Crypto lenders have repossessed so many Bitcoin mining rigs they’re resorting to plugging them in and extracting tokens themselves, Bloomberg News reported. Lenders are getting creative as to what to do with the mining machines they accepted as collateral for the some $4 billion in rig-backed loans they underwrote when the rally in Bitcoin seemed unstoppable. With the recent surge in loan defaults and plunge in cryptocurrencies, the value of new generation machines has dropped 85%, according to data from Luxor Technologies. While some machines are just sitting in warehouses, waiting for prices to recover, lenders like New York Digital Investment Group LLC are using debt negotiations to find alternative solutions. In December, NYDIG agreed to pay Greenidge Generation Holdings not only for its mining rigs but to operate them in exchange for debt reduction. The deal effectively made Greenidge — once one of the largest Bitcoin miners — a hosting firm while NYDIG became the miner. “Lenders are flooded with mining rigs,” said Wolfie Zhao, head of research at TheMinerMag, a research arm of mining consultancy BlocksBridge. “One way for the lenders to prevent further losses from the defaulted loans is to keep the collateralized machines running and generate some income.” It’s an option lenders are taking more seriously, especially those that already have mining capabilities to build on, including Galaxy Digital LP and Digital Currency Group Inc.’s Foundry. Bitcoin mining — which uses specialized computers known as rigs to validate transactions on the blockchain in exchange for rewards in the token — was among the most lucrative businesses in crypto. Miners had sought to leverage that value in the runup of Bitcoin’s historic rally. But with a surge in energy prices and Bitcoin down 58% on the year, a number of loans are now underwater. A Valkyrie index of Bitcoin miners is down 75% from a year ago, even after this week’s 30% jump on optimism a U.S. economic recovery could prop up crypto prices.
