- One of the market’s strongest players trying to survive the crypto winter
- Celsius Mining’s bankruptcy leads to controversies regarding the shutdown of mining rigs
On July 23, Celsius Mining, a prominent Bitcoin miner, initiated a bankruptcy procedure. The company used the services of Core Scientific, the world’s largest publicly traded crypto mining and hosting company. Core Scientific also filed a Chapter 11 bankruptcy petition on December 21. This is an elaborately planned procedure aimed at restructuring. The relationship between the two giants has given rise to concerns for the entire mining industry.
One of the market’s strongest players trying to survive the crypto winter
According to Russell Cann, Chief Mining Officer at Core Scientific (CORZ), the situation is “much closer to Hertz and Ford and Delta than FTX.” He expects the reorganization process to strengthen the company. Core Scientific operates its own Bitcoin mining rigs and provides hosting services to others. It accounts for around 10% of the entire hashrate of the Bitcoin network, with its computing power of almost 25 exahash/second (EH/s). According to official publications, the company mines around 50 Bitcoin every day for itself, and in October it mined a total of 1,295 Bitcoin.
However, amid the constantly rising energy costs and decreasing Bitcoin prices, Core Scientific shares have lost almost 99% of their value over the past year, and the company had warned that it might file a bankruptcy two months earlier.
According to Cann, Core Scientific’s bankruptcy won’t affect most of its customers who already have mining rigs or contracts with the company’s hosting business. Although Core Scientific considers selling two facilities, this option had already been considered prior to the bankruptcy.
Celsius Mining’s bankruptcy leads to controversies regarding the shutdown of mining rigs
The controversies between Core Scientific and its largest client, Celsius Mining, also include their contract conditions. Core Scientific is expected to shut down 37,000 mining machines tied to Celsius Mining. This decision has resulted from a contract-related court proceeding that started on December 28.
The conflict has been caused by both parties violating contract conditions. Core accuses Celsius of not paying its dues, and Celsius is frustrated by the fact that Core has increased its power rate although this is not provided for by their contract. Core’s bankruptcy Judge David R. Jones has sided with the hosting provider and claimed that Celsius Mining is trying to manipulate him in its own bankruptcy case.
The hosting firm has asked the court to reject the contract with the miner as an emergency measure, claiming that the losses related to contract violation amount to $2 million per month. If Core Scientific shut down Celsius Mining’s rigs, it could compensate the losses by attracting new clients or using its own machines.
Celsius has agreed to cancel the contract but refused to do it hastily, while the hosting firm insists on conducting a hearing on two days’ notice. Because of the bankruptcy, Celsius needs to consult with its lenders before responding to the request, which is impossible to do in two business days. Therefore, the miner asks to postpone the hearing until January 23.
One of the reasons is the logistical issues related to moving out the equipment, and another one is minimizing expense which is quite important for a company undergoing a bankruptcy procedure.
“But critically, if the Court approves the rejection of the Celsius Contracts, there are significant logistics that must be arranged to return Celsius’ property currently in Core’s possession, including over 37,000 mining rigs. Celsius estimates that transporting these rigs would take at least 70 semi-trucks upwards of 30 days just to make the deliveries alone, never mind the time to unplug the rigs, prepare them for pickup, and locate trucks and moving staff across the five states where the rigs are currently located. Celsius did not arrange the logistics necessary to recover its property because Celsius reasonably expected to have good faith discussions with Core given the comments made at Core’s first day hearing. Celsius has a duty to maximize the value of its own estate and accordingly, did not spend time or money unnecessarily incurring significant transition costs that may not have been necessary.”
So far, Celsius has agreed to its rigs being shut down under the condition that it wouldn’t have to pay for the services. The miners claim that the contract provides for a fixed hosting services rate, while the hosting firm says that it suggests a variable rate. In its objection to the motion, Celsius has clearly expressed its stance:
“Putting the procedural defects of the Rejection Motion to the side, Celsius does not object to the rejection of its contracts with Core at the appropriate time. Celsius has no desire to continue doing business with Core’s existing management team, which has repeatedly proven to be uncommercial and even duplicitous.”
So far, the companies have not reached an agreement.
