Bitcoin (BTC-USD) miners have found themselves limping along through 2022. Unlike the miners of precious metals and other rare commodities, crypto miners are subjected to the wild price fluctuations of their wares. This, compounded with energy struggles in the newfound crypto mining capital of Texas, has made for precarious conditions. Core Scientific (NASDAQ:CORZ) is the newest of a growing pack of crypto miners to spiral out due to these factors. The company’s Chapter 11 bankruptcy filing is hindering CORZ stock as a result.
A year ago, a crypto-mining investment was a no-brainer speculative buy. With the crypto market surging toward $3 trillion in value, and Bitcoin prices reaching almost $70,000, the sky seemed to be the limit. Texas has been an appealing locale for these miners for many reasons. Governor Greg Abbott had been looking to woo these companies to his state with tax breaks and dirt-cheap land to set up shop. And, given Texas’ sunny climate, the area is ripe for solar-based mining.
All of these positives, and the glowing state of the market, have been enough to get crypto mining companies to overlook the many inherent risks facing a move to the Lone Star State. Texas, although possessing an independent power grid, has faced myriad troubles keeping the power on, especially in times of severe weather. Given the increase in severe weather events in the state, these companies are subjected to stop-and-go operations. This wastes time that could be spent mining elsewhere.
A more obvious hindrance to these miners has been the state of the crypto market itself recently. The failure of several large crypto projects and companies, from Terra (LUNA-USD) to Celsius to FTX, has created great turmoil. Prices have tanked, with Bitcoin now trading just under $17,000.
CORZ Stock Squashed by Crypto Market Squeeze
Many crypto miners are reacting poorly to the crypto market pressure. Profitability is down, and the expenses to mine are steadily rising. Those that don’t have a store of Bitcoin ready to sell have been left out to dry. Those that do, face the dilemma of whether to buy or hold and hope for a market turnaround. Core Scientific is one such company caught between a rock and a hard place, and its bankruptcy news is tanking CORZ stock.
Based in Austin, Texas, Core Scientific is one of the industry’s biggest miners in terms of the computing power it uses in its operations. Throughout the fall, though, the company had warned shareholders of its precarious financial situation. In September, it held just under $30 million in cash on hand. By October, though it was running 232,000 machines, its cash on hand rose only to about $32 million. The company said at this time that it anticipated running out of money before the end of the year.
It appears these fears have become reality, as the company is filing for Chapter 11 bankruptcy protections on Wednesday. Under Chapter 11, the company will have a chance to restructure its operations and become profitable once again. In its press release, the company says it will continue to mine crypto throughout this process.
The process will see Core collaborating with the Ad Hoc Noteholder Group, which holds 50% of the company’s short-term debts. The noteholder group will implement the agreed-upon restructuring plan, supplying $56 million in financing to actuate them.
In the meantime, though, CORZ stock is suffering quite a bit. The stock is down more than 50% on today’s trading session, dragging shares from 15 cents to 10 cents apiece. Volume is surging on the news as well, with 54 million shares trading hands over a 16 million daily average.
On the date of publication, Brenden Rearick 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.
