FTX Agrees Deal With BlockFi With Option to Acquire for $240 Million

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Published: Jul 4, 2022, 07:51 UTC

FTX has struck a deal to buy troubled crypto lender BlockFi for as much as $240 million

Key Insights:

The deal provides BlockFi with a $400 million revolving credit facility.
The final purchase value will depend on BlockFi’s performance and other factors.
CEO Zac Prince claims that the deal will ensure client funds are protected.

Sam Bankman-Fried’s cryptocurrency exchange FTX has inked a deal with troubled crypto lender BlockFi with the option to acquire for up to $240 million.

The “definitive agreement” provides BlockFi with a $400 million revolving credit facility, with the total value of deal estimated to reach up to $680 million – subject to shareholder approval.

The news was announced by BlockFi CEO Zac Prince who claims that the deal will ensure client funds are protected.

Valuation Rumours

BlockFi’s valuation is a key consideration in the deal and while earlier reports listed it as $25 million, the terms agreed give the company a variable price of up to $240 million based on performance triggers. U.S. news outlet CNBC pegged the valuation at $25 million, which represents a 99% discount from its nearly $5 billion valuation in 2021.

Prince denied CNBC’s reporting, which he dubbed unfounded. Notably, the final purchase value will depend on BlockFi’s performance and Prince also emphasised that the company has not drawn from the credit facility.

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

Prince added: “As a matter of principle, we fundamentally believe in protecting client funds. Not only because it’s absolutely the right thing to do, but this also benefits the ongoing health and adoption of crypto financial services worldwide. Therefore, it was important to add capital to our balance sheet to bolster liquidity and protect client funds”.

It was reported that the acquisition could lead to additional BlockFi layoffs since FTX is predominantly eyeing the lending start-up’s technology, investors and counterparties. Both Prince and Bankman-Fried have since denied the prospect of immediate job losses.

Market Volatility

Market volatility following the downfall of Celsius and Three Arrows Capital (3AC) put cryptocurrency lenders in a rout. Fears of a possible U.S. recession due to interest rate hikes from the Federal Reserve worsened the crypto market that was only just last year considered to be a booming industry.

Namely, the crypto market collapsed in May, erasing more than $2 trillion in value. In a week, Terra went from being valued at more than $50 billion to collapsing into a state of disrepair. As Terra collapsed, wiping out nearly $40 billion in investors’ capital, so too did other cryptocurrencies. When the algorithmic stablecoin UST lost its peg to the U.S. dollar and the price of LUNA dropped 98%, it fuelled a slump across cryptocurrencies.

The result was a market capitalization that fell below $1 trillion for the first time since January 2021.

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

In other news, Bankman-Fried extended loans to crypto broker Voyager Digital, totalling $485 million in cash and Bitcoin (BTC). The 30-year-old billionaire also walked away from an acquisition deal with Celsius after FTX observed a $2 billion hole in the company’s balance sheet. FTX had reportedly entered into talks with Celsius to either provide financial support or acquire the firm outright.

About the Author

Mohadesa Najumiauthor

Mohadesa Najumi is a British writer who has worked within crypto, forex, financial technology, and the stock market industry. Mohadesa received her MSc in Political Science and International Relations at the University of Amsterdam.