After the collapse and subsequent FTX, things don’t seem to be improving for the cryptocurrency industry (opens new tab). A report by Bloomberg (opens new tab) shows that bitcoin mining companies cannot pay back their loans of millions of dollars, leaving their lenders with thousands of mining equipment.
Ethan Vera, Luxor Technologies’ COO, stated to Bloomberg that miners were able to dictate loan terms as crypto mining boomed. They offered the mining equipment they purchased with loans as collateral. They simply surrendered the machines if they couldn’t repay the loans. According to the reporting, machines’ value fell at least 85% in the last month. Ouch.
Bloomberg estimates that the crypto lending industry financed ‘as high as $4 billion worth’ of mining equipment at its peak. Profits grew as Bitcoin prices rose, so more loans were issued. As Matthew Kimmell, an analyst at coinShares (opens new tab), stated to Bloomberg, “There has not necessarily been the best due diligence as to whether a miner is credit-worthy or otherwise.”
NYDIG, a publicly traded lender, is likely to suffer a loss of hundreds of millions of money as multiple borrowers such as Iris Energy who secured a loan of $108 million, will default. BlockFi, a bankrupt company, owes it $54 million. Bloomberg reports that Stronghold Digital Mining, another borrower, has returned “around 26,200 mining equipment” in August. Bloomberg claims this was to help pay off its $67 million NYDIG loan.
Luxor Technologies, a crypto-mining company, stated to Bloomberg that private companies account for ‘75%’ of the computing power needed for Bitcoin. Private companies aren’t required to report losses to the public so there will be more defaults.
Two recent events have reduced bitcoin’s value (opens new tab). These were the drama at FTX (opens new tab), and Ethereum switching to proof-ofstake, , which has ended large-scale GPU mining(opens new tab). It is now down by 80% compared to November 2021.
Ethan Vera, Luxor Technologies’ COO, stated to Bloomberg that it was more economically for many miners to walk away from these deals than to make good with lenders. They are ‘focused on how they can survive the next six months, rather than if the lender will be there for them for the next five.