Today’s move in Core Scientific (NASDAQ:CORZ) has decimated investor interest in the Bitcoin (BTC-USD) mining sector. At the time of writing, CORZ stock has absolutely plummeted more than 75%. This comes after the company filed a Form 8-K, announcing it may need to explore bankruptcy.
“Given the uncertainty regarding the Company’s financial condition, substantial doubt exists about the Company’s ability to continue,” was the most material warning investors are taking to heart today. Of note in this filing were also comments that the company will not make debt payments for this month and next.
Any sort of going concern warning is one investors take with a great deal of trepidation. Indeed, given the fact that much of the growth prospects for crypto miners are tied to the ability to raise debt to fund capital expenditures, this note could hamper the entire sector.
Let’s dive into what investors may want to consider with this rapid decline today.
Why Is CORZ Stock Plunging Today?
For Core Scientific, this current environment is one that has been less than friendly for its profit margins. Bitcoin prices have dwindled this year, leading to relatively muted top-line numbers. At the same time, mining difficulty (or the amount of computing power needed to generate a new Bitcoin) has increased. This has meant margins have shrunk to a point where solvency has become a concern for mining companies.
Being one of the largest players in the Bitcoin mining space, Core Scientific’s announcement is one that investors may want to take note of. While other crypto miners are seeing relatively flat action today, it’s entirely plausible Core Scientific won’t be the only company to make such announcements moving forward.
The reality is that in capital-intensive businesses, debt is required for any sort of growth. Like other commodity-driven industries, scale is one of the only drivers that companies can use to increase profits. However, downturns in commodity prices, such as the one we’ve seen with Bitcoin, can be disastrous in the near term.
For now, we’ll have to see how this all plays out for Core Scientific. The company may be able to reorganize its business in a way that makes sense for debt and equity holders. That said, it’s clear many investors don’t want to stick around to see what that will look like.
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On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
