Bitmain to Inject $54 Million into Bankrupt Bitcoin Mining Firm Core Scientific

TL; DR

Bitmain will inject $54 million into Core Scientific to prop up its Bitcoin mining business.

Bitmain will get equity for its financial contribution to Core Scientific.

Core Scientific aims to be viable and efficient before the 2024 bitcoin halving.

Introduction

Bitcoin, the first decentralized currency, uses a proof-of-work consensus mechanism. In this case, transaction validators or miners solve cryptographic puzzles using their computing power. Nevertheless, the cost of mining bitcoin is very high which forces some BTC mining firms to close down.

Today, we discuss how Bitmain intends to inject $54 million into Core Scientific to resuscitate its operations. We will also look at factors that cause some bitcoin mining firms to go bankrupt.

Bitmain to Bail out Core Scientific from Bankruptcy

Bitmain, the world’s leading manufacturer of cryptocurrency mining servers and Artificial Intelligence (AI) computing hardware, has agreed to invest $53.9 in Core Scientific, a bitcoin mining company and a provider of software solutions, which will expand their work relationship. Bitmain will provide efficient mining machines and related equipment to Core Scientific to improve its operations.

Previously, Bitmain entered a hosting service agreement where Core Scientific uses its Bitcoin mining servers to support its crypto mining project. Commenting on this agreement a Bitmain spokesperson said, “Core Scientific is an important contributor to the strength and stability of the Bitcoin Network, and we look forward to working closely with their team to help realize Bitcoin’s full potential.”

The two deals Bitmain has with Core Scientific demonstrate that the former has much interest in the success of the crypto mining industry in North America. Max Hua, Bitmain CEO explained why Bitmain is collaborating with the bitcoin miner.

He said, “We look forward to deepening our strategic relationship with Core Scientific, our long-standing U.S.-based partner. Their professionalism, integrity, and commitment to the success of their hosting customers and to the growth of the Bitcoin Network is unsurpassed in the industry.”

Read also: How to use cloud mining to mine Bitcoin in just one click?

Key Terms of the Agreement between Bitmain and Core Scientific

The main focus of the agreement between Bitmain and Core Scientific is to enhance the bitcoin mining firm to attain efficiency that fosters its growth and viability.

Bitmain will provide 27,000 Bitmain S19J XP 151 and several bitcoin mining servers. In exchange Core Scientific will pay $23.1 million in cash and Core Scientific common stock worth $53.9 million at a per share value. The “per share value” of the stocks will depend on the provisions of the bankruptcy court.

Regarding the agreement, Adam Sullivan, the CEO of Core Scientific said, “We are honored to expand our significant relationship with Bitmain. Together, we have worked tirelessly to professionalize our industry, charting a path for the long-term growth of the Bitcoin Network as bitcoin adoption increases around the world.”

Core Scientific and other crypto miners are putting measures to improve how they mine cryptocurrency before the next bitcoin halving event. To this effect Sullivan said, “Bitmain’s product quality, attention to service and responsiveness are critical to our success in supporting the Bitcoin Network.”

He added, “The new miners we are securing with this agreement will enhance our mining fleet’s efficiency as we continue to prepare for next year’s halving event and beyond.”

Basically, the 2024 bitcoin halving will increase the mining difficulty which may force many companies that mine BTC out of business unless the Bitcoin price increases significantly. However, a big question remains: Will bitcoin miners go bankrupt?

Can Crypto Companies that Mine BTC Go Bankrupt?

There is no doubt that crypto mining companies that mine BTC in an inefficient manner can go bankrupt. The reason is that any bitcoin miner incurs many costs.

The profit levels which crypto firms that mine BTC generate depend on their cost structures and the current bitcoin price. If the BTC price is high most BTC mining firms can cover their operational expenses and generate profit.

In 2022 many crypto firms that were operating in the bitcoin mining industry closed down due to high losses since the BTC price was very low as a result of the crypto winter.

The bitcoin mining firms’ cost structures determine their viability. Apart from the cost of acquiring the BTC mining equipment such firms incur much electricity cost. In fact, the cost of energy is probably the greatest expense on the mining firms’ balance sheets.

The cost of specialized mining machines called rigs adds another big financial burden to companies that mine BTC. In many instances, crypto firms borrow funds to purchase bitcoin mining servers and other specialized equipment. They aim to use their profits to pay back such money. Hence, if they fail to generate enough profits they are forced into bankruptcy.

Sadly, in some cases the lenders may repossess the mining equipment which puts them out of business.

One of the critical factors that negatively affects the viability of crypto miners is inefficiency. Often, outdated and inefficient bitcoin mining machines lead to high cost of production which may result in low profit or high losses. Therefore, only efficient and cost-effective firms are able to remain in the BTC mining business.

Already, there are many companies that mine cryptocurrency that have become insolvent and declared bankruptcy. Compute North, a U.S based crypto mining firm and Celsius Mining, a mining unit of Celsius Network which filed for Chapter 11 bankruptcy in July 2022, have already declared bankruptcy. Other crypto mining companies like Greenidge Generation Holdings have given warning of potential bankruptcy.

Conclusion

Recently, Bitmain entered an agreement to supply Core Scientific with various equipment in exchange for equity and cash. This agreement will enable Core Scientific to become efficient before the 2024 bitcoin halving event. High cost of electricity and low BTC price contribute to financial losses for mining firms.