Following the collapse of FTX (opens in new tab), things don't look better for the cryptocurrency scene, as Bloomberg (opens in new tab) reports that bitcoin mining companies have failed to repay millions of dollars in loans and lenders are stuck with thousands of mining rigs.

Ethan Vera, COO of Luxor Technologies, told Bloomberg that as crypto mining boomed, minor companies "dictated many of the loan terms" and offered mining rigs purchased with the loan as collateral The company began to offer the mining rigs purchased with the loan as collateral, he said. If they couldn't repay the loan, they would simply give the machine away. By the way, according to reports, the value of the machines has dropped at least 85% in the last month. Ouch.

At its peak, Bloomberg estimates that "$4 billion" worth of mining equipment was financed. As the price of bitcoin rose, profits surged, more loans were issued, and as Matthew Kimmel, an analyst at CoinShares (opens in new tab), told Bloomberg, "Not always the best due diligence on whether a miner is credit worthy has not been done."

One of the largest lenders, the publicly traded NYDIG, stands to lose hundreds of millions of dollars as several borrowers, such as Iris Energy, which received $108 million in loans, are expected to default on their obligations. The bankrupt Blockfi Corp. has $54 million in debt. Another borrower, Stronghold Digital Mining, returned "about 26,200 mining rigs" in August to settle NYDIG's $67 million debt, Bloomberg reported.

Crypto mining services company Luxor Technologies told Bloomberg that private companies account for "75% of the computing power of the entire bitcoin network." And since private companies are generally not obligated to disclose losses, more defaults are expected.

Bitcoin's value has been lowered by two recent incidents (opens in new tab): the drama at FTX (opens in new tab), and rival currency Ethereum's switch to proof-of-stake and massive GPU mining in recent months (opens in new tab) opens in new tab), which has fallen 80% since November 2021. Ethan Vera, COO of Luxor Technologies, told Bloomberg that for many miners, it is more economical to get out of these deals than to get along with their lenders.