BlockFi says it has agreed deal with FTX to buy troubled cryptocurrency exchange

BlockFi said on Friday thatFTX has a deal that allows it to buy troubled criptocurrency exchange BlockFi Inc. for up to $240 million, as firms continue to search for stability in a broad industry meltdown.

A $400 million revolving credit facility is also included in BlockFi's agreement with the criptocurrency billionaire Sam Bankman- Fried's exchange. The deal is intended to stabilize BlockFi, a Jersey City, N.J. based firm founded in 2017 that ran into problems due to the plunge of cryptocurrencies and a crisis of liquidity among a number of overleveraged firms.

BlockFi didn't want to say anything. On Friday, the company suffered losses as a result of the market meltdown and decided to add capital to bolster liquidity, according to its chief executive, Zac Prince. He said other financing options requited either haircuts for client funds or putting clients subordinate to lenders in the capital structure. The FTX offer did not require either. This is the best path forward, he said.

Recent events that have caused market volatility in cryptocurrencies - particularly events related to Celsius Network LLC and the hedge fund Three Arrows Capital Ltd. - led to this deal, according to BlockFi. According to the Wall Street Journal last week, Bankman- Fried was in talks to acquire a stake in BlockFi. Alameda Research recently acquired a large stake in Voyager Digital Ltd, a company that has a large stake in his other company, Alameda Research.

On Friday, Voyager announced that it was temporarily freezing withdrawals. In late June it limited withdrawals to $10,000 a day.

The price of digital money has gone up sharply as the industry has been in crisis mode. The entire market has lost more than $2 trillion in value because of the decline of 72% from its high of $67,802 in November.

The announcements Friday show how badly the selloff has battered companies in the sector. BlockFi, which raised about $1.2 billion in venture funding, was valued close to $5 billion at its peak last year. Voyager Digital has seen its stock price fall 96% from $25 in November to 58 cents on Thursday.

The selloff put a lot of strain on those companies and others, especially those that were highly leveraged, including Celsius and Three Arrows. Many companies in the space, including Coinbase and BlockFi, have resorted to layoffs because of the drop in their revenue. There are a number of observers in the market who believe that there will be a wave of consolidation as companies run out of capital.

According to the research firm PitchBook, BlockFi had revenue of $475 million in the year 2021. It isn't known whether or not the private company has been profitable. The cash-flow was positive in May 2022, according to the company.

In February, BlockFi paid $100 million in fines to the Securities and Exchange Commission for allegedly allowing 600,000 users to earn interest by lending their holdings to other traders in violation of investor protection laws.

More recently, BlockFi said it had lost $80 million in losses in connection with its overcollateralized loan to Three Arrows. The hedge fund suffered heavy losses due to a broad market selloff of digital assets.

FTX could pay up to $240 million for BlockFi, based on performance triggers that were not detailed, according to the announcement. Prince did, however, push back against some reports that the company would be sold at a very low price. He wrote on Twitter that he can 100% confirm that we aren't being sold for $25 M.

The agreements are subject to shareholder approval, according to BlockFi.