Today, FTX announced a $250 million revolving line of credit, or injection, to BlockFi in an effort to help them “navigate the market from a position of strength.” This bailout comes at a time when BlockFi has been in the process of closing an additional funding round at more than an 80% discount compared to their previous $5 billion-plus valuation just last year. They have also reduced their staff by 20% this month.
In BlockFi’s case, the loan will be used to strengthen the balance sheet with some unclear, legal language on how that supports client deposits.
The Voyager deal is $200 million credit and 15,000 BTC with 5% interest through 2024.
Now, there’s nothing inherently wrong with companies going out to the market and raising extra capital in an attempt to survive the unfolding bear market, but it does raise red flags about the health of each business, the safety of customer deposits and the deleveraging contagion risks of the entire industry.
Injecting more liquidity into large, troubled players as an attempt to stop further bank runs and instill market confidence is in FTX’s best interest. Another institutional blowup means yet another major selloff and death-spiral event for bitcoin and broader cryptocurrency assets. This comes at a time when all three institutions are trying to grow their retail customer base so a healthy, sustainable industry (along with higher prices) is good for business.
Final Note
Given the nature of the last two weeks specifically, we strongly recommend that users get their funds into their own custody.