After growing by 400% in 2023, Core Scientific leads the Bitcoin mining industry. But why is this ruined stock soaring?
Core Scientific is Outperforming in 2023 After a Horrible 2022
For Core Scientific shareholders—at least those who didn’t sell their shares at the bottom around the new year—the tide is turning. Many have been surprised that Core Scientific has been the best-performing Bitcoin mining stock so far in 2023 after rising by 367% and falling by 99% in 2022.
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The Nasdaq has grown by 19% over the same time period, while Bitcoin has increased by 66%. We must expect Bitcoin mining stocks to perform well in such a risk-taking market environment. On the graph below, you can see that all of these stocks have outperformed the Nasdaq thus far in 2023, with 22 out of 24 beating Bitcoin.
The graph above illustrates how, in 2023, Core Scientific has outperformed other stocks involved in Bitcoin mining. We cannot attribute its successes to the rise in the price of Bitcoin alone, as evidenced by this enormous outperformance compared to its sector. There must be something going on within the business that has caused this enormous growth. Let’s find out what.
Core Scientific’s Shareholders May Not Lose Everything After All
In other words, the likelihood that the bankrupt company will pursue a restructuring that is more shareholder-friendly is rising, which is why Core Scientific’s stock is soaring. Let’s give some background on the complicated situation the company is in and describe what is happening.
After crumbling under the weight of its enormous debt, Core Scientific filed for Chapter 11 bankruptcy protection on December 21st, 2022. Since then, the business has been collaborating with the bankruptcy court, its shareholders, and its debt holders on a restructuring plan. The massive self-mining and hosting company is still operating its assets to produce vital cash flow in the interim.
As equity owners and holders of different debt instruments compete to protect their interests, it is still unclear how the restructuring plan will be structured. There won’t be enough assets for everyone in a bankruptcy, and some creditors will have to take bigger losses than others. It’s like a game of musical chairs.
When Core Scientific filed for bankruptcy in late December, it appeared that equity owners and other debt holders would lose out on getting their money back, leaving only the holders of convertible notes. The price of a bitcoin was under $17,000 at this time, electricity costs were still high, and Core Scientific was barely making any money.
A predatory but necessary emergency loan of up to $75 million was provided by the holders of convertible notes to Core Scientific. There were several conditions attached to this loan, the most significant of which was that the holders of convertible notes could convert their debt into equity and end up owning 97% of the company’s total equity. Existing shareholders would have been significantly diluted under such a restructuring plan, and it appeared that only a miracle could save them.
At the beginning of January, when the market was in better shape, such a miracle took place. The rising Bitcoin price and declining electricity prices both had a significant positive impact on Core Scientific’s cash flow. Shareholders realized that they had a significant increase in bargaining power during bankruptcy.
In order to replace the emergency loan from the holders of convertible notes, B. Riley, a major unsecured debt holder, and equity owner, asked the bankruptcy court to grant Core Scientific a new loan. The Bankruptcy Court authorized this replacement facility on February 2nd, giving B. Riley in charge of the company’s future. B is anticipated to happen. Riley will pursue a restructuring that is more beneficial to shareholders than the noteholders who previously held control.
The company’s share price has naturally increased as it becomes more likely that it will pursue a restructuring that is beneficial to shareholders.