Core Scientific will soon go bankrupt if bitcoin does not quickly regain altitude. Or will it be bought by a competitor like Marathon?
Bitcoin bear market longer than expected
Core Scientific is the largest bitcoin miner in the world. Its facilities extend over 74,000 square meters shared between six American states:
- Texas (400 Megawatts)
- Oklahoma (500MW)
- Georgia (200 MW)
- North Carolina (100MW)
- Kentucky (150MW)
- North Dakota (100MW).
The juggernaut looked great in 2021, when a single machine from mining S19 Pro allowed to earn 44 dollars per day. But the bear market has been there, transforming the flagship into a colossus with feet of clay.
Core Scientific has fished out of optimism by taking on too much debt!
Core’s debt was nearly 60% of its market value just before the bear market. A seemingly reasonable figure when compared with other industries. Except that revenues in bitcoin mining are much more volatile!
The energy crisis, the arrival of new, ever more efficient machines and the 70% drop in bitcoin have weighed on the margins of Core Scientific, which is now very close to default.
In October 2021, the gross margin of an Antminer S19 Pro was 88%. It is now only 38%. (with a price of 6 cents $ per kwatt)
One thing led to another, its stock market valuation of Core Scientific collapsed. So much so that instead of 60%, the debt represented 290% of the market value one year later. However, such a debt ratio makes it completely impossible to take new loans to try to hold on.
In short, the mining giant must repay 17 million dollars per month while it only generates 7 million. Roughly speaking, the margin gleaned from its 1260 BTC mined each month.
While the miner held nearly 10,000 BTC each worth over $45,000 just before the bear market (April 2022), there are now only a handful left.
According to Jaran Mellerud, “Core Scientific risks bankruptcy as early as February 2023”.
A debt of 836 million dollars
Core Scientific’s debt includes $524 million in convertible notes. These are debts that the company can repay in the form of shares if necessary.
To do so would be to massively dilute the former shareholders. Hence the 80% drop in the stock since we know that the firm can no longer make ends meet.
Of the $836 million, another $75 million is in the form of bridge note. That is to say very short-term debt.
There remains 225 million dollars supposed to be covered by the fleet of mining machines. Problem, the price of the most efficient mining machines is down 80%…
For Jaran Mellerud, Core Scientific’s machine park is worth around $255 million. The value of the remaining infrastructure (land, buildings, etc.) being also estimated at 320 million dollars, there is therefore a shortfall of 261 million dollars.
If bitcoin does not quickly regain altitude, Core will be forced to turn its debt into equity. This is suggested by its market valuation down 99%…
Another solution: bankruptcy. Shareholders will lose everything and debt holders will have to scramble to sell off.
A takeover by a competitor is also possible. All eyes are on number 2, Marathon Digital Holdings, which still holds over 11,280 BTC.
Over the past year, the hashrate controlled by public miners has increased by 295%, compared to a 58% growth for the private hashrate. Private miners are still in the lead, but public miners are catching up.
Marathon currently mines 615 BTC per month thanks to its installed power of 7 EH/s (69,000 machines). Since its objective is to triple this power by the end of next year, buying Core Scientific might make sense.
Especially since the Chinese provider Bitmain could have difficulty delivering state-of-the-art antminers (S19 XP). Indeed, China has just been placed under an embargo for the latest generation electronic chips…
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