Of all the people or companies in the crypto space, lenders likely have it worse than anyone or anything. They are the ones giving money to the crypto companies that are now failing or struggling to stay afloat. In many cases, they are not able to repay the funds they’ve utilized or borrowed, which really puts a lot of these lending firms on edge.
Lenders Are Enduring Trouble from Crypto Miners
Instead of money, lenders are instead receiving machines from miners – who at one point, earned more than $4 billion through their professions – as collateral. They figure if they can’t pay their bills with cash, they can at least send these lenders the items and equipment they’re using to show that they’re “good for it.” The problem is that in this economy, cash is king, and everything else is likely to carry some degree of uselessness or risk alongside it.
Several firms – including New York Digital Investment Group (NYDIG), Celsius Network, Block Fi, and Galaxy Digital – have lent out machines and money to mining companies to get their jobs done. Now, with the industry being in the state it’s in, everything is coming to a crashing halt, and several of the above-named companies have been forced into bankruptcy due to liquidity issues and related concerns.
Ethan Vera – chief operations officer at crypto mining services firm Luxor Technologies – said in a recent interview:
People were pouring dollars into the mining space. Miners ended up dictating a lot of the loan terms, so the financiers moved ahead with a lot of the deals where only the machines were collateral.
Companies like Iris Energy Ltd. are expected to default on as much as $108 million in the coming months. The firm has borrowed from the NYDIG on several occasions, with its most recent loan being delivered in March of 2022. Another firm that’s borrowed from NYDIG is Core Scientific, which some are whispering could be one of the next crypto firms to file bankruptcy. NYDIG had also provided a $54 million loan to the now bankrupt Block Fi.
Michael Wursthorn – a spokesperson for Galaxy Digital – said:
We continue to take a prudent, risk-managed approach toward financing arrangements in the mining space. In the third quarter, for example, Galaxy’s mining arm closed three existing machine leases collectively worth about $8 million at expected terms without defaults, delinquencies, or losses.
Didn’t Do Your Due Diligence, Did Ya?
One of the big problems – according to Matthew Kimmel, a digital asset analyst at crypto firm Coin Shares – is that many of these lenders did not bother to really check and see if the companies they were giving money to were solid enough. He said:
There hasn’t necessarily been the best due diligence on whether a miner was credit worthy or not.
