With the fall of bitcoin, some miners may find it difficult to repay their loans secured by their equipment. Nearly $4 billion in loans would be affected.
For two months, the activity of bitcoin miners has been disrupted by the fall in the price of bitcoin, which has lost up to 70% of its value since its highest level last November at 69,000 euros, the rise in energy prices but also by the fall in the price of mining equipment (machines, computers, graphics cards).
However, some mining companies can place their equipment as collateral to obtain loans from specialized companies, from Galaxy Digital to New York Digital Investment Group (NYDIG), via the BlockFi and Celsius lending platforms. These last two companies being, as a reminder, in turmoil.
Against the backdrop of falling bitcoin and mining equipment prices, “these lending platforms could be significantly under-collateralized,” Ethan Vera, co-founder of mining firm Luxor Technologies, told Bloomberg. In other words, the price of their equipment would have fallen below the outstanding capital for their loans. Ethan Vera estimates that $4 billion in loans secured by mining equipment would be affected. This represents a “potential risk for major cryptocurrency lenders”, considers Bloomberg.
“Signs of Distress”
“So far, few miners have defaulted on their loans, but recent sales show signs of distress,” the outlet added. The American mining company Core Scientific thus sold 2,000 bitcoins in May “to cover operational costs”, while the Canadian Bitfarms sold half of its bitcoins in early June to “repay part of its loan of 100 million dollars” at Galaxy Digital.
“The sale of bitcoin reserves is adding pressure on prices, and the cost of equipment could fall even lower if lenders – who are looking to recoup their losses on defaults – start liquidating the machines they repossess,” adds Bloomberg.
Because when it comes to mining, not all companies are in the same boat: if it is currently accepted that it is not profitable to mine alone at home (read our article on this subject), companies mining companies established for several years could achieve margins of up to 90%, when cryptocurrencies were at their highest.
However, the two recent crypto-crashes can harm the activity of smaller (or more recent) structures.
“An industry shake-up could be imminent, especially for smaller, cash-negative operators who bought expensive equipment months ago thinking it would go up in value. If you factor in infrastructure overhead and interest rates, the total cost (of mining per bitcoin, editor’s note) for some miners may already exceed $20,000, which corresponds to the current price of bitcoin, said Wilfred Daye, managing director of Securitize Capital, “adds Bloomberg. .