Following a bullish 2021, crypto miners sought loans to grow, which backfired due to unfavorable market circumstances in 2022.
BankProv, the holding company for the cryptocurrency-friendly bank, has announced that it would no longer provide loans secured by cryptocurrency mining machines after writing down $47.9 million in loans secured mainly by them until 2022.
BankProv has almost decreased the share of its digital asset portfolio comprised of rig-collateralized debt during the quarter ending September 30, 2022, according to a January 31 filing with the United States Securities and Exchange Commission (SEC).
The bank owned $41.2 million in digital asset-related loans as of December 30 last year, consisting of $26.7 million worth of loans collateralized by crypto mining rigs which “will continue to shrink since the Bank is no longer originating this sort of credit.”
During the 2021 bull market, the crypto mining sector has taken on massive debt, sometimes giving up mining machines as security to cut interest rates.
However, the ensuing bear market, which began in 2022, created challenging conditions for miners. As a result, many were compelled to sell their Bitcoin mining rigs to fund operating costs, leading mining gear prices to plunge.
Despite declining prices, certain banks that had issued mining rig-collateralized loans were obliged to reclaim some of the miners that had been used as collateral.
According to a prior SEC filing, on September 30, 2022, BankProv confiscated mining equipment in return for the forgiveness of $27.4 million in loans, resulting in an $11.3 million write-off for the company.
The losses were most certainly a factor in its decision to discontinue making these sorts of loans, according to Carol Houle, CFO of its holding company, Provident Bancorp:
“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.”