After wiping down $47.9 million in loans that were mostly secured by cryptocurrency mining rigs during the year 2022, the holding company for the cryptocurrency-friendly bank, BankProv, has announced that it would no longer provide loans that are secured by cryptocurrency mining rigs.
According to a document filed to the United States Securities and Exchange Commission, January 31, 2019, BankProv claims that the proportion of its digital assets portfolio that includes rig-collateralized loans has nearly been reduced by half since September 30, 2022.
The bank owned $41.2 million worth of loans for digital assets as of the 30th Dec. in the previous year. The $26.7 million in loans that were secured by crypto mining rigs was the largest portion. This amount will “continue to fall” as the Bank no longer originates this type of loan.
The cryptocurrency mining industry took on huge amounts of debt during the bull market in 2021. Miners offered their equipment as collateral to lower their interest rates and make more money.
The 2022 bear market, which began, created difficult conditions for miners. In order to finance their operating expenses, many miners were forced to sell the Bitcoin mining rigs that they owned. This resulted in a sharp drop in the cost of mining gear.
Despite the falling prices, many financial institutions that had issued mining rig-secured debt were forced to reclaim the miners that they had pledged as security.
According to an SEC filing, BankProv took mining rigs from the company in exchange for $27.4million in loans being forgiven. The company was then required to write off $11.3 million as a result of the transaction.
Carol Houle (the chief financial officer of Provident Bancorp), stated, “As 2022 approaches, we are eager for its lessons to be absorbed and emerge as a stronger, better bank.” These losses likely influenced the business’ decision to stop providing these types of loans. Despite the losses in 2022 we sustained, we are now in a solid financial position and have a diverse clientele when we begin 2023.