The extended price downturn of the world’s leading crypto asset Bitcoin has made miners’ life particularly difficult. Per Bloomberg’s report, rig owners are neck-deep in loans ranging up to a staggering $4 billion.
A growing number of loans are now underwater, according to analysts, as many of the mining rigs lenders accepted as collateral have now halved in value along with the price of the world’s largest digital token.
So far, only a handful of miners have defaulted on their loans, but many others have resorted to dumping BTC. For instance, one such firm- Core Scientific sold more than 2,000 Bitcoin in the month of May to help recover operational costs.
Similarly, Bitfarms offloaded nearly half of its mined tokens in early June to repay part of its US$100 million loans with Galaxy Digital Holdings. It also took out another machine-backed loan from New York Digital Investment Group.
Experts stressed the situation might worsen if the market doesn’t improve. Let’s see how.
Selling Bitcoin Reserves Puts Further Pressure On Prices
Market observers feel selling BTC reserves puts strain on prices, and lowers equipment prices which are at risk of liquidation for lenders – looking to retrieve their losses on defaults.
“Bitcoin miners, broadly speaking, are feeling pain,” said Luka Jankovic, head of lending at Galaxy Digital. “A lot of operations have become net IRR negative at these levels. Machine values have plummeted and are still in price discovery mode, which is compounded by volatile energy prices and limited supply for rack space.”
The mining business was considered one of the most lucrative where margins were high as 90%. Leading crypto lending platforms such as Galaxy Digital, BlockFi, Celsius Network, and Babel Finance accepted mining rigs as collateral in exchange for down payments.
But now those lenders could be significantly undercollateralized, said Ethan Vera, co-founder of Seattle-based mining company Luxor Technologies. “They are nervous about their loan books, especially those with high collateral ratios.”
Even though a majority of Bitcoin miners rake up decent profit margins. “But the reduced income still impacts their business as some of them have loans to repay and collateral to post for their machine purchases,” Jaran Mellerud, a mining analyst at Arcane Crypto stated.