Core Scientific: The $9 Billion AI Comeback Story

Welcome to the 149th Pari Passu newsletter.

Bitcoin is back in the spotlight, surging to record highs, attracting massive institutional inflows, and prompting legislative attention through the proposed GENIUS Act. Companies like Microstrategy, Tesla, and others are doubling down, buying up bitcoin to create strategic reserves as a hedge against inflation and fiat risk.

With mainstream adoption accelerating and bitcoin back in vogue, today’s newsletter explores one of the most dramatic boom-to-bust-to-boom stories in cryptocurrency – Core Scientific. Once the largest bitcoin miner in North America, the company rose to prominence during the crypto bull run, pouring billions into purpose-built data centers to support both its own mining and third-party hosting. But as bitcoin prices collapsed amid the brutal crypto winter of 2022, Core Scientific’s aggressive growth strategy quickly unraveled. This deep dive covers the company’s rise, its path through Chapter 11, and how a strategic pivot to AI infrastructure fueled one of the most surprising post-bankruptcy rebounds of the past few years.

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Overview

Core Scientific was founded in December 2017 by Michael Jeffrey Levitt and Darin Feinstein, originally as a bitcoin mining and infrastructure company. Before its bankruptcy, it operated purpose-built facilities for mining bitcoins and provided hosting services and infrastructure support to third-party miners. The company managed 814MW of capacity (enough to power around 713k homes) across eight data centers in the U.S., making it one of the largest providers of blockchain infrastructure in the country [1].

Business Model

Core Scientific operated under two main segments: “mining”, in which the company earned revenue by mining for its own bitcoin ($398mm in 2022, ~62% of revenue) and “hosting and equipment sales”, in which the company earned revenue by providing blockchain infrastructure and hosting services for customers to do their own mining and through the sale of mining equipment ($243mm, ~38% of revenue) [2].

Core Scientific’s operations were primarily based on blockchain technology and bitcoin’s mathematically controlled supply. We have covered how this system works in a previous write-up, “The Cryptocurrency Industry and Its Distressed Cycles,” but to recap, a blockchain is a decentralized digital ledger that lets people securely trade digital assets directly with each other, without needing a central authority or middleman. Since digital asset transactions are not facilitated by a central authority, there needs to be a way to implement these transactions securely. This is where miners come in – miners, which are just specialized computers, bundle the most recent transactions on the network into a “block”, and then solve complex cryptographic algorithms that validate the digital asset transactions within the block. This is known as “solving a block”, and to incentivize miners to solve blocks (which enables transactions to be processed), miners are rewarded with a set amount of bitcoin for every solved block. The reward amount started out at 50 bitcoins per solved block and is automatically halved every 210,000 solved blocks, meaning miners are rewarded with less bitcoin as more bitcoins are mined. As such, this segment's profitability is highly dependent on the price of bitcoin. Currently, the reward is 3.125 bitcoin per block [1] [2].

Core Scientific’s mining segment involved deploying a large fleet of company-owned miners across its eight data centers to solve blocks and earn bitcoin rewards. Of these facilities, three were owned and five were leased. The segment’s performance depended on mining efficiency, the size of the block reward, and most critically, the market price of bitcoin. From an accounting perspective, newly mined bitcoins were recognized as revenue under the mining segment based on the fair market value of the bitcoins at the time they were mined. The company did not immediately sell these newly mined bitcoins, and instead held a significant portion of them on its balance sheet as intangible assets with indefinite useful lives. Decisions to sell these holdings were based on bitcoin prices and the company’s liquidity or funding needs [2].

In addition to running its own mining operations, Core Scientific also offered hosting services for third-party customers. Clients would…

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