Do cryptominers pose a risk to lenders?

$4 billion in loans backed by crypto mining equipment is at potential risk of default, according to a Bloomberg report on Friday.

The case follows a turbulent market that has wiped out billions from the global cryptocurrency market cap in recent weeks.

As a result, according to analysts named in the report, some crypto miners may find it difficult to repay loans secured by their mining equipment or installations, posing a credit risk to providers.

Long Duration of Crypto Winter Leads to Insufficient Collateral Loans

Bitcoin has fallen below the crucial $20,000 level on more than one occasion in the past week; this would therefore have halved the value of the loan guarantees. The past month has been particularly difficult for crypto’s kingpin, which has fallen nearly 30%, according to data from CoinGecko.

Luka Jankovic, Head of Lending at Galaxy Digital, told Bloomberg, “Bitcoin miners in general are suffering.”

The report pointed out that some miners have already defaulted on these loans, putting further pressure on others.

“Many trades have turned negative at these levels. The values ​​of the machines have fallen and they are still discovering new lower prices. The situation is also exacerbated by volatile energy prices and the limited supply of rack space,” added Jankovic.

Core Scientific Inc. for example, it would have liquidated about 2,000 BTC last month to cover mining costs.

In addition, according to the report, Bitfarms Ltd. sold 3,000 BTC worth $62 million to cover part of its $100 million loan to Galaxy Digital Holdings Ltd.

With collateral margins falling in value, a prolonged crypto winter could likely create a knock-on effect in defaults.

At current levels, data from Luxor Technologies Corp. revealed that the value of Bitmain’s S19 mining rig is down 47% from its peak value of $10,000 recorded in November 2021.

That said, as lenders see collateral being significantly under-collateralised, Luxor Technologies co-founder Ethan Vera told the outlet: “They [les prêteurs] are nervous about their loan portfolios, especially those with high collateral ratios.”

crypto market

The market recession has led to lower margins

Recent mining data even confirmed that the stock market crash reduced the electricity consumption of cryptocurrency users by about 50%.

The Guardian cited a Digiconomist report that showed that Bitcoin network electricity consumption fell by a third from its June 11 peak, to 131 terawatt hours per year.

And as the rewards for mining diminish with the decline in Bitcoin price, Alex de Vries of Digiconomist told the Guardian, “It literally puts them out of business, starting with those operating with sub-optimal equipment or under sub-optimal conditions.” . Finally, he added:

“For the Bitcoin mining team, this is a big deal because these machines cannot be reused to do anything else. If they are not profitable, they are useless. You can keep them in the hope that the price will pick up again, or sell them on for scrap.”

That said, Jaran Mellerud, mining analyst at Arcane Crypto, echoed the same sentiments as Bloomberg, adding that declining mining revenues are making it harder to repay loans without liquidating digital assets.


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