Last month we talked about how all crypto miners were unprofitable due to the market crashes and rising energy prices. This week, massive publicly traded Bitcoin mining firm Core Scientific (Nasdaq: CORZ) warned it might be going bankrupt.
Core Scientific is big. Really big. Back in March, it reportedly operated 180,000 ASIC miners accounting for roughly 10% of the Bitcoin network. The trouble the company is having is a telling sign for the state of the Bitcoin blockchain, and how overinvested mining operations are. Many companies like Core Scientific grew rapidly on the backs of low interest rate loans and excess capital availability, and just last month we saw another large miner, Compute North, file for bankruptcy.
While all of crypto has been taking a beating, Core Scientific’s stock price is enough to make this year’s crypto losses blush. This week, CORZ is down ~80% to $0.20 from $1. Since the crypto bull run, CORZ is down over 98%.
The struggle miners are having brings up big questions around Bitcoin’s future and security. The blockchain is secured by miners–the more there are, the more secure it is. Mining will find an equilibrium where difficulty drops and all surviving operators are profitable again, but we’ve seen that shocks to credit and energy markets can kill off large crypto companies.
In traditional metals mining companies, savvy operators will hedge risk in the open market against the resources. For instance, a nickel mine may take out an option betting on the price of nickel to drop. If it does drop, they make some profit from the option and minimize their losses from the decreased sale value. In the world of Bitcoin mining, that same risk management may have to include spikes in oil prices and drops in Bitcoin given how volatile these asset classes can be.