Key Takeaways:
- Institutional loans amounted to $1.5 billion of the total outstanding loans, while retail loans made up $300 million.
- FTX signed a deal with the option to buy BlockFi for up to $240 million.
- Earlier, BlockFi liquidated a $400 million 3AC position.
Leading crypto lender BlockFi has released its transparency report for Q2 2022, revealing that it had $1.8 billion debt in outstanding loans from institutional and retail investors. Out of the $1.8 billion in outstanding loans, $600 million are uncollateralized loans.
Institutional loans amounted to $1.5 billion of the total outstanding loans, while retail loans made up $300 million. Earlier this month, the crypto firm put out a blog stating that it only provides uncollateralized loans to borrowers it considers “Tier 1” clients. Tier 1 clients are institutional clients with “a significant capital base, financial statements audited by reputable third parties, and a willingness to be transparent and engaged with” BlockFi.
In its latest blog post, the firm detailed its management of liquidity risks. According to the blog, the crypto lender will hold at least 10% of total amounts due to clients upon demand in inventory, ready to be returned to clients, at least 50% of total amounts to be called within a week, and at least 90% of total amounts to be called within a year.
The firm added that it based its holdings and outstanding loan amounts on a Bitcoin (BTC) price of $19,986 as a reference point. The crypto lender states that it manages digital asset conversion risk by seeking to match liabilities with corresponding digital assets held on hand or by deploying digital assets into loans or investments that will generally generate returns in the same denomination of the corresponding liabilities.
The latest announcement follows crypto exchange FTX signing a deal with the option to buy BlockFi for up to $240 million. Alongside the possible acquisition, FTX gave BlockFi a $400M revolving credit facility to shore up its finances.
CEO Zac Prince pointed to the crypto market volatility, particularly market events related to Celsius and 3AC” as catalysts for the company’s current financial troubles. BlockFi was also one among the firms that had exposure to the now insolvent crypto hedge Fund-Three Arrows Capital(3AC).
The crypto hedge fund 3AC’s ongoing collapse led to roughly $80 million in losses for BlockFi, Prince notes. On 17 June, BlockFi liquidated the $400 million 3AC position. According to Morgan Creek, BlockFi’s loan to 3AC was $1 billion, and it was overcollateralized by 30%.
Earlier BlockFi CEO Zac Prince had acknowledged that “a client failed to meet its obligations on an overcollateralized margin loan.” Prince said that BlockFi “fully accelerated the loan and fully liquidated or hedged” the collateral to reduce its exposure to 3AC’s positions.
In June, BlockFi also cut 20% of its headcount and implemented multiple cost-cutting measures such as reducing marketing spending and executive compensation. Earlier this month, Coinshares Chief Strategy Officer Meltem Demirors stated that BlockFi was holding shares in Grayscale’s Bitcoin Trust (GBTC). The CEO, however, denied this.
In mid-2021, BlockFi was reportedly in talks to raise millions of dollars at a $5 billion valuation. According to a leaked Morgan Creek investor call, BlockFi is valued at less than $500 million. As crypto firms keep getting beaten up by market conditions, BlockFi will have to navigate through financial struggles without losing retail investors’ money.
