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As Bitcoin has plunged below $30,000 and a further $20,000, many industry players have recently faced losses.
In Short
- Core Scientific borrowed money to buy the new mining equipment but could not repay it.
- The miner contributes approximately 10% of the Bitcoin network’s computing power.
- Bitcoin miner Greenidge reaches a deal with NYDIG.
Bitcoin Miners In Trouble. One of the biggest publicly traded U.S. companies in the Bitcoin mining industry, Core Scientific, filed for bankruptcy today and requested protection under Chapter 11 of the U.S. Bankruptcy Act.
The company provides approximately 10% of the computing power that powers the Bitcoin network, as it operates some 143,000 mining rigs and hosts another 100,000. Its demise would significantly impact if it went out of business. However, as the U.S. media CNBC reported, it is expected to continue operating while it reaches an agreement with its creditors.
The company has a positive cash flow, but more than that amount is needed to pay its debts. According to the filing, Core Scientific’s estimated liabilities are between $1 billion and $10 billion. But on the other hand, it has about 5,000 claims from its creditors, with the largest sum coming from investment bank B. Riley.
According to its earnings report, Core Scientific’s assets stood at $1.4 billion, while its liabilities were about $1.3 billion. The company bought new mining equipment with borrowed money but needs to repay it. It has reportedly been in talks to restructure its debt and raise capital, although its efforts have allegedly failed.
Bankruptcy was not necessary
Last week, the Bitcoin mining company’s largest lender, B. Riley, proposed a new $72 million financing plan with the idea that Core Scientific would overcome difficulties and avoid bankruptcy.
“Bankruptcy is not necessary at all. In our view, most of Core Scientific’s problems are self-imposed and can be corrected along with open and transparent discussion and continued engagement with its creditors and shareholders.“
So far, the mining company has yet to make any official statement. Still, from the looks of it, with its Chapter 11 filing, it would seek a deferral of its outstanding payments and not necessarily focus on restructuring and liquidation.
Core Scientific’s financial problems became known in October when it issued a statement to the U.S. Securities and Exchange Commission that hinted at the possibility of filing for bankruptcy. The same statement indicated that the company would not pay its debts at the end of October or the beginning of November. Naturally, releasing this information set off alarm bells among investors and reflected a sharp fall in the mining company’s shares.
Greenidge signs a deal with NYDIG
Greenidge warned that it is still at risk of bankruptcy despite the effort. As part of the deal, it will change its business model from self-mining to hosting. On the brink of the abyss, Cryptocurrency mining company Greenidge Generation has agreed to restructure a $74.4 million debt with its lender, NYDIG.
The deal involves Greenidge selling most Bitcoin mining machinery to NYDIG to pay off the million-dollar debt. Both parties signed a non-binding agreement, according to information filed with the U.S. Securities and Exchange Commission (SEC) that several news outlets cited.
The company will give up 2.8 exahash per second (EH/s) of mining machines, keeping approximately 1.2 EH/s for self-mining. The deal means Greenidge will shift its business model from self-mining to hosting provider, as reported by The Block. The company will also hand over other assets, including the infrastructure and capital of its subsidiaries.
However, despite these efforts, mining is still at risk of bankruptcy. In the filing, Greenidge said that the cash loss is unsustainable and that the company’s board is working “in active discussions about the potential and timing of a voluntary bankruptcy filing,” as cited by CoinDesk.
If the NYDIG deal finalizes, the company still needs $20 million in new funding through 2023 to avoid bankruptcy, that media outlet adds.
Bitcoin miners crisis
Greenidge is one of the cryptocurrency miners that has suffered liquidity problems this year due to slowing prices in the crypto market and rising electricity costs. Major cryptocurrency miners got forced to sell more bitcoins than they mine to pay their debts, obtain liquidity and keep their operations afloat.
The world’s largest bitcoin miner, Core Scientific, warned in October that it is running out of liquidity and could face bankruptcy by 2023. A month earlier, another major company in the sector, Compute North, filed for bankruptcy, owing up to $500 million to at least 200 creditors.