Bankrupt lender BlockFi to sell bitcoin mining machine-backed loans

The bankrupt crypto lender BlockFi plans to sell about $160 million of loans backed by around 68,000 bitcoin mining machines, according to two people familiar with the matter.

The Jersey City, New Jersey-based company, which filed for protection from creditors in November, started on the bidding process for the loans last year, the people said. Some of the loans have already defaulted and appear to be undercollateralized given the current prices of bitcoin mining equipment, according to the people. BlockFi didn't immediately return a message seeking comment.

Akos Stiller/Bloomberg

BlockFi is among several digital-asset lenders that have filed for bankruptcy due to the collapse of major crypto firms such as the exchange FTX, the hedge fund Three Arrows Capital and stablecoin project Terra Luna in the past year. The lender was a major financier for bitcoin miners, which have been battered by low bitcoin prices and soaring electricity costs, through loans backed by the computer rigs.

While traditional lenders stayed away from bitcoin mining companies due to the high volatility in bitcoin prices, crypto-native lenders filled that void. Almost $4 billion was raised through such loans since the last bull run in the crypto market. Other major lenders for crypto-mining companies include New York Digital Investment Group, Celsius Network, Galaxy Digital and Digital Currency Group's Foundry.

Struggling bitcoin miners and bankrupt lenders have created a expanding market for distressed assets.

The crypto-mining firm Bitdeer, backed by the Chinese billionaire Jihan Wu, set up a $250 million distressed fund, while the largest digital-asset manager, Grayscale, launched an entity to invest in bitcoin mining hardware with its sister company Foundry to capitalize on the distressed mining sector.

— With assistance from Jeremy Hill and Rachel Butt.