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With the mass slump in bitcoin making it harder for miners to repay the $4 billion in loans backing their equipment, there could be risks ahead for big crypto lenders, Bloomberg wrote Friday (June 24).
With an increasing amount of loans underwater, analysts have said many of the mining rigs lenders accepted as collateral have now halved in value. The report said there haven’t been many miners defaulting on their loans, though the signs might be in the air with some recent sales.
For example, Core Scientific sold over 2,000 bitcoin in May to help with operational costs, and Bitfarms offloaded almost half its mined tokens to pay off part of a loan with Galaxy Digital Holdings.
Meanwhile, BlockFi announced Friday that BTC, ETH, USDC, GUSD, PAX, BUSD and USDT rates will be increasing across all tiers.
The company said its rates are set by “market dynamics for lending and borrowing,” and that it wants to practice “sound risk management” in allowing for positive earning opportunities.
BlockFi also said its rates come from balancing principles of risk management with shifting market conditions and a “prudent” treasury. The rate adjustments come as the company looks to deliver “high quality, long-term” service while also expanding product offerings.
Read more: Crypto Exchange FTX Looking to Add BlockFi Stake to Portfolio
In other news, the digital asset bubble’s deflation has shown how fragile the system of credit in crypto is, the Financial Times reported Friday.
This comes as crypto enthusiasts, once promised a future of vast personal fortunes and a better, newer finance system, are seeing companies and projects lose millions in value.
They’ve been turning to heavy-hitters in the industry for support, with the price of bitcoin falling over 70% in recent months.
“Fear is contagious,” said Brett Harrison, president of crypto exchange FTX US. “That’s true in any financial market … No one wants to be the last person without a chair when the music stops, so everyone is withdrawing money.”
Finally, with crypto prices slumping, margin calls are being seen as a culprit of further trouble for the besmirched industry, Bloomberg reported Saturday (June 25).
In traditional finance, trades made with borrowed money come apart when the value of their collateral is put up against loan drops — which makes liquidations that push the prices down further.
A margin call refers to trading with borrowed money, in which lenders require that collateral, often in the form of other stocks, is put up to offset the risks of the trade going bad. More margin calls tend to happen when there’s a mass fall in values — which can add to more margin calls.
The smart contracts for crypto trades often turn the positions automatically over to bots working on that specific purpose — with no chance to convince a broker one will be able to cover their position.
The bots can often swarm and overwhelm the ledgers used for recording crypto transactions. If there’s a lot of liquidations, it can pile on for the driving-down of prices and add even more liquidations on top of the existing ones.
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