It took a consensual hallucination to pull it off.
By Wolf Richter for WOLF STREET.
U.S. Bitcoin miner and cryptocurrency hosting platform Core Scientific, the largest publicly traded cryptocurrency miner by computing power, issued a bankruptcy notice on Oct. 27, nine months after going public via merger with a SPAC, reported Nov. 22, lost $435 million in the third quarter on $162 million in revenue; and that it lost $1.7 billion in the first nine months of the year, on $519 million in revenues.
“The Company expects existing cash resources to be depleted by the end of 2022 or sooner,” it said. And that would be the end of it.
The company lives off the bitcoin price and is now dying from the bitcoin price crash. He mentioned the word “bankruptcy” 35 times in his 10-Q filing with the SEC on Nov. 22: his potential bankruptcy, unless he gets some “additional liquidity” through a divine miracle; and the bankruptcy filing of its biggest client, Celsius.
The fundamental rule in the land of cryptocurrencies is that every company is closely linked by countless tentacles to many other cryptocurrency companies – borrowing and lending to each other – which makes contagion smooth and efficient within the land of cryptocurrencies. They all went to heaven together, and now they’re all going to hell together.
The company, which is based in Austin, Texas, blamed the threat of filing for bankruptcy on a “prolonged decline in the price of bitcoin” – in the third quarter, “the average price of bitcoin fell to $21,324, down from $32,502 for the three months ending June 30,” it reads. Alas, those were the good times. The price of bitcoin meanwhile has plunged to $16,000.
He also blamed “rising electricity costs”. It needs electricity in large quantities to power its cryptocurrency mining facilities and data centers, and electricity is therefore one of its main input costs.
And he blamed his “ability to meet his liquidity needs,” or rather lack of ability, and while at it, he blamed his debt obligations that he can’t meet.
Its holdings were down to $32 million in cash and just 62 Bitcoin in October (about $1 million in fiat), down from more than 8,000 Bitcoin in early 2022. It had sold those Bitcoin holdings to stay afloat while Bitcoin it was falling. At the same time, electricity prices have soared. And because his share price imploded, he couldn’t raise any money by selling more shares.
Given its massive cash burn, that $33 million will be used up before the end of the year. This is the message here.
That’s a lot to swallow for investors who had bought into the hype and bustle of a company that went public less than a year ago.
His actions [CORZ] plunged 99% from their peak a year ago, after the SPAC merger was announced but before it was completed, to nothing ($0.13) today, another of hundreds of stunning demonstrations of how insidious the Wall Street show hype had become in 2021 to dump something like this in the lap of the audience. But nothing special in my huge and growing pantheon of imploded titles:
Another US-based cryptocurrency mining data center provider, privately held Compute North, already filed for bankruptcy in September, owing up to $500 million to at least 200 creditors.
Core Scientific has $1.3 billion in liabilities, including nearly $1 billion in maturing bonds. The company had previously said it will not make debt payments due in late October, early November, and has not made them. He’s trying to negotiate with his creditors.
The show of fuss and bustle: consensual hallucination.
Just to see how Core Scientific’s merger with a SPAC played out to the public, we’ll look at the hype and hoopla that has been fueled by these hapless investors. We’ll review the announcement in July 2021 that the company made about its merger with a SPAC at a “pro forma corporate value of $4.3 billion.”
This is an extra-special but ultra-common stuff of Wall Street’s insidious show of hype and hustle: The people who believed this crap participated in what I call consensual hallucination.
This is what the ad said in July 2021 with a perfectly straight face:
“Core Scientific is the largest blockchain infrastructure, hosting provider and digital asset miner in North America, with an estimated year-end power capacity of approximately 510 megawatts across four dedicated facilities strategically located across the United States.
“The transaction enables Core Scientific to mine digital assets and provide and develop hosting and other blockchain services at scale, using low-cost, clean, renewable energy for a growing global decentralized financial sector.
“In addition to offering proprietary digital asset extraction infrastructure and management software to large-scale partners around the world, Core Scientific’s pending acquisition of Blockcap, Inc. (“Blockcap”), a leader in digital asset mining positions the company as a leader in North America’s largest vertically integrated self-mining business.
“The recent acquisition of RADAR by Blockcap, a pioneer in the blockchain technology space, further strengthens Core Scientific’s leadership position and potential to create value through the development of decentralized finance (“DeFi”) products and services. “
If you read this then and believed it, and wanted to invest in this dress, that’s a sign you were engaged in a consensual hallucination.
The whole kit and caboodle are now blowing up. As soon as the price of bitcoin started to fall, the show of hype and hoopla collapsed, the stock imploded, the company defaulted on its debts and is preparing for a bankruptcy filing.
People should go to jail for it, but they won’t. And the SEC won’t do anything either because it has been sleeping for years. We’ve already counted over 1000 companies whose shares have imploded over 80% from recent highs, not just in cryptocurrency land, but everywhere. And it won’t be over until all that stuff is over.
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