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Core Scientific Surrender
Over the past few months, we have highlighted more cases of public miner surrenders. News reports Core Scientific, the largest public mining company by hash rate and number of miners, may face bankruptcy. I have.their highlights SEC filing is as follows:
- Core Scientific is suspending all debt service.
- Bitcoin holdings are currently 24. Last month he sold 1,027.
- Cash resources will be depleted at the end of the year or sooner.
- Core Scientific claims Celsius owes $5.4 million.
The mining giant, Core Scientific, which held over 9,600 bitcoins at its peak, is now nearly exhausted. The month-over-month growth in holdings is worse than the summer surrenders and sales seen in June 2022. However, June’s sale was much larger (6,099 BTC). If this is a bigger warning sign for the industry, it’s not necessarily Core Scientific’s financials that we’re currently concerned with, but the financials and holdings of all other Bitcoin miners.
Core Scientific’s bitcoin holdings dropped from a whopping 9,618 in May to just 24 in October.
Core Scientific has been able to drive higher Bitcoin production and hash rate shares by having the largest debt-to-equity ratio in the sector at 3.5. With the debt maturity looming, falling prices and lack of market demand for funds are now paying off the debt at the worst possible time to raise more equity.
The company’s liquidity situation currently depends on two variables: rising Bitcoin prices and falling electricity prices. In our view, with the continued stagnation in the Bitcoin price and the upward trend in electricity prices especially for hosting Bitcoin miners, we are incredibly lucky to see one come to fruition. Looking at revenue, Core Scientific’s cost of revenue increased from 67% to 92% compared to last year. Rising electricity consumption costs were a key factor.
The biggest risk associated with rising mining equity and hash rates isn’t just whether the company survives and makes it to the other side. Some people do, some don’t. Rather, the question you need to ask yourself as an investor is whether your stake in the company will be significantly diluted along the way.
For now, we expect to see a wide range of miner performance compared to Bitcoin itself.
Let’s turn our attention to a possible capitulation of the entire ASIC market as Core Scientific, the world’s largest listed mining company by hashrate, faces liquidity/solvency concerns.
Even without recent developments, ASIC prices are already in bargain territory, hitting new all-time lows. The Luxor Hash Rate Index shows how much the price has fallen across machine efficiency types in the chart below. As miners moved to modern, more efficient rigs, prices for older mining models were further reduced. As demand increases for new rigs such as the S19 XP and other brand new hardware to remain competitive, pressure builds to sell older models that are unviable or unprofitable even at the lowest energy costs. Worst case scenario, you’ll just be given away an old machine for free.
Core Scientific has many options, including debt restructuring, Chapter 11 bankruptcy, and potential mergers. Selling and liquidating some of the 130,000 mining machines may be another option. Increased selling pressure by miners will only add to the sluggish price. A further decline in ASIC prices will also affect all miners who have collateralized or financed ASICs as the value of ASIC prices may decline further. We are now waiting to see what impact this will have on hashrate in the medium term and whether there will be a significant drop in hashrate over the next 3-6 months. I don’t think this cycle is over without
ASIC price is in free-fall mode as hashrate continues to rise while price remains stagnant
A final note: bitcoin mining is a brutal business and the current state of these conditions is the last bear left to kill when it comes to ending this bear. market cycle And the next bull market comeback.
Only the strong survive.
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