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Core Scientific files for bankruptcy like cryptic winter bites

Dec. 21 (Reuters) – Core Scientific Inc. FavoriteOne of the largest publicly traded cryptocurrency miners in the United States said on Wednesday it had filed for Chapter 11 bankruptcy protection, the latest in a string of failures to hit the sector.

Core Scientific, based in Austin, Texas, attributed its bankruptcy to falling bitcoin prices, high energy costs for bitcoin mining, and $7 million in unpaid debts from US crypto lender Celsius Network, one of its largest clients.

Core Scientific said in court filings that it posted a net loss of $434.8 million for the three months ended Sept. 30, 2022, and had only $4 million in cash at the time of filing for bankruptcy.

The company engaged restructuring consultants in October and has negotiated a possible bankruptcy filing with creditors since then.

More than $1 trillion in value has been wiped out of the cryptocurrency sector this year as rising interest rates exacerbate fears of an economic downturn. The crash wiped out major players in the industry such as Three Arrows Capital and Celsius, crypto hedge funds.

The biggest hit came after major cryptocurrency exchange FTX filed for bankruptcy protection last month. Its rapid fall has sparked intense regulatory scrutiny of how crypto companies hold funds and conduct business operations.

After rapid growth in 2020 and 2021, bitcoin – by far the most popular digital currency – has fallen more than 60% this year, putting pressure on the cryptocurrency mining sector.

Bitcoin transactions and the “mining” of new tokens are processed by powerful computers, connected to a global network, that compete with others to solve complex mathematical puzzles.

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Bitcoins are seen in this illustrative photo taken on September 27, 2017. REUTERS/Dado Rovic

But the business has become less profitable as the price of bitcoin has fallen, while energy costs have gone up.

Celsius, which filed for Chapter 11 bankruptcy protection in July, owns several bitcoin mining rigs hosted at Core Scientific facilities. Celsius’s bankruptcy prevented Core Scientific from collecting the high energy bills the company collects at the rate of $900,000 per month, according to court filings.

Core Scientific said it will not liquidate, and intends to pursue a restructuring with the support of creditors who own more than 50% of the company’s convertible notes.

Those creditors have agreed to provide up to $56 million in debtor-possession financing, and the convertible bond holders will end up with a 97% stake in Core Scientific if the restructuring is approved in court.

The company’s shares have lost nearly 98% of their value so far in 2022, shrinking their market value to about $78 million.

The stock fell another 50 percent in trading on Wednesday. Shares of other miners including Riot Blockchain (RIOT.O)Digital Marathon Favorite And Hut 8 Mining Corp. has fallen more than 80% this year.

In its bankruptcy filing, Core Scientific said it had assets and liabilities of $1 billion to $10 billion, and between 1,000 and 5,000 creditors.

Core Scientific was floated in 2021 by merging with the blank check company in a deal that at the time valued the mining company at $4.3 billion.

Core Scientific’s first bankruptcy court hearing is set for December 21 at 0915 GMT (1515 GMT).

Additional reporting by Siddharth Jindal, Maria Punizath, Akriti Sharma and Manya Saini in Bengaluru, Dietrich Knuth in New York and Hannah Lang in Washington; Edited by Uttaresh.V, Maju Samuel, Alexia Garamfalvi, and Deepa Babington

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