The prolonged bear market is destroying even the largest players in the crypto space. While more than $2 trillion in market cap has been erased from cryptocurrencies, a troubled crypto miner saw its stock fall by 98%.
Core Scientific files for bankruptcy
A major cryptocurrency mining firm in the US, Core Scientific, has filed for Chapter 11 bankruptcy in the state of Texas. A tough crypto winter and weak Bitcoin price development got the company into this situation, being exacerbated by the FTX bankruptcy.
Related article: How to mine cryptocurrencies in a bear market
Over the past year, Core Scientific stock (CORZ) has dropped by 98%. However, the operating cash flow is positive for the prior twelve months, totaling about $198.9 million. The firm has strong cash flows, but they are not sufficient to meet debt requirements at this time.
Core Scientific stock chart, source: finviz.com
Most of this debt is the result of the company’s leasing agreements for mining machinery. The company’s bankruptcy filing doesn’t necessarily mean it would be liquidated. This means operations would continue normally while a settlement is negotiated with the major creditors.
The company issued a bankruptcy warning in a statement to the SEC back in October, now coming back to light. Core Scientific suffered major losses due to an exposure to Celsius and its affiliates. The company cited this as the most significant cause of its troubling situation.
The company also pointed out three other factors that make their operations difficult. The continuing drop in Bitcoin price, increases in electricity costs, and an increase in the total hash rate of the Bitcoin network had all negatively impacted its operating performance.
In fact, Bitcoin has been trading lower for more than 400 days, being down around 75% from its all-time high (ATH) level. However, one analysis point to a possible bottom in the near future. In the end, even the cryptocurrency market is cyclical like any other market.
Bitcoin daily chart, author’s analysis, source: tradingview.com
Moreover, the mining difficulty is also near its ATH, as reported by Glassnode. Reportedly, it only took a half year to almost fully recover from the previous fall in the hash rate. On the other hand, Bitcoin is trading down and hasn’t recovered yet at all.
#Bitcoin mining difficulty is just 3.5% below the all-time-high.
It has taken 180-days to almost fully recover from 52% of network hash-power going offline during the Great Migration.
— glassnode (@glassnode) December 16, 2021
The capitulation of miners also occurred in 2018 when Bitcoin dropped by over 85%. This is a similar situation. Every bear market has its victims, and this year there were many. But you know what they say “buy when there’s blood in the streets.”