Will a new lending pool for crypto miners attract borrowers?

Will a new lending pool for crypto miners attract borrowers?

Bitcoin miners looking for capital have a new option - but whether the terms will be attractive to borrowers remains to be seen.

Institutions looking to lend to Bitcoin miners can now earn between 15% and 20% annually through a lending pool launched by Icebreaker Finance through Maple Finance's DeFi lending market, the companies said on Tuesday.

Previous Maple pools - which target different risk profiles and shorter terms - lend at interest rates between 8% and 12%, Sid Powell, CEO of Maple Finance, told Blockworks. The higher interest rates reflect the recent credit contraction, longer-term loans and the overall risk in mining.

The loans in the pool – with an initial capacity of $300 million – have a maturity of 12 to 18 months and are collateralized by assets such as mining assets, power transformers and digital assets.

The setup is aimed at institutional credit investors and capital allocators as lenders, including high net worth individuals, digital asset funds and traditional credit funds.

“We find that these types of investors are attracted to the strong risk-adjusted returns of an investment that is still viewed as somewhat esoteric,” Powell said.

Maple has originated nearly $1.8 billion in loans since launching its first pool in May 2021. Crypto investment firm Maven 11 launched a $40 million institutional loan pool through Maple last month.

A good option for miners?

The intended borrowers are mid-sized Bitcoin mining and digital asset infrastructure companies in North America, Canada and Australia that have “effective treasury management and prudent energy strategies,” Maple said in a statement.

“We expect this will be attractive to public and private blue-chip borrowers as their excellent operational efficiency and low leverage allow them to deploy marginal capital in attractive ways – whether adding capacity or reducing revenue volatility through additional collateralized power purchase agreements,” Glyn Jones, CEO of Icebreaker Finance, told Blockworks.

But conditions for miners appear to be “quite onerous,” according to Chase White, a senior research and policy analyst for Compass Point Research and Trading.

“I think the type of miner that would take this offer is more of a miner that needs capital to keep the ship afloat at all costs, which is not what the pool seems to be looking for,” White told Blockworks.

Interest rates of 15% to 20% on monthly repayments are at the higher end of similar arrangements, White added.

Argo Blockchain, for example, signed a $70.6 million asset-backed financing agreement with NYDIG in May, maturing in 24 months at an interest rate of 12%.

““If a miner is already scaled and has a large amount of [bitcoin] on its balance sheet such that it uses debt only to fund future growth and has enough ongoing revenue to pay monthly principal and interest payments, I think it would be able to achieve a lower interest rate and a longer payback period,” White said.

However, Matthew Sigel, head of digital assets research at VanEck, said access to capital for miners has been restricted amid the market downturn.

“Public equity capital markets are largely closed to Bitcoin miners, so we expect decentralized pools like Maple to gain some traction despite high interest rates from miners looking to make it to the next halving,” Sigel said.

Some miners in need of cash have recently turned to selling their holdings or using Bitcoin as collateral for loans.

Hut 8 Mining CEO Jaime Leverton said during a panel at Blockworks' Digital Asset Summit that she expects more companies to use BTC stacks as collateral in the future.

“The infrastructure-backed bond markets have become very, very tight and interest rates have become very high, so we've certainly seen less activity in that infrastructure debt space,” she added. “From an equity market perspective, we really see [at-the-market offerings] being the vehicle of choice for miners who have this opportunity.”

Hive Blockchain Technologies closed one At-the-Market Stock Offering Agreement Earlier this month to sell up to $100 million worth of company shares to expand its Bitcoin mining capabilities.

Hive CEO Frank Holmes told Blockworks last week that the company did this to capitalize on potential large buying opportunities in the bearish market.

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The post Will a new loan pool for crypto miners attract borrowers? is not financial advice.