Cryptocurrency mining companies forced to sell bitcoin to repay loans secured by equipment
Large mining companies are beginning to face difficulties in repaying loans taken on the security of equipment, totaling up to $ 4 billion, according to Bloomberg . According to the publication, this creates a potential risk for large crypto lenders.
Given the volatility of the crypto market, traditional loans for equipment fleet upgrades are hard to come by and carry high interest rates, the article says. To fill the void, lenders such as Galaxy Digital, NYDIG, BlockFi Inc., Celsius Network Ltd., Foundry Networks LLC, and Babel Finance have begun accepting mining equipment as collateral in addition to payments.
Now securing such loans has proved insufficient due to the fact that the equipment has become cheaper, said Ethan Vera, co-founder of the mining company Luxor Technologies. Vera estimates that equipment-backed loans are up to $4 billion.
The sale of bitcoin reserves puts pressure on prices, and the cost of equipment could fall even lower if the lenders themselves begin to sell the devices they hold as collateral, the authors of the article say. According to Luxor Technologies Corp., the cost of the Bitmain S19 miner has decreased by about 47%, compared to a high of about $10,000 in November.
Core Scientific Inc. already sold over 2,000 bitcoin in May to help cover operating costs, and Bitfarms Ltd. liquidated almost half of the mined tokens in order to repay part of the loan in Galaxy Digital Holdings Ltd. The company also has another equipment loan from New York Digital Investment Group LLC.
According to Arcane Research, mining companies sold 100% of the coins they produced in May, while in the first four months of 2022, mining companies sold between 20% and 40% of mined bitcoin. Analysts cite the sharp drop in mining profitability as the reason for such a significant increase in sales.
