital Mining, lacked the financial resources to purchase the necessary miner rigs for Core Scientific to host; (3) the Company was not providing hosting services to Celsius Network LLC ("Celsius") as required by their contract; (4) the Company had implemented an improper surcharge to pass through power costs to Celsius; (5) as a result of the foregoing alleged breaches of contract, the Company was reasonably likely to incur liability to defend itself against Celsius; (6) as a result of the foregoing, the Company’s profitability would be adversely impacted; (7) as a result, there was likely substantial doubt as to the Company’s ability to continue as a going concern; and (8) as a result of the foregoing, defendant’s positive statements about the Company’s business, operations, and prospects were materially misleading and/or lacked a reasonable basis.”
The bankruptcy filing could not only help to restructure the company, but possibly protect it from any claims that could result from that lawsuit. Of course, Core might be going out of business for good. The valuation of its stock declined by 98% and chances are low that the mining company will recover swiftly. Core Scientific’s competitors have also taken a big hit. Riot Blockchain is down 83% and Marathon Digital Holdings 88%. It appears that everybody is doing bad and that Core is doing even worse. Another outcome of the Chapter 11 is that the assets are sold, and the proceeds are used to satisfy creditors.
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