(Bloomberg) — FTX US, the crypto exchange co-founded by billionaire Sam Bankman-Fried, signed an agreement to inject capital into BlockFi Inc. with an option to purchase the crypto lender, a transaction born out of a market selloff that may spur further industry consolidation.
The deal includes a $400 million revolving credit facility, which is subordinate to all client funds, BlockFi said. It also gives FTX US an option to buy BlockFi for as much as $240 million, based on performance triggers. Together with other potential consideration, the deal represents a total value of as much as $680 million, Jersey City, New Jersey-based BlockFi said in an emailed statement Friday.
“I think there are synergies between the businesses,” Bankman-Fried said when asked about the deal talks in an interview with Bloomberg News prior to the BlockFi announcement. “There are a lot of ways that our products can work together and can mesh together in a way that’s better than either would be independently.” BlockFi has a loyal customer base, a real business model and strong leadership, he added, while FTX has been focusing on back-end efforts such as matching engines.
The deal represents a discount to BlockFi’s $3 billion valuation as of March 2021. In early June, it sought to raise money at a reduced valuation of about $1 billion. Crypto lenders are hard hit by the recent wave of liquidations sparked in part by the May collapse of the Terra stablecoin and more recent troubles at Three Arrows Capital Ltd. Celsius Network and Babel Finance both froze withdrawals in recent weeks, and on Friday Voyager Digital Ltd. joined them in doing the same.
BlockFi Cheif Executive Officer Zac Prince said the company had about $80 million in losses from bad debt of Three Arrows.
“We have no further exposure and the limited losses we did experience will be absorbed by BlockFi with no impact to client funds,” Prince said in a tweet Friday. The losses will be part of Three Arrows’ ongoing bankruptcy case, he added.
The deal solidifies Bankman-Fried’s outsize influence in the industry. He has acted as a lender of last resort during the recent markets meltdown, with his trading firm, Alameda Research, providing credit lines to Voyager Digital. He stopped short when it came to Celsius, turning down a bailout request by the lender, according to a person familiar with the matter who declined to be named because the issue was private. Celsius said June 30 it continues to explore options, including strategic transactions and a restructuring of its debt.
Buying BlockFi will give FTX another foothold to expand in the US market. FTX US, the American entity of FTX, recently launched equities trading, an attempt to capture a broader group of retail investors. FTX is also exploring whether it might be able to acquire Robinhood Markets Inc., in which Bankman-Fried already bought a 7.6% stake, Bloomberg News has reported. Bankman-Fried said there’s no active M&A conversations with Robinhood.
“This is a reputable enough brand that if you think you could fix by coming in and stepping in and helping out,” Chris McCann, partner at Race Capital, an investor in FTX, said.“It’s an incredible deal.”
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