Friday, July 1, 2022
Homesmart lifeSpeedrunning the GFC

Speedrunning the GFC

We’ve seen a multi-billion dollar failure, a violent market sell-off, missed margin calls and unresolved liquidity problems in crypto markets.

At this rate we should start to see mergers soon.

Lest we forget, the 2008-09 financial crisis led to a wave of consolidation in US banking. While crypto lenders aren’t in a similarly central spot in the global economy, that largely just means that their matchmaking is being done informally by influential players, not central bankers or the US Treasury department.

Crypto lending and trading platform BlockFi may have just taken a step in the merger direction. As the New York Post covered last week, the crypto-market mess sent BlockFi looking for an equity infusion — and it reportedly struggled to raise cash even at a steep discount.

So BlockFi has been pushed into a less friendly corner of capital markets that opens up to institutions when the goal is survival, not journeys to the moon: credit. BlockFi borrowed $250mn in a revolving credit facility from FTX, a competitor run by noted effective altruist and casual-tech-exec stereotype Sam Bankman-Fried.

The interest rate and terms were not disclosed in the press release. BlockFi’s Prince talks about “future collaboration and innovation between BlockFi and FTX” while assuring customers that the credit line won’t have a claim on customer funds. (We would hope that was a given, because this appears to be an attempt at confidence building, but in crypto it’s never entirely clear.) Bankman-Fried focuses on BlockFi’s “strong bias towards prudent risk management” and unspecified future partnerships.

But we’ve seen this movie before. One can quibble about how directly the two compete, but both offer trading, wallets and loans to individual crypto traders and broader services to institutions.

The talk about partnership and collaboration may simply be a sign that this credit line is set up to eventually become a majority ownership stake.

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