US-based listed cryptocurrency mining firm Core Scientific on Wednesday filed for bankruptcy, blaming falling Bitcoin prices, rising energy costs and $7 million unpaid debt from crypto lender Celsius Network. Earlier in July, Celsius also filed for bankruptcy.
They are not likely to be exceptions, as the crypto industry may continue to see a fall of firms amid the ongoing contagion, experts told Business Standard.
In 2022 alone, the shares of Core Scientific have dipped 98 per cent, shrinking its market cap to about $78 million from over $7 billion at the start of the year.
“Core Scientific is not the only BTC (Bitcoin) miner that has faced bankruptcy this year. In September, we also saw Compute North filing for bankruptcy,” said Edul Patel, chief executive officer and co-founder of crypto investment platform Mudrex.
“Bitcoin halving” will be among the primary reasons that may lead to more Bitcoin mining firms shutting down. For every 210,000 blocks mined every four years, the block reward given to miners is cut in half. This is called Bitcoin halving.
“With the Bitcoin halving happening every four years, the rewards for Bitcoin miners will keep decreasing. Therefore, we are likely to witness several Bitcoin mining organisations shutting shop and moving towards other profitable avenues. That is the way the Bitcoin algorithm was designed,” Patel added.
“It may trigger sell-off in the shares of other publicly traded Bitcoin mining companies as investors would cut their exposure in these companies,” said Deepanshu Bhalla, director at The Virtual Compliance, a law, regulations and taxation firm.
“Lenders also need to rethink how they evaluate the credit of these mining companies in future,” Bhalla added.
Will it impact the crypto market?
“Crypto miners shutting shop has essentially negligible impact on the movements of the crypto industry,” Patel said.
Most of the cryptocurrencies have shifted from a proof-of-work mechanism to a proof-of-stake (PoS) mechanism. Under PoS, verification of transactions can be done by a wider number of people. It does not require miners to give proof of their capital. This shift will cushion the impact on the market.
“Other than Bitcoin, several other cryptocurrencies follow a PoS consensus mechanism. PoS does not involve mining. Even the largest altcoin blockchain, Ethereum, recently shifted away to a POS mechanism,” Patel added.
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