After a bullish 2021 crypto miners sought out loans to allow them to expand, a move which has since backfired following difficult market conditions in 2022.
The holding company for the crypto-friendly bank, BankProv, has revealed it’s no longer providing loans secured by cryptocurrency mining rigs after writing off $47.9 million in loans primarily secured by them throughout 2022.
According to a Jan. 31 filing with the United States Securities and Exchange Commission (SEC), BankProv has already nearly halved the proportion of its digital asset portfolio consisting of rig-collateralized debt since the quarter ending Sep. 30, 2022.
The bank held $41.2 million in digital asset-related loans as of Dec. 30 last year consisting of $26.7 million worth of loans collateralized by crypto mining rigs which “will continue to decline as the Bank is no longer originating this type of loan”.
The crypto mining industry has taken on huge amounts of debt during the 2021 bull market, often offering up mining rigs they own as collateral in order to lower their interest rates.
The subsequent bear market starting in 2022 resulted in tough conditions for miners, however, and many were forced to sell the Bitcoin (BTC) mining rigs they own in order to cover operating costs, causing mining hardware prices to plummet.
Despite the falling prices, some banks who had issued mining rig-collateralized debt were forced to repossess some of the miners used as collateral.
According to a previous SEC filing, BankProv repossessed mining rigs in exchange for the forgiveness of $27.4 million in loans on Sep. 30, 2022, which resulted in an $11.3 million write-off for the firm.
The losses likely contributed heavily to its decision to stop issuing these types of loans, with Carol Houle, the CFO of its holding company Provident Bancorp, noting:
“As we reflect on 2022, we are eager to take its lessons and emerge a better, stronger bank. Despite our 2022 losses, we enter 2023 well capitalized and well diversified.”