The road to bankruptcy is paved with good intentions.
Barring a Bitcoin pump or major bailout from an investor, that’s the exact road that CS is traveling.
I dug into the SEC filing to learn more about Core Scientific’s financial situation. It doesn’t look good.
“As previously disclosed, the Company’s operating performance and liquidity have been severely impacted by the prolonged decrease in the price of bitcoin, the increase in electricity costs, the increase in the global bitcoin network hash rate and the litigation with Celsius Networks LLC and its affiliates (“Celsius”). In the event of a bankruptcy proceeding or insolvency, or restructuring of our capital structure, holders of the Company’s common stock could suffer a total loss of their investment.”
This disclosure confirms previous suspicions and brings to light new ones. Rising global hash rate is compounding the existing pain, as expected. It is also clear now that the contagion from Celsius is a legitimate factor in Core Scientific’s default. Bad news for crypto has settled down over the past couple of months, but there are clearly still skeletons in the closet.
Those skeletons are shaped like Alex Mashinsky, Do Kwon, Su Zhu and Kyle Davies.
Let’s explore the options that creditors have, as per the SEC filing:
“As a result, the creditors under these debt facilities may exercise remedies following any applicable grace periods, including electing to accelerate the principal amount of such debt, suing the Company for nonpayment or taking action with respect to collateral, where applicable.”
The options above would require approval from a bankruptcy court, but seemingly all possibilities are on the table.
So what’s the takeaway?
If the mining dominos do start to fall, chances are we see contagion and further companies impacted. In the crypto lending crisis it wasn’t just Celsius that went under. It was also Voyager, Vauld and a slew of other off-brand over-leveraged lenders. When the model breaks, weak participants pay the price.
The second takeaway is that this situation could be powerful enough to fuel another leg down for crypto prices. Since June, crypto has chopped sideways, with few major stories to drive price lower. Logically, if more miners shut down, it could stoke fears around the infrastructure of the industry and send prices south.
Markets tend to price in news long before it happens, and weak miners are likely to be replaced by stronger entities. It’s a free market.
Either way, not enough people are talking about this story, which is all the more reason to pay attention.
Remember how quickly the Celsius situation crept up on us?
The same could happen here.
There’s nothing to do but wait. But this is a story that is worth tracking closely.
*** I woke up today in the mood for memes, so beware.