Shalini Nagarajan

Core Scientific was lent millions by top traditional finance institutions, a move that helped the cryptocurrency miner thrive and build out its business.&nbsp;



BlackRock and Apollo Global Management are among a group of creditors that lent the miner $500 million by purchasing its convertible notes, a <a href="https://cases.stretto.com/public/X217/12024/PLEADINGS/1202401182380000000128.pdf" target="_blank" rel="noreferrer noopener">court filing</a> published Jan. 18 showed. <a href="https://www.bnnbloomberg.ca/blackrock-apollo-among-creditors-lending-500-million-to-core-scientific-1.1874321" target="_blank" rel="noreferrer noopener">Bloomberg</a> first reported the news on Tuesday.



The miner managed to raise capital as BlackRock snapped up $38 million of convertible notes via subsidiary-managed accounts in August 2021, the report said. Apollo acquired $33.6 million between April and August that year.



They also contributed $17 million and $6.1 million respectively towards debtor-in-possession financing (DIP) last year, which would allow Core Scientific to continue running during bankruptcy.&nbsp;



The creditors, referred to in the court filing as an ad hoc group of DIP financing lending, also included Gullane Capital, multi-strategy investment firm Ibex Investors and ICG Advisors.



“The members of the Ad Hoc Group are either the beneficial holders of, or the investment advisors or managers to, funds and/or accounts that hold disclosable economic interests in relation to [Core Scientific],” the filing reads.



Other members holding Core Scientific notes are MassMutual, Corbin Capital Partners, Jordan Park Group, Kensico Capital Management, Marsico, Sabby Volatility Warrant Master Fund and Toroso Investments.&nbsp;



The largest creditor was Ibex, which lent Core $97.9 million in April 2021 and another $10.1 million towards the DIP loan.



Core Scientific <a href="https://blockworks.co/news/bitcoin-miner-core-scientific-to-file-bankruptcy-stock-tanks-30">filed for bankruptcy</a> last month after the company warned its cash resources would be exhausted by the end of 2022. Crypto miners struggled last year amid rising energy prices and broader macro trends affecting cryptoasset prices.



Earlier this month, the miner decided to <a href="https://blockworks.co/news/core-scientific-to-switch-off-celsius-miners-freeing-space-for-other-clients">free up hosting space</a> by letting go of bankrupt crypto lender Celsius as a client.



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Top TradFi Institutions Lent Millions to Crypto Miner Core Scientific

David Canellis

Some bitcoin miners are still hoarding loads of bitcoin — more to dump or more to hold?



Bitcoin (BTC) has booked a decent rally to start the year, jumping as much as 29% and giving a much-needed morale boost to cryptocurrencies as a whole. 



There’s likely few digital assets operators as relieved as bitcoin miners — especially those with <a href="https://blockworks.co/news/crashing-prices-expose-bitcoin-mining-industrys-addiction-to-leverage">leftover debt obligations</a> from 2021’s bull market.



Blockworks analyzed bitcoin production reports from nine public mining companies to gauge how they fared last year.



The firms — including Marathon Digital Holdings, Riot Blockchain, Argo Crypto and Hut 8 Mining — altogether represent roughly 20% of Bitcoin hashrate.



First up is a chart of their BTC treasuries. Fears of widespread miner capitulation have persisted ever since cascading liquidations wrecked hedge funds and crypto lenders in mid-2022.&nbsp;



But collectively, our nine Bitcoin miners have maintained similarly-sized treasuries as in December 2021 — when BTC was just coming down from its $69,000 record highs. They held 31,392 BTC ($605 million) as of last year’s end, down less than 4% from a year earlier.



<figure class="wp-block-embed is-type-wp-embed is-provider-flourish wp-block-embed-flourish"><div class="wp-block-embed__wrapper">
<iframe class="wp-embedded-content" sandbox="allow-scripts" security="restricted" title="Interactive or visual content" src="https://flo.uri.sh/visualisation/12369945/embed#?secret=qGB0gnIFjQ" data-secret="qGB0gnIFjQ" frameborder="0" scrolling="no" height="575" width="700"></iframe>
</div><figcaption class="wp-element-caption">Chart by David Canellis</figcaption></figure>



That’s despite Austin-headquartered Core Scientific — historically the largest public miner by hashrate (and by a wide margin) — declaring bankruptcy after dumping most of its BTC in June.&nbsp;



The firm held as much as 9,618 BTC ($385 million then, $185 million now) a few months earlier.



<h3>How much BTC did each miner mine last year?&nbsp;</h3>



Core Scientific, which has continued mining operations throughout its restructuring, produced the lion’s share of BTC, as expected, or 15,464 BTC ($299 million).



That represents an estimated 5% of all bitcoin issued throughout the year. Marathon, Bitfarms and Riot all brought in similar hauls, just shy of 6,000 BTC ($116 million) each.



Of the nine, Argo mined the least with 2,371 BTC ($45.8 million). The London-headquartered firm in December warned investors that it’s teetering on the edge of bankruptcy.



<figure class="wp-block-embed is-type-wp-embed is-provider-flourish wp-block-embed-flourish"><div class="wp-block-embed__wrapper">
<iframe class="wp-embedded-content" sandbox="allow-scripts" security="restricted" title="Interactive or visual content" src="https://flo.uri.sh/visualisation/12432771/embed#?secret=ChOHYmFVxf" data-secret="ChOHYmFVxf" frameborder="0" scrolling="no" height="575" width="700"></iframe>
</div><figcaption class="wp-element-caption">Chart by David Canellis</figcaption></figure>



On the selling front, the largest bitcoin dumps were disclosed in June of last year.&nbsp;



The analyzed companies together sold around 12,000 BTC ($361 million then, $232 million now) throughout the month — led by Core Scientific and Bitfarms, which sold around 7,200 BTC and 3,350 BTC, respectively.&nbsp;



Do Kwon’s failed algorithmic stablecoin had depegged in May, triggering rolling liquidations across the ecosystem for the next few months — not just bitcoin miners.



From there, our miners would go on to offload an of 4,900 BTC ($94.5 million) a month for the rest of the year. German outfit Northern Data notably revised its holding strategy to greenlight BTC sales in June, now selling all of its generated crypto every month.



<figure class="wp-block-embed is-type-wp-embed is-provider-flourish wp-block-embed-flourish"><div class="wp-block-embed__wrapper">
<iframe class="wp-embedded-content" sandbox="allow-scripts" security="restricted" title="Interactive or visual content" src="https://flo.uri.sh/visualisation/12433198/embed#?secret=0xHlKuANyn" data-secret="0xHlKuANyn" frameborder="0" scrolling="no" height="575" width="700"></iframe>
</div><figcaption class="wp-element-caption">Chart by David Canellis</figcaption></figure>



Jaran Mellerud, analyst at bitcoin mining services firm Luxor, told Blockworks that Northern Data is “basically all-in on crypto mining,” despite projecting a focus on the more general high-performance computing.&nbsp;



“The company operated several mining facilities in Europe that are now unusable due to the high electricity prices,” Mellerud said. Northern Data recently said it was in the process of relocating its ASIC miners to “energy price optimized locations.”



<h3>Bitcoin mining stocks track each other</h3>



While production, revenue and profitability drastically differ from miner to miner, their share prices are heavily correlated.



All the companies’ share prices underperformed against bitcoin, which fell about 60% throughout the year. Riot, the best performing stock analyzed, shed 71%.



Core Scientific was the worst performing bitcoin mining stock we checked — losing 99% of its value. No shock there.&nbsp;



For scale, the tech-heavy Nasdaq 100 stock index tanked 30% throughout the year, as depicted by Invesco’s popular ETF QQQ in the chart below.



<figure class="wp-block-embed is-type-wp-embed is-provider-flourish wp-block-embed-flourish"><div class="wp-block-embed__wrapper">
<iframe class="wp-embedded-content" sandbox="allow-scripts" security="restricted" title="Interactive or visual content" src="https://flo.uri.sh/visualisation/12435334/embed#?secret=f8EBOSsYD0" data-secret="f8EBOSsYD0" frameborder="0" scrolling="no" height="575" width="700"></iframe>
</div><figcaption class="wp-element-caption">Chart by David Canellis </figcaption></figure>



With share prices down or decimated across the board in 2022, one might wonder how to properly value each company now.&nbsp;



The nine firms were altogether worth $11 billion at the start of 2022. Now, they garner a combined market capitalization of $3.64 billion — almost $7.5 billion up in smoke.&nbsp;



Riot sits as the most valuable public bitcoin miner worth $1.29 billion, as of Jan. 13, followed by Marathon with about $895 million, per TradingView.



Northern Data clocks in at third at $320 million, down 80% from its near-$1.6 billion valuation at the start of 2022.



<figure class="wp-block-embed is-type-wp-embed is-provider-flourish wp-block-embed-flourish"><div class="wp-block-embed__wrapper">
<iframe class="wp-embedded-content" sandbox="allow-scripts" security="restricted" title="Interactive or visual content" src="https://flo.uri.sh/visualisation/12436286/embed#?secret=f47l9VM5eu" data-secret="f47l9VM5eu" frameborder="0" scrolling="no" height="575" width="700"></iframe>
</div><figcaption class="wp-element-caption">Chart by David Canellis</figcaption></figure>



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5 Charts Showing How Brutal 2022 Was for Public Bitcoin Miners

Cryptocurrency miner Core Scientific said it can’t continue to bear the daily loss of keeping Celsius as a client, and so it’s ending a hosting agreement with the crypto lender.&nbsp;



The miner <a href="https://cases.stretto.com/public/X217/12024/PLEADINGS/1202401032380000000125.pdf" target="_blank" rel="noreferrer noopener">told</a> a US bankruptcy court on Tuesday that it will power down more than 37,000 Celsius rigs spread across its facilities on Jan. 3. All rigs will be transported to Celsius at the bankrupt lender’s own cost before March 18. 



Core Scientific is associated with hosted mining, allowing third parties to pay a fee for rigs they purchase depending on their power usage.&nbsp;



The parties had an arrangement where Celsius would pay for its own power costs, but the company refused to pay some $7.8 million owed through Nov. 31, Core’s lawyers said in <a href="https://cases.stretto.com/public/X217/12024/PLEADINGS/1202412292280000000020.pdf" target="_blank" rel="noreferrer noopener">court papers</a>.



Core Scientific hosts mining machines for about 15 customers, while operating their own machines as well. Demand for hosting far exceeds Core’s capacity, meaning that the miner was waiting to free up some of its rack space for other clients.&nbsp;



Core provided hosting space to 41% of its total fleet (or 100,000 servers) as of Oct. 31, according to a <a href="https://www.businesswire.com/news/home/20221107005458/en/Core-Scientific-Announces-October-Updates" target="_blank" rel="noreferrer noopener">company update</a>.



Soaring electricity costs have caused a huge nuisance for crypto miners, squeezing their profit margins, as a combination of extreme weather conditions and Russia’s Ukrainian invasion have driven up prices.&nbsp;



Core itself <a href="https://blockworks.co/news/bitcoin-miner-core-scientific-to-file-bankruptcy-stock-tanks-30">filed for bankruptcy</a> in December, partly blaming Celsius’ non-payments for its own liquidity woes.&nbsp;



Lawyers argue that terminating the Celsius contracts could generate about $2 million in revenue per month, as the same hosting space would be used for other, more willing customers.



Core further established that continuing the Celsius contracts would mean losing money every day, putting the monthly figure at nearly $895,000 in December.&nbsp;



If the miner decides to use the space for its own operations, that could generate 400 bitcoin per month at an assumed price of $16,700, producing $2 million in revenue, according to its own estimates.



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Core Scientific To Switch Off Celsius’ Miners, Freeing Space for Other Clients

Ben Strack

It’s no secret crypto miners are struggling, and more casualties are expected next year.



But as the bear market trudges on, not all companies in the segment face dire circumstances, industry watchers said, as some may even come out stronger.&nbsp;



Core Scientific <a href="https://blockworks.co/news/compute-norths-business-goes-south" target="_blank" rel="noreferrer noopener">filed for bankruptcy</a> last week after saying in October it would <a href="https://blockworks.co/news/core-scientific-stock-price-plummets-70-as-it-considers-bankruptcy" target="_blank" rel="noreferrer noopener">skip upcoming payments</a> on several loans. The Texas-based miner’s filing came after data center operator Compute North lodged its own <a href="https://blockworks.co/news/compute-norths-business-goes-south" target="_blank" rel="noreferrer noopener">bankruptcy</a> in September.



Bitcoin is down about 75% from its all-time high reached in Nov. 2021, making mining less lucrative for companies that <a href="https://blockworks.co/news/crashing-prices-expose-bitcoin-mining-industrys-addiction-to-leverage" target="_blank" rel="noreferrer noopener">took on debt</a> to accelerate growth operations during the bull market. 



“This coupled with the massive downward crash the whole sector has seen this year is undoubtedly putting extra financial strain on miners,” Louise Abbott, a cryptocurrency and asset recovery partner at Keystone Law, told Blockworks in an email.&nbsp;



“Combined with the lack of confidence with investors purchasing less, casualties in the mining sector in the first half of 2023 are expected.”&nbsp;



In addition to the struggles of Core Scientific and Compute North, London-based Argo Blockchain <a href="https://blockworks.co/news/argo-bankruptcy-still-on-the-table" target="_blank" rel="noreferrer noopener">said</a> earlier this month it was looking to avoid bankruptcy despite holding “insufficient cash” to sustain operations for much longer. 



Iris Energy is also <a href="https://blockworks.co/news/crypto-miners-mulling-options-as-downturn-weighs-heavily" target="_blank" rel="noreferrer noopener">seeking to stay afloat</a>. Its two potential paths forward include expanding its self-mining from 2 exahashes per second (EH/s) to 5.4 EH/s — its preferred strategy — or third-party hosting. Iris Energy co-founder Daniel Roberts called the latter option “a backstop” during a company update earlier this month. 



“I cannot give you a clear answer on where we’ll be in the next week or month or even three months,” Roberts said at the time.&nbsp;



Mining firm Greenridge recently entered a non-binding agreement <a href="https://blockworks.co/news/bitcoin-miner-to-sell-rigs-worth-60m-to-cover-nydig-debt" target="_blank" rel="noreferrer noopener">to settle a $74 million debt</a> with NYDIG. Greenidge said in a statement it planned to offload mining equipment to crypto-focused financial services firm — reducing the loan by up to 90%.



Fred Thiel, CEO of Marathon Digital, declined to speculate on how many more miners could go bankrupt in the coming months. But, he told Blockworks, those that used equipment financing to fund growth are likely to continue facing headwinds.



“If these market conditions persist through the middle of next year, there will likely be significant attrition in the number of miners that remain viable,” Thiel said.&nbsp;



<h3>Opportunities for healthier miners</h3>



The overleveraged bitcoin miners are the ones who will feel the most heat in 2023, said Andy Long, CEO of bitcoin miner White Rock Management. Buying newer, more efficient mining hardware in quantity at historically low prices will pay off for some, he added.



“Miner capitulation will start to slow down next year, but there is likely still more to come before we turn the corner,” Long told Blockworks. “Miners who have prepared for the volatility and who have strong balance sheets will have a great opportunity to capitalize on the bear market.”



Thiel said that Marathon Digital’s primary focus in 2023 is hitting a hash rate of 23 EH/s by the middle of the year. Marathon’s hash rate, as of the end of November, was 7 EH/s.



The Marathon CEO has also said it could look to expand to international markets and is evaluating various renewable energy opportunities.



As far as potential buying opportunities, Thiel had said earlier this month the company was evaluating whether it could buy assets from Compute North.



“We opted not to purchase any assets from Compute North, and we&#8217;re not currently looking to buy any sites that are under development,” Thiel said. “That being said, we&#8217;re keeping an eye on the market and how things develop to determine if there might be something of value to Marathon and our shareholders.”



Riot Blockchain is another quickly expanding company <a href="https://blockworks.co/news/riot-blockchain-ceo-firm-is-one-of-mining-spaces-best-positioned-acquirers" target="_blank" rel="noreferrer noopener">seeking buying opportunities</a> during the downturn. It seeks to grow its current hash rate capacity of 7.7 EH/s to 12.5 EH/s by the first quarter of 2023.



Michael Venuto, a portfolio manager of Amplify Investments’ Transformational Data ETF (BLOK), <a href="https://blockworks.co/news/crypto-etfs-sank-in-2022" target="_blank" rel="noreferrer noopener">said</a> the miner he is highest on is Riot, given that it has no debt. 



A liquidation of Core Scientific could be good news for firms with a wider risk spread that are able to snatch assets at a reduced rate, Abbott said.



A Riot spokesperson did not return a request for comment.



Abbott added that the bankruptcy of FTX and security breaches highlight a “desperate” need for more regulation, which will help miners weather the crypto winter. 



“Ultimately, if the whole sector has more security, the miners will benefit; if people are not investing, the miners will be affected,” she said. “Regulation will add protection to promoting products, corporate governance and investor protection, amongst other things.”



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Expect More Bitcoin Miners To Go Bankrupt in 2023

Core Scientific, one of the world’s biggest bitcoin mining stocks, filed for bankruptcy on Wednesday after struggling under the weight of its debt.



The Texas-based firm’s cash flow is still positive, the company said in a press release, but it&#8217;s insufficient to repay an equipment financing loan



Core Scientific plans to continue mining while repaying the company’s majority debtholders.



The firm disclosed in a <a href="https://www.sec.gov/Archives/edgar/data/1839341/000162828022030600/core-20220930.htm" target="_blank" rel="noreferrer noopener">securities filing</a> dated Nov. 21 that it didn’t have enough cash to last through 2023. It also flagged doubts about its ability to raise funds through financing or capital markets.&nbsp;



In that filing, Core Scientific said it expects existing cash resources to be exhausted by “the end of 2022 or sooner.” Core Scientific has now <a href="https://www.prnewswire.com/news-releases/core-scientific-announces-comprehensive-restructuring-transaction-301708021.html" target="_blank" rel="noreferrer noopener">filed</a> for Chapter 11 bankruptcy just one month later.



The firm was just one of many bitcoin mining operations to <a href="https://blockworks.co/news/crashing-prices-expose-bitcoin-mining-industrys-addiction-to-leverage" target="_blank" rel="noreferrer noopener">take out high-interest loans</a> to fund rapid expansions and bolster rig inventories during the heat of last year’s bull market. Loans were often collateralized with existing ASIC reserves.



But rising electricity prices, falling crypto markets and sky-high mining difficulty left many companies, including Core Scientific, without enough revenue to cover debt obligations. Core Scientific said in October it would <a href="https://blockworks.co/news/core-scientific-stock-price-plummets-70-as-it-considers-bankruptcy" target="_blank" rel="noreferrer noopener">skip upcoming payments</a> on several loans.



The move to restructure &#8220;was necessitated by a decline in &#8230; operating performance and liquidity suffering from the prolonged decrease in the price of bitcoin, the increase in electricity costs necessary to power &#8230; data centers, and the failure by certain of its hosting customers to honor their payment obligations,&#8221; Core Scientific said. 



The firm played host to bankrupt crypto lender Celsius&#8217; bitcoin mining operations and <a href="https://cases.stretto.com/public/x191/11749/PLEADINGS/1174909292280000000013.pdf" target="_blank" rel="noreferrer noopener">claims</a> to be owed $5.4 million in unpaid fees.



Core Scientific ended October with $32.2 million in cash and just 62 BTC ($1 million), a far bleaker picture than September when it held 1,051 BTC ($17.7 million) and $29.5 million in cash. 



All this has obviously weighed heavily on Core Scientific stock, which is down 98% in 2022. The firm&#8217;s share price tanked a further 30% in pre-market trading Wednesday following news of its impending bankruptcy filing.



Direct rivals Marathon and Riot have shed 88% and 83% from their share prices this year, respectively. Core Scientific didn’t return Blockworks’ request for comment by press time.



There could be further bitcoin mining bankruptcies on the horizon. London-based outfit Argo Blockchain earlier this month warned shareholders it was <a href="https://blockworks.co/news/argo-bankruptcy-still-on-the-table" target="_blank" rel="noreferrer noopener">threatened by</a> “insufficient cash” and made no assurances of avoiding bankruptcy.



Updated Dec. 21, 2022 at 7:00 am ET: Included details of Core Scientific&#8217;s official statement, Celsius connection.



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Bitcoin Miner Core Scientific Files Bankruptcy, Stock Tanks 30%

Bitcoin miners are facing a tough few weeks ahead as meager prices threaten to render the network service unfeasible for anyone but the largest operators.



After shedding a quarter of its value throughout the FTX saga, the price of bitcoin is hovering around $16,300, down 66% year to date. Electricity prices —- which directly impact bitcoin mining profitability — in the US have jumped by about 13% in that time.



Bitcoin fading as electricity rates spike is obviously bad for miners: It can turn bitcoin mining into a loser’s game. One calculator offered by <a href="https://insights.braiins.com/en/cost-to-mine" target="_blank" rel="noreferrer noopener">Braiins</a> shows the cost of producing 1 BTC with a top-of-the-line Bitmain Antminer S19j is currently $34,732 — more than double bitcoin’s price.&nbsp;



And that’s based on electricity prices at $0.06 per kilowatt hour; the US Bureau of Labor Statistics <a href="https://www.bls.gov/regions/midwest/data/averageenergyprices_selectedareas_table.htm" target="_blank" rel="noreferrer noopener">reported</a> a national average at $0.166 last month. Data visualization portal <a href="https://en.macromicro.me/charts/29435/bitcoin-production-total-cost" target="_blank" rel="noreferrer noopener">MacroMicro</a> shows a lower global average cost, around $22,300, still 37% above bitcoin’s current price.&nbsp;



Although, some large scale mining operations are vertically integrated. Firms like Greenidge control their own power sources, which makes the whole process significantly cheaper.&nbsp;



Still, margins are thin across the board; one indicator built by investment unit Capriole <a href="https://twitter.com/caprioleio/status/1594671729917714437" target="_blank" rel="noreferrer noopener">measures</a> the ratio of bitcoin sold from miner reserves to their overall balance — it has jumped 500% in the past month, now at its highest reading in years.



“Higher equals more selling. We also sum the miner output over 30 days and compare it to average miner reserves held over the last 30 days, we think it highlights high miner selling very well,” Charles Edwards, founder at Capriole, told Blockworks.



Bitcoin miners have indeed been selling regularly, but the total sum of their treasuries has more-or-less held steady this year. In fact, miners together hold 8,184 more bitcoins than at the start of 2022, per CryptoQuant.



<figure class="wp-block-image size-full"><img decoding="async" loading="lazy" width="988" height="546" src="https://blockworks-co.imgix.net/wp-content/uploads/2022/11/bitcoin-miner-reserve-cryptoquant.jpg" alt="" class="wp-image-39902" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2022/11/bitcoin-miner-reserve-cryptoquant.jpg?w=988 988w, https://blockworks-co.imgix.net/wp-content/uploads/2022/11/bitcoin-miner-reserve-cryptoquant.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2022/11/bitcoin-miner-reserve-cryptoquant.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2022/11/bitcoin-miner-reserve-cryptoquant.jpg?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2022/11/bitcoin-miner-reserve-cryptoquant.jpg?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2022/11/bitcoin-miner-reserve-cryptoquant.jpg?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2022/11/bitcoin-miner-reserve-cryptoquant.jpg?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2022/11/bitcoin-miner-reserve-cryptoquant.jpg?w=50 50w" sizes="(max-width: 988px) 100vw, 988px" /><figcaption>Source: <a href="https://cryptoquant.com/" target="_blank" rel="noreferrer noopener">CryptoQuant</a></figcaption></figure>



Capriole’s indicator may be picking up a round of dumps, just as crypto reckoned with the impending collapse of FTX and its ensuing contagion. Bitcoin miners collectively sold 4,502 BTC between Nov. 7 and Nov. 8, according to CryptoQuant, a haul potentially worth up to $93 million.



Bitcoin’s price collapsed 24% around the same, dropping from $20,600 to under $15,800. Measuring miners’ direct impact on that move is difficult, but it’s clear that capital preservation is front-of-mind.



Bitcoin miners still hold more than 1.85 million BTC worth about $30.5 billion, representing almost 10% of the supply.&nbsp;



Loans backed by bitcoin miners to buy more bitcoin miners



Another spanner: A raft of major operators took out <a href="https://blockworks.co/news/crashing-prices-expose-bitcoin-mining-industrys-addiction-to-leverage" target="_blank" rel="noreferrer noopener">high-interest loans</a> — in many cases backed by mining rig inventories — at the peak of the bull market last year. Sky-high prices made it en vogue to acquire as many mining rigs as possible, as quickly as possible.&nbsp;



Those inventories have since been delivered and are now mining away in hopes of actually paying for them — giving us the unusual mix of record high hashrate and crumpled prices.&nbsp;



Indeed, Bitcoin’s current thunderous hashrate is fueled by a fiscal need to generate revenue as soon as possible to pay back decisions made more than one year ago. This has driven mining difficulty (which impacts the odds of successfully mining bitcoin) through the roof while vaporizing operational margins.



Bitcoin miners have faced the grim reality of paying back those loans in a bear market for months now. Core Scientific, one of the largest miners in the industry by hashrate, <a href="https://www.cnbc.com/2022/10/27/bitcoin-miner-core-scientific-warns-it-might-go-bankrupt-stock-plunges.html" target="_blank" rel="noreferrer noopener">warned the SEC</a> last month that it would not be able to meet its loan obligations and could go bankrupt.



Core Scientific is now selling more bitcoin than it creates to stay afloat, having cashed in most of its bitcoin stash over the past few months. The firm has reported $435 million lost in the year’s third quarter, bringing its year-to-date damage to $1.7 billion​​ and share prices losses to 98%.



Iris Energy, a smaller but sizable operation, <a href="https://www.sec.gov/Archives/edgar/data/1878848/000114036122042419/ny20005141x6_6k.htm" target="_blank" rel="noreferrer noopener">disclosed</a> default on loans worth $108 million this week. The firm has switched off mining rigs it used as collateral for expansion loans, similarly on the brink of bankruptcy.



<figure class="wp-block-embed is-type-wp-embed is-provider-flourish wp-block-embed-flourish"><div class="wp-block-embed__wrapper">
<iframe class="wp-embedded-content" sandbox="allow-scripts" security="restricted" src="https://flo.uri.sh/visualisation/11930341/embed#?secret=42JEnL4ykK" data-secret="42JEnL4ykK" frameborder="0" scrolling="no" height="575" width="700"></iframe>
</div><figcaption>Bitcoin’s hashrate often falls when the price does. Not this time.</figcaption></figure>



Even diamond-handed Marathon <a href="https://ir.marathondh.com/news-events/press-releases/detail/1288/marathon-digital-holdings-announces-bitcoin-production-and#:~:text=The%20Company%20has%20not%20sold,to%20fund%20monthly%20operating%20costs." target="_blank" rel="noreferrer noopener">warned</a> shareholders earlier this year that it might start selling its mighty bitcoin stash, having historically projected intentions to hold indefinitely. The firm has mostly financed itself on stock sales and other debt raises, <a href="https://markets.businessinsider.com/news/currencies/marathon-digital-stock-price-bitcoin-bond-sale-proceeds-sec-subpeona-2021-11" target="_blank" rel="noreferrer noopener">including</a> a $500 million bond sale last November, as bitcoin was retreating from all-time high.



Todd Esse, co-founder at mining investment firm HashWorks Digital Industries, expressed to Blockworks that the next 30 days will prove critical for bitcoin miners just holding on.



“I think we’re getting to a point where we’re going to start seeing a lot of rings dropping off over the next 30 days, if we stay down at this level or go even lower,” Esse said, adding that he sees room for only two large mining outfits to retain the bulk of their bitcoin.



Falling energy prices could offer bitcoin miners a glimmer of profitability, albeit distant. “The market is being very selective about who can fit in right now, and it’s very tight.”



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Bitcoin Price Drop Tests Miners’ Diamond Hands

Sebastian Sinclair

Digital asset markets are reeling from revelations that top exchange Binance may soon gobble up its major rival FTX, causing havoc among crypto stocks.



On Coinbase, bellwether crypto bitcoin fell 15% to $17,500 on Tuesday afternoon, its lowest point in almost two years. Number-two ether dropped by 22% at its worst while Binance’s native token BNB shed 12%.&nbsp;



Most top tokens have recovered slightly since their local lows. Still, the crypto market has shaved 10% from its total capitalization over the past 24 hours, breaking below the $1 trillion mark and representing $100 billion in nominal losses.



More than 69% has been wiped from a peak of $2.97 trillion witnessed 12 months ago, with roughly $1.9 trillion lost year to date. By comparison, the bursting of the dot-com bubble at the turn of the century erased <a href="https://money.cnn.com/2000/11/09/technology/overview/" target="_blank" rel="noreferrer noopener">$1.7 trillion</a> from equities markets, although adjusted for inflation that figure would be closer to $3 trillion.



Most of the sources Blockworks spoke to agree — the past 24 hours have been “insane.”



Core Scientific, one of the largest publicly listed miners, plummeted nearly 16% on Tuesday, the worst hit among bitcoin mining stocks, followed closely by Hong Kong rival Bit Mining. Core Scientific did however regain 3% during pre-market trade on Wednesday.



Hut 8 Mining Group and Digihost Technology both tumbled 12%, while Marathon Digital gave up 5% and a further 5% in the early morning session.



Surprisingly, New York-based Stronghold Digital managed to brace the impact climbing 2% on the day to finish up at $0.83 per share. The stock has however given up those gains and then some this morning.



Coinbase, practically the only pure-play crypto exchange that’s publicly-listed, took a 11% hit on Tuesday and another 5% during pre-market. Robinhood, the controversial discount brokerage which also supports crypto trading, tanked 19% to $9.74 and remains somewhat steady leading into today’s session.



Both Coinbase and Robinhood have experienced shrinking trade volumes, <a href="https://cms.blockworks.co/robinhood-layoff-costs-q2-losses-wont-delay-crypto-product-launches/" target="_blank" rel="noreferrer noopener">contributing</a> to reductions in their workforces this year, alongside both crypto-native firms and tech giants.



For scale, the tech-heavy NASDAQ 100 rose nearly 1% on Tuesday while the broader S&amp;P 500 gained more than half a percent.



<h3>Crypto bank Silvergate hardest hit among digital asset stocks</h3>



Digital asset managers Galaxy Digital and Bakkt Holdings sank 17% and 2.5% respectively on the day, with the latter falling another 2% during pre-market.&nbsp;



Both stocks have slumped by about 80% of year to date. Digital asset financial services firm Eqonex, a nano-cap stock which shuttered its exchange operations in August, also dropped nearly 9% on the day to $0.40.



Galaxy, spearheaded by Wall Street maverick Mike Novogratz, is rumored to be cutting its workforce by 15% following a <a href="https://cms.blockworks.co/galaxy-digitals-stock-rises-despite-posting-555m-q2-net-loss/" target="_blank" rel="noreferrer noopener">$555 million net loss</a> posted for the second quarter. Galaxy’s third-quarter earnings call is slated for Wednesday at 8:30 am ET.



Crypto custodians Silvergate and Signature Bank each ended more than 22% and 4% in the red, now down 73% and 57% respectively this year. Silvergate was the worst performing crypto-related stock on Tuesday of the 50 Blockworks analyzed. It fell an additional 7% during pre-market.



San Diego-based Silvergate, which collects demand deposits from crypto infrastructure providers and exchanges, posted a loss of $13.5 million in third-quarter deposits <a href="https://www.forbes.com/sites/emilymason/2022/10/18/silvergate-stock-tumbles-as-3q-deposits-retreat-for-banker-to-crypto-exchanges/?sh=4ff4e6275902" target="_blank" rel="noreferrer noopener">compared to Q2</a>.



Software company (and pseudo bitcoin ETF) MicroStrategy wasn’t far behind, sliding 20.5% and another 8% before Wednesday’s open. MicroStrategy owns <a href="https://cms.blockworks.co/are-companies-aside-from-microstrategy-still-buying-bitcoin/#:~:text=With%20the%20purchase%2C%20MicroStrategy%20now,return%20a%20request%20for%20comment." target="_blank" rel="noreferrer noopener">130,000</a> BTC ($2.31 billion), acquired for nearly $4 billion at an average of $30,639 as of late September, putting its paper losses at around 40%.



Elon Musk’s automaker Tesla, which held 9,720 BTC ($172 million) per its latest disclosures, tumbled 3%, although it’s more likely the stock was impacted by Musk dumping <a href="https://www.bloomberg.com/news/articles/2022-11-09/musk-sells-3-95-billion-of-tesla-stock-after-twitter-takeover" target="_blank" rel="noreferrer noopener">$3.9 billion</a> in company stock following his buyout of social media platform Twitter.



The negative price action across crypto stocks amounted to hurting digital asset ETFs. Bitwise’s Crypto Industry Innovators ETF (BITQ), which is weighted considerably towards MicroStrategy, Coinbase and Silvergate, stumbled 10%.



<h3>Crypto industry caught off guard by FTX collapse</h3>



The volatility felt Tuesday is reminiscent of past events this year following a contagion that had gripped some of the industry’s largest lenders including Celsius Network and Voyager Digital — now undergoing bankruptcy proceedings.



With public <a href="https://twitter.com/LucasNuzzi/status/1590122590206824448?s=20&amp;t=1ROZBsSFtb3lAWV99IQopA" target="_blank" rel="noreferrer noopener">speculation mounting</a> over whether FTX <a href="https://twitter.com/AriDavidPaul/status/1590027413937090561?s=20&amp;t=L8h4QiopjfCJkEUoAerzLA" target="_blank" rel="noreferrer noopener">rehypothecated</a> client crypto to bail out its sister firm Alameda Research in Q2, investors are fleeing for the exit. Users have decided against the risk of keeping their crypto on FTX and have decided to <a href="https://www.coindesk.com/business/2022/11/08/ftxs-bitcoin-balance-plunges-to-just-one/" target="_blank" rel="noreferrer noopener">pull their funds</a>.



Despite the <a href="https://www.coindesk.com/business/2022/11/02/divisions-in-sam-bankman-frieds-crypto-empire-blur-on-his-trading-titan-alamedas-balance-sheet/?outputType=amp" target="_blank" rel="noreferrer noopener">leak</a> of Alameda’s alleged partial balance sheet late last week, most in the industry have been caught off guard. Developments have escalated quickly and within a few days FTX CEO Sam Bankman-Fried could soon be forced to sell.



Questions remain as to why FTX —- which was valued as much as $36 billion at its last funding round just nine months ago — is grasping at a bailout from its biggest rival. Proponents are now asking whether FTX <a href="https://twitter.com/AriDavidPaul/status/1590027413937090561?s=20&amp;t=L8h4QiopjfCJkEUoAerzLA" target="_blank" rel="noreferrer noopener">deployed</a> its customer and partner capital to fund other ventures.



“In general, it’s poor practice for exchanges to be utilizing their customers’ tokens for other purposes, which exposes said tokens to unnecessary risk,” CoinGecko’s co-founder Bobby Ong told Blockworks.



Exchanges should strive to have customer tokens fully custodied, with the totals and wallet addresses made transparent for public scrutiny, he said. “All crypto exchanges should do Merkle-tree <a href="https://cms.blockworks.co/news/what-are-proof-of-reserves-and-can-they-build-back-trust/">proof-of-reserves</a>,” Binance’s CEO Changpeng Zhao tweeted Tuesday. 



Read more: <a href="https://cms.blockworks.co/news/what-are-proof-of-reserves-and-can-they-build-back-trust/">What Is Proof of Reserves and Can It Build Back Trust?</a>



“Banks run on fractional reserves. Crypto exchanges should not.” The Binance head said his exchange would start to implement proof-of-reserves “soon” in an attempt to provide “full transparency.”



Tony Chapple, head of trading at Australian digital asset firm Zerocap, told Blockworks that the event will escalate consolidation through the crypto space, which he reckons had been on the cards for a while.



“Consolidation to firms with proven ability to control their balance sheet risk and employ economies of scale will be the long-term winners here,” Chapple said.



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FTX Contagion Hits Crypto Stocks Following Binance Buyout

<div id="highlights-block_6369589c19e80" class="highlights">
 
</div>



A range of bitcoin miners are set to report third quarter results in the coming days as several companies in the mining sector are struggling to cope with financial pressures. 



Marathon Digital, Stronghold Digital Mining and Hut 8 Mining are among the companies in the space set to host earnings calls this week.&nbsp;



While analysts are not necessarily expecting big pronouncements of bankruptcies or acquisitions during industry players’ upcoming calls, they will be listening for how mining executives intend to navigate the current environment.



“I’m always listening for cues on expectations — company-specific and industry-specific — and specific companies’ moves to address their expectations,” Kevin Dede, senior technology analyst at HC Wainwright &amp; Co. told Blockworks.



<a href="https://cms.blockworks.co/crypto-miner-consolidation-imminent-as-some-industry-players-struggle/" target="_blank" rel="noreferrer noopener">Industry watchers told Blockworks</a> earlier this month that miner consolidation is imminent, as some of the larger miners in the space could look to scoop up struggling companies and their assets. 



But Lucas Pipes, managing director at B. Riley Securities, said miners in a solid financial situation are still likely to take a wait-and-see approach.&nbsp;



“They want to make sure they’re all secured and shored up and build that treasure chest to the extent they can,” he said. “Are you going to have exceptions to this rule? Yeah, you might.”



<h3>Keeping bitcoin mining rigs humming during crypto winter </h3>



Core Scientific revealed in <a href="https://d18rn0p25nwr6d.cloudfront.net/CIK-0001839341/5d07f815-c426-4db9-b79a-a38d616cf35a.pdf" target="_blank" rel="noreferrer noopener">filings</a> last month <a href="https://cms.blockworks.co/core-scientific-stock-price-plummets-70-as-it-considers-bankruptcy/" target="_blank" rel="noreferrer noopener">it was considering bankruptcy</a>, and Argo Blockchain followed by saying a potential capital injection of $27 million it was expecting <a href="https://cms.blockworks.co/crypto-miner-consolidation-imminent-as-some-industry-players-struggle/" target="_blank" rel="noreferrer noopener">had fallen through</a>. 



“The space is distressed,” Pipes said. “There’s no other way of putting it.”&nbsp;



Dede added that as it becomes harder to raise money in public markets, miners are being forced to purge assets.&nbsp;



Core Scientific said Monday that it sold 2,285 bitcoins at an average price of $19,639, as proceeds totaled roughly $45 million. The company held 62 BTC and about $32 million in cash, as of Oct. 31.



Core Scientific and Argo Blockchain have not yet listed earnings call dates.&nbsp;



Iris Energy is <a href="https://cms.blockworks.co/bitcoin-miner-iris-energy-says-its-bad-debt-contained-in-rotten-arms/" target="_blank" rel="noreferrer noopener">also in financial distress</a>. The Australia-based bitcoin miner said in an SEC filing last week that it can generate $2 million in monthly gross profit by mining bitcoin, while monthly principal and interest repayments on its debt stands at $7 million.



Bom Shin, vice president of corporate finance at Iris Energy, told Blockworks last week that the company’s debt is structured within a number of special-purpose vehicles (SPVs), which had a market value worth about 35% less than its principal loans outstanding as of September’s end.



The company was engaged in ongoing discussions with its unnamed lender, Shin added.



Iris Energy said that if it is unable to restructure the loans, two of its SPVs would have to default on the loans, which would likely result in the lenders foreclosing on the mining rig collateral, according to a Nov. 3 research note by Compass Point Research and Research analysts Chase White and Joe Flynn.



The analysts added that while Iris Energy’s stock price dropped following the news — and that the company may have a hard time getting equipment-backed financing in the future — they believe the company will be in a better financial situation after its negotiations with its lenders.



“We believe the market misunderstands the implications of the situation, which we see as a potentially significant positive for [Iris] that will allow it to continue to operate without the burden of expensive debt,” White and Flynn said.&nbsp;



In addition to the more recent struggles in the space, crypto mining data center operator <a href="https://cms.blockworks.co/compute-norths-business-goes-south/" target="_blank" rel="noreferrer noopener">Compute North filed for bankruptcy</a> in Texas in September.



Dede said he expects it will take a bit more pressure before more bankruptcies and consolidation take shape.



“You can expect to see some suffering for a while, I think,” he added. “I’m in no position to say how long this bear market lasts, but people who are running these companies should position themselves to endure a lengthy one.”



<h3>The space’s potential acquirers could wait to buy&nbsp;</h3>



Marathon Digital posted <a href="https://cms.blockworks.co/crypto-miner-marathon-digital-posts-192m-net-loss-in-q2/" target="_blank" rel="noreferrer noopener">a net loss of $192 million</a> during the second quarter and is set to report its third quarter earnings on Tuesday at 4:30 p.m. ET. 



The company said on Nov. 2 that it added about 32,000 miners last month to raise its hashrate to roughly 7 exahashes per second (EH/s). It also produced a record 615 bitcoins in October, increasing its total holdings to 11,285 BTC.



Marathon seeks to hit roughly 13 EH/s by the end of 2022 and 23 EH/s by mid-2023, Marathon CEO Fred Thiel told Blockworks.



Thiel said last month that Marathon would keep an eye on cheap assets from struggling miners. He noted that the company could look to purchase a hosting site, for example, if such a buy made strategic sense.



Riot Blockchain is another company that has expressed interest in acquisitions, as CEO Jason Les called his firm <a href="https://cms.blockworks.co/riot-blockchain-ceo-firm-is-one-of-mining-spaces-best-positioned-acquirers/" target="_blank" rel="noreferrer noopener">one of the segment’s “best-positioned acquirers.”</a>



The company produced 509 bitcoins in October and held 6,825 BTC, as of Oct. 31. It seeks to reach 12.5 EH/s during the first quarter of 2023. Riot has a special meeting of stockholders set for Nov. 17.



Frank Holmes, executive chair of HIVE Blockchain Technologies, <a href="https://cms.blockworks.co/ex-eth-miner-hive-blockchain-eyes-buying-opportunities-post-merge/" target="_blank" rel="noreferrer noopener">told Blockworks</a> in September that his firm would be evaluating buys of equipment, and potentially mining firms, over the next six months. 



Cleanspark said on Nov. 1 that it acquired 3,843 units of Antminer S19J Pro bitcoin mining machines for $5.9 million. The machines appeared to have come from Argo Blockchain, which reported selling the same number of S19J Pro units last week.&nbsp;



Pipes said though he believes “we’re getting close” to seeing more mergers and acquisitions in the space, there are often relatively few operational synergies to take advantage of.&nbsp;



He added that Riot is likely in the best financial situation of any miner, while Marathon is also in a position to take advantage of opportunities. But, he noted, those companies may want to focus on their ambitious hashrate targets.



“I think it’s first things first — execute on the existing growth plan before you take precious capital to add in more growth that may not be as attractive as what you have planned for anyways” Pipes said.&nbsp;



<h3>Other miners to keep an eye on</h3>



After Marathon’s earnings call on Tuesday, Stronghold Mining and Hut 8 Mining are scheduled to host their own on Wednesday at 5:00 p.m. ET and Thursday at 10:00 a.m. ET, respectively.&nbsp;



Canada-based miner Bitfarms is set to report its third quarter results on Nov. 14 at 11 a.m. ET



Stronghold said last week that it eliminated all outstanding principal — totaling about $67 million — under its equipment financing agreements with NYDIG and The Provident Bank.&nbsp;



Stronghold CEO Greg Beard said in a statement that the company was rapidly deleveraging its balance sheet and enhancing liquidity to pursue acquisitions of bitcoin miners at attractive prices. Stronghold had roughly $30 million of liquidity in cash and bitcoin, as of Nov. 1.



Meanwhile, Hut 8 Mining produced 299 bitcoins in October to raise its holdings total to 8,687 BTC. Its installed hashrate capacity was 3.07 EH/s at the end of the month.



Hut 8 CEO Jaime Leverton said during Blockworks’ Digital Asset Summit in September that acquisitions are not necessarily the best thing in the current market environment, as the company can buy new machines at attractive prices.



Bitfarms, <a href="https://cms.blockworks.co/crypto-miner-bitfarms-sells-half-its-bitcoin-to-reduce-debt-boost-liquidity/">which resorted to selling bitcoin</a> earlier this year, mined 486 BTC in October and sold all of it.



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What To Expect on Miners’ Q3 Earnings Calls As Industry Remains ‘Distressed’

<div id="highlights-block_635a9160156d3" class="highlights">
 <ul>
 <li>Core Scientific’s existing cash resources will be depleted by the end of 2022 or sooner, according to a company filing</li>
 <li>Research analysts expect the miner’s creditors could agree to restructure the debt, but noted the possibility of bankruptcy “should be taken seriously”</li>
 </ul>
 
</div>



Core Scientific has decided to skip upcoming payments as it faces liquidity and operational issues, and has hired advisers as it considers restructuring its capital structure or seeking relief through bankruptcy.



The crypto miner’s operating performance and liquidity has been “severely impacted” by the lower bitcoin price, litigation with <a href="https://cms.blockworks.co/tag/celsius/" target="_blank" rel="noreferrer noopener">bankrupt crypto lender Celsius Network</a> and the increases in electricity costs and global bitcoin hash rate — and therefore <a href="https://cms.blockworks.co/bitcoin-mining-economics-explained/" target="_blank" rel="noreferrer noopener">mining difficulty</a> — the company noted in <a href="https://d18rn0p25nwr6d.cloudfront.net/CIK-0001839341/5d07f815-c426-4db9-b79a-a38d616cf35a.pdf" target="_blank" rel="noreferrer noopener">a Wednesday filing</a>. 



<blockquote class="wp-block-quote">“The board has decided that the company will not make payments coming due in late October and early November 2022 with respect to several of its equipment and other financings, including its two bridge promissory notes,” the filing states. </blockquote>



The creditors under these debt facilities could elect to accelerate the principal amount of such debt, sue the company for nonpayment or take action with respect to collateral, it adds. Such actions could lead to default of the company’s other debt agreements, including its two series of convertible notes due in 2025.&nbsp;



Core Scientific has hired Weil, Gotshal &amp; Manges LLP and PJT Partners as advisers. In addition to seeking ways to raise additional capital or restructure its existing capital structure, Core Scientific “could seek relief under the applicable bankruptcy or insolvency laws,” the filing says.&nbsp;



The company’s stock price was down about 68% on the day, as of 10 am ET.



Compass Point Research &amp; Trading Analysts Chase White and Joe Flynn said in a Thursday research note that it’s hard to predict at this point whether the company will need to file for bankruptcy.



“Given a large portion of its existing debt is equipment financing backed by mining rigs, we believe there&#8217;s a good chance [Core Scientific’s] creditors agree to restructure the debt in order to not have to take possession of the rigs, especially in the current market where rig prices have fallen 60%-plus from 2021 highs,” the analysts said.&nbsp;



Still, White and Flynn added, a scenario where the company has to file for bankruptcy should be taken seriously, especially if bitcoin prices decline further.



The price of bitcoin stood at roughly $20,600 Thursday morning, down roughly 70% from the asset’s all-time high reached last November, but up 13% from its Oct. 13 low of $18,160.



The filing comes after Core Scientific <a href="https://investors.corescientific.com/investors/news/news-details/2022/Core-Scientific-Announces-September-Updates/default.aspx">revealed earlier this month</a> that it produced 1,213 bitcoins in September despite severe weather events and electrical equipment manufacturer defects. It expanded its fleet to roughly 232,000 servers, representing about 22.5 exahashes per second (EH/s).&nbsp;



Though Core Scientific held 1,051 bitcoins and roughly $29.5 million in cash, as of Sept. 30, the Wednesday filing notes that it had 24 bitcoins and about $26.6 million in cash, indicating it sold between about $18 million and $20 million worth of BTC in October.



The company said in the filing it anticipates that existing cash resources will be depleted by the end of 2022 or sooner, adding that it is difficult to predict when bitcoin prices could recover or energy costs could abate.



“Given the uncertainty regarding the Company’s financial condition, substantial doubt exists about the company’s ability to continue as a going concern for a reasonable period of time,” the filing states.



A Core Scientific spokesperson did not immediately return a request for comment.





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Core Scientific Stock Price Plummets 70% as It Considers Bankruptcy

<div id="highlights-block_62f61083e2162" class="highlights">
 <ul>
 <li>Produced 3,365 bitcoin in the quarter, a 4% drop from the prior quarter</li>
 <li>Shares of CORZ have clawed back some of the year’s losses over the past month</li>
 </ul>
 
</div>



Core Scientific (CORZ) reduced its headcount by 10% in the second quarter as part of cost-cutting measures to deal with market turmoil, the cryptocurrency miner announced on Thursday.



<a href="https://cms.blockworks.co/tag/core-scientific/" target="_blank" rel="noreferrer noopener">The company</a> posted a quarterly net loss of $861.7 million, including an $840 million charge driven by a revaluation of assets and a $150.2 million charge due to declines in digital asset prices.



“To date, we have eliminated approximately 10% of our workforce — none of whom are involved in our data center activities,” CEO Mike Levitt said during the quarterly <a href="https://seekingalpha.com/article/4533335-core-scientific-inc-s-corz-ceo-mike-levitt-on-q2-2022-results-earnings-call-transcript" target="_blank" rel="noreferrer noopener">earnings call</a>.



The job cuts were not part of the miner’s core business, according to CFO Denise Sterling.



Aside from layoffs, the miner said it ceased its blockchain technology development business, renegotiated vendor contracts and resized its organization. The company expects operating expenses in the second half of the year to be 25% lower in comparison to the first half.&nbsp;



Revenue for the quarter rose to $164 million, from $75.3 million at the same time last year, beating average analyst estimates of $161.8 million, according to FactSet. That jump was “driven primarily by increases in digital asset mining revenue and hosting revenue,” the company said.



Core Scientific currently operates 125,000 self-mining servers — miners owned by third-parties but hosted by Core. By the end of the year, it expects 170,000 servers to be operative and eventually wants to expand its self-mining fleet beyond that number.



<h3>Bitcoin Miner Output and Outlook</h3>



The company produced 3,365 bitcoins in the quarter, representing a 4% drop from the <a href="https://www.businesswire.com/news/home/20220512006011/en/Core-Scientific-Announces-First-Quarter-2022-Results" target="_blank" rel="noreferrer noopener">previous quarter</a>. It said current mining output averages 40 bitcoins per day, with a record 45.7 bitcoins in a single day this week.



Last month, Core <a href="https://www.businesswire.com/news/home/20220805005098/en/Core-Scientific-Announces-July-Updates" target="_blank" rel="noreferrer noopener">sold more bitcoin</a> than it produced to pay for capital investments and maintain liquidity. It also struck a <a href="https://cms.blockworks.co/bitcoin-miner-core-scientific-strikes-100m-stock-deal-after-dumping-btc/" target="_blank" rel="noreferrer noopener">$100 million equity financing deal</a> with investment firm B. Riley Principal Capital amid the market downturn that weighed on miners’ balance sheets.



The miner holds 1,959 bitcoin and a cash balance of $128 million on its balance sheet at the end of June 30.



Crypto industry insiders expected to see a risk of miner defaults across both public and private miners as well as hosting facilities, although those risks have eased slightly with a modest recovery in bitcoin’s price. Bitcoin last traded at $23,937, up nearly 24% in the last month, data from <a href="https://www.blockworksresearch.com/assets/btc" target="_blank" rel="noreferrer noopener">Blockworks Research</a> shows. 



In the first quarter, Core lowered its total hashrate outlook to between 30 and 32 exahash per second, with a total power of about 1 gigawatt.&nbsp;



Hashrate, or the total computational power used to process transactions, is a key metric for bitcoin miners as it indicates how fast one miner’s machines work in competition with another. Core reiterated the same hashrate guidance for the remainder of the year.&nbsp;



Rival miner Marathon Digital posted a <a href="https://cms.blockworks.co/crypto-miner-marathon-digital-posts-192m-net-loss-in-q2/" target="_blank" rel="noreferrer noopener">quarterly net loss</a> of about $192 million, with its bitcoin production down 44% from the previous quarter.



Core’s shares are down 70.6% so far this year, but have recovered losses in the past month. They last traded at $3.24 per share in Friday’s pre-market session, data from <a href="https://www.tradingview.com/chart/?symbol=NASDAQ%3ACORZ" target="_blank" rel="noreferrer noopener">TradingView</a> shows.



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Crypto Miner Core Scientific Downsizing After $840M Impairment Charge

<div id="highlights-block_62debcf65de0d" class="highlights">
 <ul>
 <li>Markets are beginning to favor bitcoin mining stocks with the strongest balance sheets</li>
 <li>Valkyrie&#8217;s mining fund has cut its Core Scientific weight more than any other stock</li>
 </ul>
 
</div>



Markets and fund managers are selecting which bitcoin mining stocks they believe will survive the bear market, with healthy balance sheets and low production costs proving the difference.



Bitcoin miners are still under pressure from expensive electricity alongside low cryptocurrency prices — and, in some cases, <a href="https://cms.blockworks.co/crashing-prices-expose-bitcoin-mining-industrys-addiction-to-leverage/" target="_blank" rel="noreferrer noopener">high-interest loans</a> taken out at peak bull market last year.



Core Scientific (CORZ), which has <a href="https://bitcoinmagazine.com/markets/top-bitcoin-miners-holdings-hash-rates-surging" target="_blank" rel="noreferrer noopener">historically</a> commanded more hash rate than any other North American mining outfit, earlier this month disclosed it had sold $167 million in bitcoin in June, nearly three-quarters of its total stash.



Around the same time, rival mining unit Bitfarms (BITF) sold half of its BTC for $62 million to reduce debt. Riot Blockchain (RIOT), another major player, has also been steadily liquidating its mined bitcoin all year.



All these factors have weighed heavily on the share prices of bitcoin mining companies as markets fear further capitulation.



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</div></figure>



Excluding non-pure play mining companies, the 18 crypto native stocks that make up alternative asset management firm Valkyrie’s mining ETF, WGMI (crypto slang for &#8220;we’re gonna make it&#8221;), are down 51% on average over the past three months. 



Shares in the ETF itself have tanked 42.5% — about the same as bitcoin.



<h3>Markets favor Stronghold, a vertically integrated bitcoin miner</h3>



Bit Digital, which has fully transitioned its mining operations from China to the US over the past 18 months, is leading the pack, having slid only 24% since April 25.



Jaran Mellerud, Arcane Research analyst, told Blockworks in an email that Bit Digital has been busy moving its miners between continents. This meant the firm couldn’t expand its operations as aggressively as most other public miners.



“In hindsight, massively expanding operations with new machine deliveries was not a good decision as the bitcoin price has plummeted,” Mellerud said.



<blockquote class="wp-block-quote">“Bit Digital was ‘lucky’ that the bitcoin price plummeted in this period, while they were not able to expand as quickly.”</blockquote>



After Bit Digital, Stronghold and Marathon have proven the most resilient, shedding 29% and 36%, respectively, from their share prices.



<figure class="wp-block-image size-large"><img decoding="async" loading="lazy" width="1024" height="590" src="https://blockworks-co.imgix.net/wp-content/uploads/2022/07/Screen-Shot-2022-07-25-at-17.27.16-1024x590.png" alt="" class="wp-image-24671" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2022/07/Screen-Shot-2022-07-25-at-17.27.16-1024x590.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2022/07/Screen-Shot-2022-07-25-at-17.27.16-1024x590.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2022/07/Screen-Shot-2022-07-25-at-17.27.16-1024x590.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2022/07/Screen-Shot-2022-07-25-at-17.27.16-1024x590.png?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2022/07/Screen-Shot-2022-07-25-at-17.27.16-1024x590.png?w=2048 2048w, https://blockworks-co.imgix.net/wp-content/uploads/2022/07/Screen-Shot-2022-07-25-at-17.27.16-1024x590.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2022/07/Screen-Shot-2022-07-25-at-17.27.16-1024x590.png?w=453 453w, https://blockworks-co.imgix.net/wp-content/uploads/2022/07/Screen-Shot-2022-07-25-at-17.27.16-1024x590.png?w=380 380w, https://blockworks-co.imgix.net/wp-content/uploads/2022/07/Screen-Shot-2022-07-25-at-17.27.16-1024x590.png?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2022/07/Screen-Shot-2022-07-25-at-17.27.16-1024x590.png?w=50 50w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption>Image source: <a href="https://arcane.no/research/survival-of-the-fittest-which-public-bitcoin-miners-are-the-best-prepared-to" target="_blank" rel="noreferrer noopener">Arcane Research</a></figcaption></figure>



While Stronghold has one of the weaker balance sheets among its cohort, according to Mellerud, the company is vertically integrated, meaning it controls two of its own power plants.&nbsp;



Stronghold also powers its mining operations by burning waste coal, so its energy is practically free. The firm even receives government subsidies for cleaning up the refuse, awarding them the lowest bitcoin production costs in the industry, Mellerud <a href="https://arcane.no/research/survival-of-the-fittest-which-public-bitcoin-miners-are-the-best-prepared-to" target="_blank" rel="noreferrer noopener">wrote</a> last month.



Marathon, on the other hand, suffers from relatively high bitcoin production costs, but commands an “abnormally high quick ratio” (the value of its most liquid assets divided by its liabilities) compared to its major competitors.



<h3>Traders reject insider stock sales and poor balance sheets </h3>



Australian miner Mawson Infrastructure Group, a smaller stock valued at $68 million, has sunk nearly 77%.&nbsp;



Mawson posted a net loss of $11.3 million in the first quarter of this year, according to SEC filings, up from $38.6 million lost in 2021’s equivalent quarter. WGMI didn’t feature Mawson when it launched but it now makes up 2.71% of the fund’s portfolio.



Core Scientific, the industry’s largest public miner by hash rate, has done marginally better, down 72%. Arcane Research’s Mellerud found Core Scientific has a high debt-to-equity ratio — with the debt collateralized precariously by its ASIC machines.



As its mining rigs depreciate in value, the company must continuously post higher amounts of collateral to maintain its loans, further stressing its balance sheet — which is weaker than its competitors despite stronger cash flows.



But Core Scientific’s share price has faced downward pressure from its executives as well. SEC filings show company insiders have liquidated nearly $22 million in stock since the end of May, led by Darin Feinstein, co-founder and chief vision officer.



<figure class="wp-block-embed is-type-wp-embed is-provider-flourish wp-block-embed-flourish"><div class="wp-block-embed__wrapper">
<iframe class="wp-embedded-content" sandbox="allow-scripts" security="restricted" src="https://flo.uri.sh/visualisation/10580219/embed#?secret=yjxESqf6ZC" data-secret="yjxESqf6ZC" frameborder="0" scrolling="no" height="575" width="700"></iframe>
</div></figure>



Feinstein netted $18.3 million by selling 6 million shares at an average price of $3.05 — 70% below its value when it went public via a SPAC <a href="https://www.businesswire.com/news/home/20220120005306/en/Core-Scientific-to-Begin-Trading-on-Nasdaq" target="_blank" rel="noreferrer noopener">deal</a> in January. The company’s share price has fallen 40% since Feinstein’s sales, trading at $1.83 as of last Friday&#8217;s close.



Other insider sales were classified to the SEC as “Tax Withholding” transactions, relating to a type of executive compensation package known as “Restricted Stock Units,” or RSUs. Feinstein’s were not.



Core Scientific awarded more than 22.5 million RSUs over the past two months to its executives (81% to CEO Michael Levitt), currently worth $41.3 million, at which time they incurred tax obligations, leading to stock sales.



Core Scientific later disclosed in a <a href="https://investors.corescientific.com/investors/news/news-details/2022/CORRECTING-and-REPLACING-Core-Scientific-Announces-May-Updates/default.aspx" target="_blank" rel="noreferrer noopener">press release</a> that Feinstein had informed the company that his sales “were sold to provide capital to satisfy certain taxes related to the conversion of RSUs and other liabilities.”



Executives at Argo and Riot Blockchain have also been granted RSUs over the past three months, for which they also sold stock in “Tax Withholding” transactions, although Feinstein’s stand out due to their size.&nbsp;



<h3>Valkyrie goes back to basics</h3>



When the firm’s WGMI fund launched in February, Core Scientific was its sixth-biggest holding, weighted at 4.3% — ahead of Riot Blockchain and Marathon.



Core Scientific now makes up just 0.96% of WGMI’s $3.7 million portfolio, a whopping 78 percentage point weight reduction. The stock was cut more than any other holding, followed by renewable mining play TeraWulf, which saw its weight trimmed by nearly 70 percentage points; from 3.84% to 1.17%.



“As the year has gone on, especially over the last couple of months, it&#8217;s kind of a back to basics approach over here,” Bill Cannon, Valkyrie’s head of portfolio management told Blockworks. “We&#8217;re looking at adjusted balance sheets — just revenue, just net income.”



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<iframe class="wp-embedded-content" sandbox="allow-scripts" security="restricted" src="https://flo.uri.sh/visualisation/10580327/embed#?secret=25rrBHrLTU" data-secret="25rrBHrLTU" frameborder="0" scrolling="no" height="575" width="700"></iframe>
</div></figure>



WGMI boosted its Stronghold, Marathon and Riot Blockchain stock over the past three weeks by 1.65%, 1.61% and 0.96% respectively. Those stocks make up between 4.24% and 5.87% of the fund’s total portfolio.&nbsp;



Argo Blockchain — which Arcane&#8217;s Mellerud believes is the only bitcoin miner with cash flows to fully pay off its remaining ASIC deliveries this year — is WGMI’s largest holding with 13.32% weight, up from 9.81% in February.



CleanSpark (CLSK), which has practically no debt on its balance sheet, comes second with 11.37%, although WGMI has recently scaled back its weighting.



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Bitcoin Mining Stocks Face Market Reckoning Amid Widespread Selloff

<div id="highlights-block_62dad6580b837" class="highlights">
 <ul>
 <li>Core Scientific signed an agreement to sell $100 million shares to investment firm B. Riley</li>
 <li>The miner sold 7,202 bitcoin for roughly $167 million in June</li>
 </ul>
 
</div>



Major bitcoin mining outfit Core Scientific is raising capital by agreeing to sell $100 million in equity over the next two years to investment firm B. Riley Principal Capital.



A Thursday <a href="https://www.sec.gov/Archives/edgar/data/1839341/000119312522199189/d291317dex991.htm" target="_blank" rel="noreferrer noopener">statement</a> shows the miner has the right, but no obligation, to sell and issue its shares to B. Riley, subject to limitations and conditions such as the market environment and trading price of the stock.



To satisfy the agreement, Core Scientific issued the firm 573,381 shares of common stock for its commitment to the equity financing facility. Core Scientific stock currently trades for $1.87.&nbsp;



According to an SEC <a href="https://www.sec.gov/ix?doc=/Archives/edgar/data/1839341/000119312522199189/d291317d8k.htm" target="_blank" rel="noreferrer noopener">filing</a>, the miner will use proceeds from its common stock sale for “general corporate purposes.” “Securing access to additional capital during adverse market conditions enhances our liquidity and expands our strategic optionality,” Mike Levitt, Core Scientific’s CEO, said in a statement.



The Austin-based firm’s equity financing comes amid a broad market downturn that has weighed on miners’ balance sheets. During the bull market, many bitcoin miners <a href="https://cms.blockworks.co/crashing-prices-expose-bitcoin-mining-industrys-addiction-to-leverage/" target="_blank" rel="noreferrer noopener">took on high-interest loans</a> to fund their rapid expansions, which included deals to acquire large inventories of <a href="https://cms.blockworks.co/tag/asics/" target="_blank" rel="noreferrer noopener">ASIC miners</a>.



Core Scientific in particular maintains high levels of machine-collateralized debt compared to its peers, Arcane Research <a href="https://arcane.no/research/survival-of-the-fittest-which-public-bitcoin-miners-are-the-best-prepared-to" target="_blank" rel="noreferrer noopener">reported</a> last month. The company does however boast strong cash flow thanks to its commanding hash rate, <a href="https://arcane.no/research/bitcoins-hashrate-is-going-public" target="_blank" rel="noreferrer noopener">historically</a> more than any other public mining stock — funds it needs to pay off machine deliveries throughout the year. 



A growing number of cryptocurrency miners have recently been <a href="https://cms.blockworks.co/crypto-mining-strategies-differs-as-downturn-lingers/" target="_blank" rel="noreferrer noopener">forced to sell</a> a substantial portion of the BTC they’ve mined. Core Scientific said it <a href="https://www.businesswire.com/news/home/20220705005347/en/Core-Scientific-Announces-June-Updates" target="_blank" rel="noreferrer noopener">sold 7,202 BTC</a> for about $167 million in June, and proceeds were used for ASIC servers, data center capacity and debt payments. 



At the end of last month, Core Scientific held 1,959 BTC ($45.6 million) and about $132 million in cash on its balance sheet.



Some believe miners dumping their crypto is a standard aspect of bitcoin’s market cycle.



“Some miners take on too much debt — often by buying lots of mining equipment using loans — and then face so much financial pressure they have to sell their bitcoin en masse,” said <a href="https://www.linkedin.com/in/les-borsai-3560398/" target="_blank" rel="noreferrer noopener">Les Borsai</a>, co-founder of Wave Financial. “Once such miners sell what they have on hand, this usually marks the market bottom.”



Core Scientific’s shares are down 82% so far this year and have fallen 12% in the last month.



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