The prolonged decline in the prices of the world’s leading crypto asset, Bitcoin, has made life particularly difficult for miners. According to the Bloomberg report, platform owners are up to their necks in loans of up to $4 billion.
Analysts say a growing number of loans are now underwater as many mining rig 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 more have resorted to dumping BTC. For example, one such company, Core Scientific, sold over 2,000 Bitcoins in the month of May to help recoup operational costs.
Similarly, Bitfarms offloaded nearly half of its mined tokens in early June to repay part of its $100 million loans from Galaxy Digital Holdings. He also took out another machine-backed loan from the New York Digital Investment Group.
Experts have pointed out that the situation could get worse if the market does not improve. Let’s see how.
The sale of Bitcoin reserves puts additional pressure on prices
Market watchers believe that the sale of BTC reserves is putting pressure on prices and driving down the prices of equipment that is at risk of being liquidated for lenders – who are looking to recoup their losses in the event of default.
“Bitcoin miners, generally speaking, are in pain,” said Luka Jankovic, Head of Lending at Galaxy Digital. “A lot of trades have turned negative net IRR at these levels. Machine values have fallen and are still in price discovery mode, which is compounded by the volatility in energy prices and the limited supply of rack space.
Mining was considered one of the most lucrative where margins reached 90%. Major crypto lending platforms such as Galaxy Digital, BlockFi, Celsius Network, and Babel Finance have accepted mining rigs as collateral in exchange for installments.
But now those lenders could be significantly undersecured, said Ethan Vera, co-founder of Seattle-based mining company Luxor Technologies. “They’re nervous about their loan books, especially those with high collateral ratios.”
Even though the majority of Bitcoin miners make decent profit margins. “But the drop in revenue is still impacting their business as some of them have loans to repay and collateral to post for their machine purchases,” said Jaran Mellerud, mining analyst at Arcane Crypto.