Cryptocurrency-related lending has become a dark spot for the industry these days and according to a recent report, the low price of bitcoin has strained billions in mining loans. The report quoted Ethan Vera, co-founder of mining company Luxor Technologies, as saying that nearly $4 billion in debt backed by crypto mining rigs is extremely close to running the risk of default.
Analysts say miners are ‘nervous about their debt books’
The price of Bitcoin (BTC) is down 21% from two weeks ago and the price drop has caused a lot of damage to BTC miners. According to a Bloomberg report, analysts say that many loans backed by miners are under water.
Ethan Vera of Luxor estimates about $4 billion in debt backed by mining equipment is under pressure. “They are nervous about their loan books, especially those with high collateral ratios,” Vera explained to Bloomberg’s David Pan.
According to data from asicminervalue.com, using current BTC exchange rates, only 14 SHA256-based mining rigs are making profits with an electricity cost of around $0.05 per kilowatt-hour (kWh). Top miners manufactured by Bitmain and Microbt collect between $2 to $4.50 per day with an electricity cost of around $0.05 per kWh.
The report stated that miners are selling BTC to incur operating costs and highlighted that in May, Core Scientific Inc sold over 2,000 BTC for operating expenses.
“Bitcoin miners, broadly speaking, are feeling the pain,” Luka Yankovic, Head of Lending at Galaxy Digital, elaborated in the report. “At these levels a lot of operations have turned net IRR negative. Machine prices have fallen and are still in price discovery mode, compounded by volatile energy prices and limited supply for rack space,” Jankovic said.
Bitcoin miners continue to put pressure on price, says JP Morgan analyst
Traditionally, during bear markets, bitcoin miners are forced to sell their holdings, putting even more pressure on the price. Another report, quoting JP Morgan analyst Nikolaos Panigirtzoglu, suggests that bitcoin miners need to sell, which will continue to weigh on the current downward pressure that has been affecting BTC markets in recent days.
Panigirtzoglu and his group of strategists at JPMorgan believe that privately held miners may have sold a substantial portion of the block subsidies to help with operating costs. Multiple reports have shown that miners have been selling large amounts of BTC since February 2022.
“Bitcoin miners have been net distributors since the recent selloff,” the Onchain Analyst Team at Glassnode Detailed on June 2. “Miner balances have recently fallen from a peak rate of 5k to 8k BTC per month ($150M to $240M at $30k BTC).
During the past few weeks, some crypto lenders have also been under severe stress and some are dealing with liquidations. Crypto lender Celsius has been under scrutiny from the crypto community for alleged liquidation and rumors about reorganization and bankruptcy.
Debts associated with the BTC mining industry could force miners to sell even more BTC if the price drops below current exchange rates today.
What do you think about the pressure from bitcoin miners due to the low price of bitcoin? Let us know what you think about this topic in the comment section below.
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