Bloomberg: Bitcoin slump threatens $4 billion in miner-loan defaults

Some mining companies have run into trouble servicing loans secured by Bitcoin mining equipment. According to Bloomberg, total risk to lenders could reach $4 billion.

The situation has arisen from both a deteriorating crypto market backdrop and downward revaluations of ASIC devices.

So far only a handful of miners have defaulted on their loans, but recent disposals of mined Bitcoin indicate distress. The agency noted the sale of 2,000 BTC by Core Scientific to cover operating costs and Bitfarms 3,000 BTC — to repay part of a $100 million loan from Galaxy Digital Holdings Ltd.

ASIC device price dynamics

Bloomberg projected that the industry could worsen if Bitcoin’s price continues to fall. This could lead to further downward revisions in device valuations and their sales by creditors. According to Luxor Technologies Corp., the price of the popular Antminer S19 has fallen about 47% from its November level of $10,000.

“Mining companies are feeling the pain. Many operations have become unprofitable. The price of equipment has fallen sharply […]. This is exacerbated by volatile electricity prices and constrained space in data centres”, said Luka Jankovic, head of lending at Galaxy Digital.

The latest, as well as NYDIG, BlockFi, Celsius Network, Foundry Networks and Babel Finance, have been actively lending against collateralized equipment, said Ethan Vera, co-founder of mining pool Luxor Technologies. He said they are concerned about the “health” of their credit portfolios, especially those with high loan-to-value ratios. The analyst estimated the volume of such loans at $4 billion.

The cost of mining Bitcoin

According to Arcane Research analyst Yaran Mellnerud, assuming average electricity prices and the use of the latest ASIC devices, the cost of mining 1 BTC could be $8,000. Even while remaining profitable, some companies would struggle to service their debts without selling Bitcoin to meet their loan obligations, the expert added.

CEO of Securitize Capital Wilfred Day cautioned that some miners could exit the field after losing the ability to generate positive cash flow and having purchased expensive equipment. According to the expert, including overheads and interest on loans, the cost of producing 1 BTC for them could exceed $20,000.

“They bought tens of thousands of machines, arranged hosting, deposited funds, and now cannot meet their obligations”, Day explained.

The Director of Content at Compass Mining, Will Foxley, noted an uptick in capital-raising costs as risk appetites deteriorate.

On June 22, the Bitcoin network hash rate fell below 200 EH/s. On June 11 it stood at a historic high of 231 EH/s.

Earlier, Glassnode analysts registered a capitulation of miners after the Bitcoin price fell below $20,000.

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