What’s a $1.8mn private jet bill between Spac friends?

Two of the wildest bubbles of recent years have been Spacs and crypto. If you want to gaze awestruck at what happens when they both collide, take a look at the chart below.

Bitcoin miner Core Scientific last year went public through a BlackRock-backed special purpose acquisition company at a $4.3bn valuation. The company is now basically a pink-sheet stock, with a market cap of $55mn, or less than one Beeple.

It has managed the remarkable feat of making Chamath Palihapitiya’s Spac empire look good. Not exactly the career capstone that CEO Mike Levitt — a former CEO of Kayne Anderson and vice chair and partner at Apollo — would have liked.

But if you assumed the crypto winter might have stunted the lifestyle of bitcoin barons, think again! Core Scientific spent $1.8mn on private jets for Levitt and his colleagues in the first nine months of 2022 — treble what it spent in 2021, before it went public.

The company didn’t respond to requests for comment sent to its media email address. We’ll update as soon as we get a response.

The biggest problems bitcoin miners like Core Scientific and Riot Blockchain face are obvious: input costs (energy) have jumped and output prices (bitcoin) have puked. But Core Scientific looks like an exceptionally weak member of a sickly herd, which makes its love for private jets seem a bit weird.

Last month it warned that it could go bankrupt by the end of the year and would have to skip some debt payments. Earlier this week it belatedly released (unaudited!) third-quarter results, which, well, didn’t exactly make that less likely.

The headlines are that the bitcoin miner lost another $434mn in the third quarter, lifting its 2022 net loss to over $1.7bn. Meanwhile, Core Scientific debts have ballooned to about $1bn, and cash reserves fell to under $30mn (though it seems that liquidating most of its remaining bitcoin stash lifted cash to $32.2mn at the end of October).

Peering at the finer print of Tuesday’s earnings release just makes things worse. Core Scientific said that it “does not believe it was in default under any of its debt agreements as of September 30, 2022”, but revealed that two customers this month have now begun legal proceedings (its private jet provider still seems to be getting paid though).

In November 2022, Sphere 3D Corp. filed a demand for arbitration with JAMS alleging the existence and breach of a contract for hosting services. The arbitration demand alleges that the Company has failed to provide contracted for services and to return approximately $35 million in prepayments made by Sphere 3D for such services. The Company denies the allegations contained in Sphere 3D’s arbitration demand and intends to vigorously defend its interests.

In November 2022, McCarthy Building Companies, Inc. filed a complaint against the Company in the United States District Court for the Eastern District of Texas, alleging breach of contract for failing to pay when due certain payments allegedly owing under a contract for construction entered into between the parties.

In addition to mining bitcoin, equipment sales and hosting contracts have been an important part of Core Scientific’s revenues. But “related parties” has become increasingly important to Core Scientific, and in the third quarter accounted for almost half of equipment sales and hosting revenues, and almost a quarter of all revenues in the three months.

That’s probably helpful, because one of its biggest customers was Celsius, which has itself already gone bust, leaving Core Scientific looking a little exposed to a small number of customers.

Frankly, if Core Scientific manages to make it to Christmas we’d be astonished. We doubt that the Spac insiders will be flying commercial after this though. Refinitiv data indicates that Levitt sold 12.6mn of his shares in the third quarter.