BlockFi Worth Less than its $1 Billion to Loan to 3AC

BlockFi’s value has fallen by more than 90 percent since last year, according to asset-management firm Morgan Creek Digital.

The revelation was included in a Morgan Creek call with investors, details of which leaked to CoinDesk over the weekend. The firm is seeking to come up with $250 million to purchase a majority stake in the ailing crypto company, which offers exchange and lending services along with high-interest accounts.

The 51 percent stake the transaction would represent means BlockFi is still struggling to raise funds despite the steep discount. The company had attempted to raise funds at a $1 billion valuation at the beginning of the month. At its peak last fall, BlockFi successfully raised investor funds at an appraised value of $5 billion.

It also means the company is worth less than half amount it loaned to bankrupt investment firm Three Arrows Capital, a sum that Morgan Creek Managing Partner Mark Yusko revealed on the call was $1 billion. A judge in the Virgin Islands ordered 3AC into liquidation on Tuesday in order to repay $666 million on outstanding debt loan balances, which came less than a month after the firm became insolvent in the wake of bitcoin’s collapsing price.

BlockFi CEO Zac Prince disclosed two weeks earlier that his company had liquidated its loan to 3AC, part of an effort to assuage customer fears that BlockFi could become insolvent after 3AC’s downfall.

FTX, the crypto exchange led by Sam Bankman-Fried, extended a $250 million credit line to BlockFi last week to aid it in financing customer withdrawals, but Yusko revealed on the call that it came with a provision that allowed FTX to take over the company at “essentially zero price.” He said other offers of financing would have subordinated customers’ deposits to the lender — effectively allowing for their confiscation in the event the company continues to struggle.

Despite Morgan Creek’s efforts, Yusko said the odds of his firm replacing FTX’s credit line were slim. “The only alternative is to raise an equivalent amount in equity and that’s what we’re working on,” Yusko said. “I would say it’s a 10 percent possibility but not zero.”

He also said that he was amenable to an “in-between deal” whereby his firm replaced a portion of FTX’s $250 million, saying he would “definitely try to pursue” it, adding, “Not that I have SBF on speed-dial, but I could probably get that call.”

Morgan Creek, co-founded in 2018 by Yusko, Mike Hennessy, and Anthony “Pomp” Pompliano, has been a top investor in BlockFi over the last several years. It led a $50 million Series C funding round for the firm in 2020, and participated in a $30 million Series B round in February of that year.