A crypto-friendly bank, BankProv, has recently announced that it will no longer offer loans backed by crypto mining rigs.
Previously, the bank offered such loans as a way for clients to fund their mining operations. But now it cited changing market conditions and increased regulatory inspection as reasons to halt these services.
Reasons for The Bank’s Decision
Crypto mining requires specialized equipment and a significant amount of electricity. These mining equipment are expensive, ranging from $2,000-$20,000, and usually serve as collateral for miners’ loans.
However, during the market downturn in 2022, many miners halted operations due to falling BTC prices and rising electricity costs.
As a result, many vendors slashed the price of mining rigs due to falling demand. Unfortunately, the low price for these rigs wreaked havoc on miners using them as collaterals.
Many miners discovered that the costs of their mining rigs could no longer cover their loans. This situation affected lenders as some miners struggled to pay their interest.
These experiences and increasing regulatory pressure on the industry have led the bank to reevaluate its loan program. The bank stated that it is committed to supporting its clients in the crypto industry. However, it also noted that it must be mindful of its financial stability and regulatory compliance.
BankProv’s Past Loan Transactions Leading To Its Decision
Considering the present state of crypto mining, BankProv’s holding company, Provident Bancorp, decided to write off about a $47.9 million loan the mining rigs had secured. A filing with the United States SEC (Securities and Exchange Commission) on January 31 revealed some past loan transactions of the bank.
Since September 30, 2022, BankProv’s digital asset portfolio has dropped by almost 50% to meet the crypto mining rigs’ debt. On December 30, 2022, BankProv had about $41.2 million in crypto asset loans. $26.7 million of the amount were collaterals of crypto mining rigs.
Furthermore, a previous filing from the SEC stated that the bank repossessed some mining rigs on September 30 last year to write off the outstanding loan of $27.4 million at the time. According to the report’s data, this move led to a loss of $11.3 million for the bank.
This loss is a significant reason for the bank’s decision to stop giving out such loans. According to the bank’s chief financial officer, Carol Houle, the team is willing to absorb the losses incurred in 2022. She noted that the bank would emerge better, stronger, well-diversified, and capitalized in 2023.
Will The Bank’s Decision Impact The Crypto Mining Industry?
The decision to end loans backed by crypto-mining rigs might impact the crypto-mining industry significantly. Many miners have relied on these loans to fund their operations.
The withdrawal of this financing option may force some miners to go through a rough phase. This development has revealed the challenges facing the crypto industry.
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