FTX buys BlockFi for $240 million

FTX crypto exchange has signed Friday a deal with an option to buy crypto lender BlockFi for up to $240 million, BlockFi CEO Zac Prince said. Lately, FTX CEO Sam Bankman-Fried and his fund Alameda Research have been seen as a lender of last resort in the crypto space.

Moreover, Prince tweeted that FTX has agreed to provide BlockFi with a $400 million revolving credit facility. He added that BlockFi has faced a jump in withdrawals after news of crypto lending platform Celsius Network’s freeze.

Fears of a possible US recession due to aggressive rate hikes from the Federal Reserve have roiled risky assets this year, including cryptocurrencies. That has sparked a meltdown in what was just last year a booming industry.

Earlier, CNBC reported that a term sheet would be signed by the end of this week, with a source saying it could be as low as $25 million. Even at the high end of FTX’s deal price, it marks a significant decrease in the value of BlockFi. According to data from PitchBook, the company was last worth $4.8 billion.

FTX increased a previous $250 million revolving credit facility to a total of $400 million. BlockFi executives said the company had not drawn on this credit facility to date and has “continued to operate all our products and services normally.”

As to why BlockFi agreed to move forward with the deal, the company pointed to crypto market volatility and the failure of hedge fund Three Arrows Capital. It also pointed to embattled crypto company Celsius, which froze customer deposits two weeks ago citing “extreme market conditions.” BlockFi said it had seen an uptick in client withdrawals that week, despite having no exposure to Celsius.

Last month, BlockFi also cut 20% of its headcount and implemented multiple cost-cutting measures such as reducing marketing spending and executive compensation.

BlockFi said it has suffered $80 million in losses “which is a small fraction of losses publicly reported by other lenders.” Its losses with the hedge fund will be part of Three Arrows’ ongoing bankruptcy case, the company said.

“Outside of this transaction, we realize that there is a lot of fear, uncertainty, and doubt in the crypto markets,” BlockFi CEO Zac Prince said. “From our vantage point, we continue to see a healthy ecosystem on the rise.”

Companies use revolving credit facilities as backstop financing to combat adverse impacts on other sources of income. For the most part, these facilities remain undrawn.

FTX CEO Sam Bankman-Fried has been seen as a lender of last resort in the space. In addition to BlockFi, Bankman-Fried’s company Alameda Research provided a $500 million loan to Voyager.

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