Latest String of Bankruptcies Create Havoc in the Bitcoin Mining Sector

The cryptocurrency industry has been bobbing in rough waters for the past few weeks, and the mining industry, in particular, has not been spared. The ongoing crypto winter has claimed many casualties in the industry, with giants such as lender Celsius network, hedge fund Three Arrows Capital, broker Voyager Digital, and Bitcoin mining companies like Compute North forced to initiate bankruptcy proceedings within the year. 


Cryptocurrency mining revenues have taken a significant hit because of falling Bitcoin prices and rising energy costs, prompting Bitcoin miners to pivot in search of new revenue streams to stay afloat.


Compute North’s Bankruptcy Filing


In September, Compute North, one of the largest crypto mining data centers, filed for Chapter 11 bankruptcy in the United States Bankruptcy Court for the Southern District of Texas. The filing revealed the company owes approximately $500 million to 200 creditors. Compute North also announced its CEO, Dave Perrill, stepping down despite his continued participation in the board. The hitherto COO, Drake Harvey, took over leadership as company president.


In February, Compute North raised $85 million in Series C equity funding and $300 million in debt financing for a total of $385 million capital raised. However, the company still fell into bankruptcy as miners struggled to survive while Bitcoin prices plummeted, increasing electricity costs and record difficulty for Bitcoin mining softwares.


This bankruptcy filing is poised to negatively impact the mining industry since Compute North is one of the biggest data center providers for miners and has multiple business dealings with other larger mining enterprises. 


According to its website, the company operates four facilities in the US: one in Nebraska and South Dakota each and two in Texas. Some of Compute North’s clients include Marathon Digital (MARA), Compass Mining, Singapore-based Atlas Mining, BitNile Holdings (NILE), Sphere 3D (ANY), and Chinese miner The9.


Core Scientific on the Verge of Bankruptcy


Core Scientific, one of the world’s biggest Bitcoin mining companies, announced in October that it was facing the prospect of declaring bankruptcy. The combination of pressures facing the mining industry forces it to burn through its cash reserves. The company released a statement saying it would not be servicing any of its debts until the end of the year. They also announced exploring myriad options to cope with its financial difficulties. 


Core Scientific made the point that in light of the uncertainty around its financial condition, substantial doubt exists over its capacity to persist as a going concern for any reasonable amount of time. Shares in the NASDAQ-listed Core Scientific were, unsurprisingly, down 70% in early trading following the announcement.


Core Scientific claims that the prolonged drop in the price of Bitcoin has severely impacted its financial woes. Other reasons cited include the following:


  • Rising electricity prices.
  • The increase in Bitcoin’s global hashrate.
  • The litigation battle with Celsius Network. 


Celsius, the now bankrupt crypto lender, owes Core Scientific millions of dollars in unpaid electric bills as per October court filings. The miner submitted a report showing it is losing approximately $53,000 every day to cover what the lender has failed to pay. 


Additionally, the amount of Bitcoin Core Scientific has on hand has rapidly declined over the past few months since it has had to offload more tokens than it mined to meet costs. In July alone, for instance, Core sold over 7,000 BTC to shore up its balance sheet. 


The company stated further that it is difficult to estimate future liquidity requirements and that it anticipates existing cash resources will be depleted by the end of 2022 or even sooner. 


FTX Saga Exacerbating Mining Bankruptcy Crisis


While Bitcoin miners were already having a tough time keeping revenues up, the FTX Saga has only worsened matters for players in the industry. With the price of Bitcoin down 20% since the news of FTX’s financial troubles broke on the 6th of November, Bitcoin mining sites are now earning less than ever


As the news of the collapse of FTX came to light, the consequent bank run on its accounts created a market meltdown, with Bitcoin slumping to $15,500 and the broader crypto market following suit.


While it seems that no publicly traded Bitcoin miners had direct exposure to FTX and Alameda, miners have nevertheless felt the knock-on effects of the FTX situation. The market selloff has weighed heavily on mining stocks, even with the slight rally of Bitcoin from $15,500 to the $16,500 range.



Miners Brace for Tougher Times


Even before Bitcoin’s most recent price slump, many of these miners showed signs of trouble, with Core Scientific, for example, hinting at possible bankruptcy in an October SEC filing. Now, the current market climate puts publicly traded Bitcoin miners in situations ranging from ‘uneasy’ to ‘potentially dire’ as Bitcoin margins are not only wholly depressed, but capital is also becoming increasingly more challenging to secure.


According to Elliott David, head of climate energy and partnerships at Sustainable Bitcoin Protocol, miners’ conditions will likely worsen before they get better. Those miners who desire to survive the long term will have to alter their strategy. 


For example, those miners focused particularly on strategic approaches and clean energy solutions, like CleanSpark and WhiteRock Management are well positioned to weather the storm.