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.
Since September 30, 2022, BankProv has, according to a document that was submitted to the United States Securities and Exchange Commission (SEC) on January 31, 2019, the percentage of its digital asset portfolio that is comprised of rig-collateralized debt has practically been cut in half.
As of the 30th of December in the previous year, the bank held a total of $41.2 million in loans related to digital assets. Of this total, $26.7 million was worth of loans that were collateralized by crypto mining rigs. However, this amount “will continue to decline as the Bank is no longer originating this type of loan.”
During the bull market of 2021, the cryptocurrency mining sector took on enormous amounts of debt, and miners often offered mining equipment that they owned as collateral in order to reduce their interest rates and save money.
The ensuing bear market that began in 2022 resulted in difficult circumstances for miners. As a consequence, many miners were obliged to sell the Bitcoin (BTC) mining rigs they possessed in order to fund their operational expenses, which resulted in a precipitous drop in the price of mining gear.
In spite of the lowering prices, several financial institutions that had issued debt that was secured by mining rigs were required to reclaim some of the miners that had been pledged as security.
A prior filing with the SEC indicates that on September 30, 2022, BankProv confiscated mining rigs in return for the forgiveness of $27.4 million in loans. As a consequence of this transaction, the company was required to write down an amount equal to $11.3 million.
According to Carol Houle, the chief financial officer of its parent firm Provident Bancorp, “As we look on 2022, we are eager to absorb its lessons and emerge a better, stronger bank.” The business’s decision to discontinue providing these sorts of loans was likely strongly influenced by the losses. In spite of the losses we incurred in 2022, we start 2023 in a strong financial position and with a diverse clientele.