blockfi

Payments company Curve bids for BlockFi’s 87,000 credit card customers

A Curve spokesperson has confirmed they have been in negotiations to acquire BlockFi’s credit card program’s customers since Nov. 12.

Payments company Curve is in active discussions to acquire crypto lender BlockFi’s more than 87,000 credit card customers — whose credit cards have been suspended since Nov. 11. 

A Curve spokesperson told Cointelegraph that “outreach and negotiations” started on Nov. 12 and are still in the process with Banking as a Service (BaaS) company Deserve, which services the BlockFi card program.

“Terms are being negotiated actively between Curve and Deserve, but a sale or partnership, if agreed to, is pending the conclusion of due diligence,” the spokesperson said.

“The primary point of contact for the pending negotiation is Deserve/ Evolve, not BlockFi, but that is an understanding that needs to be confirmed,” they added, noting also that Curve is not interested in BlockFi’s assets.

Should the acquisition succeed, the fintech is looking to continue BlockFi’s credit card program, noting that customers will still be able to earn crypto rewards.

They also said an added benefit of a successful acquisition is that customers from BlockFi’s credit card program “will not be ported to yet another centrally-held exchange.”

Reports over the weekend suggested that Binance US and Coinbase were also pursuing BlockFi’s credit card customers as well.

A spokesperson from Coinbase however clarified to Cointelegraph that: “We’re not engaged in any conversations or efforts related to BlockFi’s card program,” while Binance US has not yet responded to requests for comment by the time of publication.

Related: BlockFi limits platform activity, including a halt on client withdrawals

The bid for BlockFi’s credit card customers comes days after BlockFi announced it was suspending withdrawals on Nov. 11, citing the ongoing saga with crypto exchange FTX as the cause.

The same day BlockFi credit card users flooded Twitter reporting their cards were no longer working and had received messages from BlockFi confirming the cards had been suspended because of “recent events at BlockFi.”

Some users were further antagonized when they received messages from BlockFi informing them they would still be required to keep up with their credit card payments.

Crypto market watcher Just Boby told his 14,000 followers in a Nov.11 post, “This is NOT fake, BlockFi reached out via both email and text to remind me to pay my credit card bill,” others have shared a copy of the communication from BlockFi.


BlockFi limits platform activity, including a halt on client withdrawals

“We intend to communicate as frequently as possible […] but anticipate that this will be less frequent than what our clients and other stakeholders are used to.”

Crypto lender BlockFi has halted client withdrawals on its platform as part of a broader limit on platform activity in the wake of FTX’s collapse.

The company said in a Nov. 11 tweet that a “lack of clarity on the status of FTX.com, FTX US and Alameda” has prevented it from being able to operate as normal.

As a result, it has limited platform activity until there is further clarity on the developing situation, it said. 

The firm has also requested that clients do not deposit to BlockFi wallets or Interest Accounts at this point in time.

It comes only days after a Twitter thread in which BlockFi founder and chief operating officer Flori Marquez on Nov. 8 assuring users that all BlockFi products were fully operational, as they have a $400 million line of credit from FTX US, which is a separate entity from the one affected by a liquidity crunch.

Marquez’s comment that BlockFi “will remain an independent entity until at least July 2023” is likely a reference to the deal with FTX US that provided them with the line of credit, in which FTX US was provided an option to acquire BlockFi for a variable price up to $240 million. 

However, recent developments from FTX US, in which a banner at the top of the FTX US website said “trading may be halted on FTX US in a few days,” has raised questions about the financial impact the fallout of FTX has had on its United States arm.

Related: FTX US resigns from the Crypto Council for Innovation

The crypto community has not taken well to the abrupt change in language coming out of BlockFi, who had just 12 hours earlier assured customers that “all crypto transactions, including withdrawals, would continue as normal.” 

Kevin Paffrath, CEO of HouseHack and a YouTuber with 1.85 million subscribers, pointed out a similar u-turn in Sam Bankman-Fried’s public comments in the lead-up to the FTX fallout.


Fidelity to beef up crypto unit by another 25% with 100 new hires

The Digital Assets division within Fidelity Investments will have around 500 total staff members by the first quarter of 2023, according to a spokesperson.

$4.5 trillion asset management firm Fidelity Investments is reportedly set to hire another 100 people to bolster the firm’s growing digital assets division — a stark contrast to the recent squeezing out of crypto-talent. 

A Fidelity representative told Bloomberg on Oct. 22 that the firm has begun a new round of hiring, which will bring the Fidelity Digital Asset’s headcount to around 500 by the end of the first quarter of 2023.

A search on Fidelity’s job board currently shows 74 live results for digital asset-related positions, which cover areas relating to blockchain technology, business analysis, customer service, finance and accounting, product development and corporate services, including compliance. 

Almost all of the current listings are based in the United States — with the majority coming from its Boston headquarters, New York, Texas, Colorado and Utah.

The spokesperson told Bloomberg that the new roles would be situated throughout the United States, United Kingdom and Ireland.

Fidelity’s hiring spree comes as BlockFi, Coinbase, Gemini and Crypto.com were among some of the largest crypto-native firms to lay off a spree of employees, having cut 20%, 18% and 10%, respectively.

The large layoffs appear to have opened a fresh supply of crypto talent for traditional firms like Fidelity to take on board.

Related: Fidelity’s crypto ambitions are bigger than expected: report

The digital asset team expansion should be of little surprise given how gung-ho Fidelity has been to offer more comprehensive digital asset-related services amid growing investor interest.

A Fidelity spokesperson recently confirmed to Cointelegraph that they will be offering Ether (ETH) custody and trading services to its institutional clients from Oct. 28, 2022.

In September, industry participants hinted the firm may soon “shift” into offering Bitcoin (BTC) trading services to its 34 million retail customers.

The firm did not confirm the speculation at the time, only noting that “expanding our offerings to enable broader access to digital assets remains an area of focus.”

The firm has already launched a service that enables its 401(k) retirement saving account holders to invest directly into Bitcoin.

Cointelegraph reached out to Fidelity in regard to the firm’s expansion plans but did not receive an immediate response.

Ether staking could trigger securities laws — Gensler

Though he did not specify any particular crypto, SEC chair Gary Gensler said proof-of-stake cryptocurrencies could be subject to securities laws.

Ethereum’s upgrade to proof-of-stake (PoS) may have placed the cryptocurrency back in the crosshairs of the Securities and Exchange Commission (SEC).

Speaking to reporters after the Senate Banking Committee on Thursday, SEC chairman Gary Gensler reportedly said that cryptocurrencies and intermediaries that allow holders to “stake” their crypto may define it as a security under the Howey test, according to The Wall Street Journal. 

“From the coin’s perspective […] that’s another indicia that under the Howey test, the investing public is anticipating profits based on the efforts of others,” WSJ reported Gensler as saying. 

The comments came on the same day as Ethereum’s transition to PoS, meaning the network will no longer rely on energy-intensive proof-of-work (PoW) mining and instead, allows validators to verify transactions and create new blocks in a process that involves staking.

Gensler said that allowing holders to stake coins results in “the investing public anticipating profits based on the efforts of others.”

Gensler went on to say that intermediaries offering staking services to its customers “looks very similar — with some changes of labeling — to lending.”

The SEC has previously said they didn’t see Ether (ETH) as a security, with both the Commodity Futures Trading Commission (CFTC) and the SEC agreeing that it acted more like a commodity.

The SEC has been keeping a close watch on the crypto space, particularly those that it alleges are securities. The regulator has been embroiled in a case against Ripple Labs concerning the launch of the XRP token.

The SEC has also pushed firms offering crypto lending products to register with them, including a $100 million penalty directed at BlockFi in February for its failure to register high-yield interest accounts that the SEC considers securities.

Gabor Gurbacs, director of digital assets strategy at American investment firm VanEck, tweeted to his 49,300 followers that he had been saying for over six years “that POW to POS transitions can draw regulatory attention.”

Gurbacs went on to clarify that regulators refer to rewards from staking as dividends, which is a feature of the Howey test.

Related: Crypto developers should work with the SEC to find common ground

The Howey Test refers to a Supreme Court case in 1946 where the court established whether a transaction qualifies as an investment contract. If it does, then it would be considered a security and is covered by the Securities Act of 1933.

BlockFi announces deal with FTX US, including ‘option to acquire’ for $240M

According to CEO Zac Prince, BlockFi signed agreements with FTX US totaling $680 million — for a company that had a $5 billion valuation in June 2021.

FTX US has inked a deal with BlockFi that will give the crypto derivatives exchange the option to purchase the lending firm.

In a Friday Twitter thread, BlockFi CEO Zac Prince said the crypto lending firm had signed agreements with FTX US for a $400-million revolving credit facility as well as the option to acquire BlockFi “at a variable price of up to $240 million based on performance triggers.” According to the CEO, the deal was reached as part of an effort “to bolster liquidity and protect client funds” at BlockFi.

The agreements are still subject to shareholder approval. Prince said volatility in the crypto market, “particularly market events related to Celsius and 3AC,” which had a negative impact on BlockFi, led to the decision. The crypto lending platform suffered roughly $80 million in losses the week following Celsius pausing withdrawals, and, after considering “​​various unattractive options” for recovery, partnered with FTX US.

“All of our products and services — including funding and withdrawals, our trading platform, credit card and global institutional services — continue to operate normally, with incremental capital strength behind them,” said Prince.

In a Friday blog post, BlockFi criticized reports from Thursday claiming FTX intended to purchase the firm for $25 million. According to the CEO, the $400 million credit facility, $240 million acquisition price and “other potential consideration” totaled $680 million — for a company that had a $5 billion valuation in June 2021. Prince hinted the report was due to “an inappropriately leaked call” and “purely personal conjecture by a single party.”

Related: FTX US acquires Embed Financial subsidiary for stock trading platform

BlockFi was one of the first firms to liquidate some of Three Arrows Capital’s positions in June after the company reportedly failed to meet margin calls from its lenders. Amid the market downturn and extreme price volatility, the crypto lending firm announced that it would be laying off 20% of its 850-strong staff, retaining roughly 600 people. It’s unclear if a FTX US acquisition would change this decision.

FTX on the verge of purchasing BlockFi in $25M fire sale: Report

The cryptocurrency derivatives exchange could potentially buy out the troubled lender for pennies on the dollar.

Cryptocurrency exchange FTX is close to purchasing digital asset lender BlockFi’s remaining assets for $25 million, according to CNBC.

According to sources close to the matter, BlockFi’s equity investors were wiped out and are now writing their positions off at a loss. In addition, the FTX deal could take multiple months to close, opening up the possibility that the price tag could shift over that period. In June 2021, BlockFi had a reported valuation of $5 billion.

BlockFi CEO Zac Prince has since denied these rumors, taking to Twitter on June 30 to refute speculation that the company is being sold for $25 million.

Earlier this year, BlockFi had over 1 million clients, over $10 billion in assets and deposits, and had distributed more than $700 million in crypto rewards and interest. However, BlockFi’s fortunes quickly soured after it reportedly became a major creditor of the now troubled hedge fund Three Arrow Capital, also known as 3AC. As a result, it was forced to liquidate 3AC’s positions amounting to $1.33 billion, likely at a severe loss as the bear market intensified in June. 

The situation was exacerbated by 3AC posting collateral for the loan in $400 million worth of Grayscale Bitcoin Investment Trust (GBTC) shares, which often trade at a discount or premium to spot Bitcoin (BTC) prices. At the time of liquidation, GBTC shares were trading at a 34% discount to the net asset value of its Bitcoin holdings, which plunged further as BlockFi began closing the position.

Related: FTX may be planning to purchase a stake in BlockFi

Earlier this month, BlockFi said it would fire 20% of its 850-strong staff due to profitability woes in the short term. Just last week, FTX had extended a $250 million line of credit to BlockFi and denied rumors that it was acquiring the ill-fortuned firm. 

Update: Added Zac Prince’s latest Twitter update denying the company is being sold for $25 million. 

Contagion: Genesis faces huge losses, BlockFi’s $1B loan, Celsius’s risky model

A leaked investor call from Morgan Creek Digital suggests BlockFi liquidated 3AC for $1 billion, while Celsius reportedly maintained a highly risky assets-to-equity ratio last year that may have caused its recent liquidity woes.

It’s been another day of watching the ripples of contagion spread through the crypto market.

With Three Arrows Capital (3AC) being ordered into liquidation by a British court, details have also emerged on Thursday of BlockFi liquidating a $1 billion loan to 3AC, and the fallout from the insolvency was partly to blame for lending firm and market maker Genesis Trading facing losses of “a few hundred million dollars.”

Withdrawals remain suspended at the possibly insolvent lending and borrowing platform Celsius, which was revealed to have had a highly risky 19 to 1 assets-to-equity ratio before it ran into liquidity troubles this year.

Celsius’ risky business

According to documents reviewed and reported on by the Wall Street Journal (WSJ) on Wednesday, Celsius was operating on very fine and risky margins as it ballooned in value over 2021.

According to documents prepared before the last equity raise, Celsius, which claimed to be a less risky alternative to a bank, had an assets-to-equity ratio of $19 billion to $1 billion midway through last year while also issuing out many loans that were undercollateralized.

The assets-to-equity ratio refers to the proportion of a firm’s assets that have been funded by shareholders. The ratio generally represents an indicator of how much debt a firm has leveraged to finance its operations, with higher ratios often suggesting a firm has utilized substantial financing and debt to remain afloat.

The ratios differ from sector to sector, as do the assets held by the specific entities. However, Celsius’s already high 19-to-1 ratio is seen as extra risky due to the firm’s exposure to crypto, leverage and lending.

Eric Budish, an crypto-versed economist at the University of Chicago’s business school, stated that “It’s just a risky structure,” as he likened Celsius’ operations to that of financial firms in the lead-up to the 2008 housing bubble:

“It strikes me as diversified as the same way that portfolios of mortgages were diversified in 2006. It was all housing— here it’s all crypto.“

Reports also surfaced that Voyager Digital has sent more than $174 million to Celsius over the past few months. The transactions were confirmed by analytics platform Nansen this week. However, the nature of the funding or whether it is a loan is unclear.

Genesis facing hundreds of millions in losses

Digital Currency Group’s market maker and lending firm Genesis Trading is reportedly facing losses in the hundreds of millions, according to sources reported by DCG publication Coin Desk.

The losses relate in part to the company’s exposure to 3AC and the crypto lender Babel Finance. Genesis is putting a brave face on the losses and still has hope of receiving partial repayments, with other losses offset by hedging. CEO Michael Moro said the firm had mitigated losses with “a large counterparty who failed to meet a margin call to us:”

“We sold collateral, hedged our downside, and moved on. Our business continues to operate normally and we are meeting all of our clients’ needs.”

Battle for BlockFi

A leaked investor call from hedge fund Morgan Creek Digital confirmed the liquidation of a large unnamed client by BlockFi on June 16 was 3AC.

During the call, Morgan Creek’s managing partner Mark Yusko and co-founder Anthony “Pomp” Pompliano stated that BlockFi had “reported” to the firm the loan was worth $1 billion and overcollateralized by 30%.

Pomp went on to state that roughly two-thirds of $1.33 billion collateralization was in Bitcoin (BTC) and was immediately liquidated once 3AC was unable to make repayments. The other third was said to be in Grayscale Bitcoin Trust (GBTC) shares worth around $400 million.

Grayscale’s BTC trust is designed to be pegged to the spot value of BTC, however, it often trades for either a premium or a discount.

Related: British Virgin Islands court reportedly orders to liquidate 3AC

According to Pomp, BlockFi ran into troubles liquidating the position as the GBTC discount dropped to around 34%, and the price went down as the firm went to sell the holdings.

With FTX reportedly planning to purchase a stake in BlockFi following the issuance of a $250 million revolving credit facility to the firm, the call also discusses how Morgan Creek was looking to raise $250 million to purchase 51% of the firm. Such a sum would give BlockFi a valuation of just $500 million, well below its reported valuation of $5 billion in June 2021.

Surprise twist as BlockFi receives Money Services License in Iowa

Despite a significant fine from Iowa’s regulator just two weeks earlier, BlockFi has scored itself a license in the state.

Just two weeks after being fined by Iowa’s regulators for offering and selling unregistered securities, crypto lending platform BlockFi announced on Tuesday that it has received a Money Services License in the state.

The Iowan license will allow the crypto lender to receive money and sell payment instruments in the state. BlockFi on Twitter stated it will begin by allowing Iowan residents to trade stablecoins.

BlockFi did not mention whether the license would cover its yield-generating product. According to BlockFi, its interest accounts have not been registered and are not offered or sold in the United States.

Previously on June 14 the Iowa Insurance Division (IID) responsible for securities sales in the state fined BlockFi over $943,000 for violations of the state’s Securities Act. IID alleged BlockFi had “offered and sold securities in Iowa that were not registered or permitted for sale in Iowa” along with failing to register as a broker-dealer or agent.

The fine was part of a larger penalty brought by the United States Securities and Exchange Commission (SEC) in February for not registering an offering of high-yield interest accounts that the commission deemed to be securities.

The fine was one of the largest penalties ever imposed by a federal regulator on a crypto business. BlockFi was hit with $100 million in settlements, with half paid to the SEC and the other half to 32 states which brought forward similar charges.

Shortly after, BlockFi said it intended to register with the SEC for a crypto interest-bearing security for its U.S. customers to replace its current interest accounts offering.

The new license is a glimmer of good news for BlockFi which has struggled along with other blockchain and crypto companies in the worsening market conditions and falling crypto prices.

On June 16, BlockFi was among the lending firms forced to liquidate some of the positions from venture firm Three Arrow Capital (3AC), with the latter unable to meet a margin call on its Bitcoin (BTC) borrowings.

Celsius, a rival crypto lending platform, paused customer withdrawals on June 13, attributing the decision to the market conditions. Other reports followed that the company was facing liquidity issues and would soon be facing insolvency.

Related: Community reacts after SEC’s Gensler affirms BTC’s commodity status

These conditions have also seen a round of layoffs from blockchain and crypto companies, with BlockFi CEO Zac Prince saying on June 14 that it would be letting 20% of its staff go in order to remain profitable. It’s unknown how much of an effect the SEC’s financial penalties had on the decision.

A week later on June 21, BlockFi received a lifeline from crypto exchange FTX which saw BlockFi sign a revolving credit facility agreement for $250 million to bolster the firm’s balance sheets and strengthen the platform. 

Days later, it was reported that FTX may be in talks to purchase a stake in BlockFi, although a BlockFi spokesperson told Cointelegraph on June 24 that it “does not comment on market rumors” and is “still negotiating the terms of the deal.” Meanwhile, shareholders are reportedly unhappy with the move as it would wipe out shareholder equity.

It has recently been reported that Anthony Pompliano’s investment firm Morgan Creek is attempting to put together an alternative $250 million deal to buy a majority stake in BlockFi.

Iowa regulator orders BlockFi to pay $943K over alleged unregistered securities offering

The IID ordered BlockFi to pay an administrative fine as well as cease and desist “from making any untrue statement of material facts regarding securities.”

The Iowa Insurance Division, or IID, a regulator responsible for many securities sales in the state, has fined crypto lending firm BlockFi more than $943,000 after it allegedly offered and sold unregistered securities.

In a Tuesday announcement, the state regulator said BlockFi had “offered and sold securities in Iowa that were not registered or permitted for sale in Iowa” in addition to not being registered as a broker-dealer or agent, in violation of the state’s Securities Act. The IID ordered BlockFi to pay $943,396.22 as an administrative fine as well as to cease and desist “from making any untrue statement of material facts regarding securities.”

“While innovations, like cryptocurrencies, may provide for growth and evolution in the financial system, it is important that regulators ensure this occurs within an appropriate framework that protects investors while still facilitating responsible capital formation,” said Iowa nsurance commissioner Doug Ommen.

The order behind the financial penalty was part of an investigation by the United States Securities and Exchange Commission, or SEC, in which BlockFi was ordered in February to pay $50 million in settlement to the federal agency as well as $50 million to 32 state-level regulators. According to the IID, BlockFi allegedly made “misrepresentations and omissions about the level of risk in its loan portfolio” and claimed its institutional loans were “typically” over-collateralized when the statement was only true for 17% of loans made by the platform in the first half of 2021.

“BlockFi’s statements that their loans were “typically” over-collateralized suggested to investors that they had secured more protection from default than BlockFi had actually secured,” said the IID.

Federal and state regulators seemed to target many crypto lending platforms in 2021, with the New York Attorney General’s office ordering two firms to “cease any and all such activity” while potentially investigating three others. Financial regulators from a number of U.S. states, including Texas, New Jersey, Alabama, Kentucky and Vermont, claimed in 2021 that BlockFi had offered securities unlicensed at the state or federal level.

Related: Happy to be regulated? Fallout from BlockFi settlement is a matter of speculation

BlockFi CEO Zac Prince announced on Monday that the firm would be laying off 20% of its staff — reducing the number of employees to just over 600 — citing the need to achieve profitability goals. It’s unclear whether the financial penalties from state regulators played a role in BlockFi’s decision, but the news came amid the crypto market experiencing extreme volatility, with the price of Bitcoin (BTC), Ether (ETH) and many others dropping between 25–40% in the last seven days.