Sam Bankman-Fried has bolstered the struggling crypto industry by $900 billion with his second bailout of a struggling digital asset firm in as many weeks.
The 30-year-old chief executive of crypto trading platform FTX has extended a $250 million loan to BlockFi, he announced on Tuesday. Just last week, he also helped crypto broker Voyager Digital pull itself out of the sinkhole with a loan totaling around $485 million in cash and bitcoin.
The moves come as the crypto industry attempts to restore confidence during a period of mounting price pressure on digital assets such as bitcoin, which has pushed even some of the industry’s biggest market players into the distress.
One of the key tenets of cryptocurrencies is their independence from authorities such as central banks. But billionaire Bankman-Fried is building a central role akin to the authorities that rescued the banks in the 2008 financial crisis.
“Sam has become a lender of last resort,” said Anatoly Crachilov, managing director of London-based fund manager Nickel Digital Asset Management.
“If you have a few Lehman events at the same time, concentrated, it could impose a crypto winter for a very long time. FTX has the track record to support these companies, and it is in their long-term interests to see this ecosystem survive.
The sharp decline in digital asset prices has taken a growing toll over the past month, including stablecoin terra and its sister token luna, as well as lending platform Celsius, which has blocked customers from withdrawing their assets in an attempt to to survive. Since last November’s all-time high, bitcoin has fallen around 70% and rival token ether has lost around four-fifths of its value.
The loans to BlockFi and Voyager mark an intensification in the scale of support and prominence of companies in need of help. Early last week, lending platform BlockFi cut around a fifth of its staff, citing a “dramatic change in macroeconomic conditions”.
Last week, it also liquidated at least some of Three Arrows’ positions, after the crypto hedge fund failed to respond to BlockFi’s demands for more funds to cover its digital currency bets.
On Tuesday, he said he had agreed a $250 million revolving credit facility with FTX, although he did not disclose the terms or the interest rate. BlockFi said FTX’s claims on the facility would be contingent on all customer balances, should BlockFi fail.
Bankman-Fried said BlockFi has no debt or risk from Three Arrows or Celsius.
“Sometimes leadership means acting decisively and that’s what BlockFi did: remove troublesome counterparties before they became a problem and add money before it was needed,” Bankman wrote. Fried on Twitter on Tuesday.
He added, “BlockFi is financially strong; all operations are normal, as they always have been, and assets are safe.
Bankman-Fried added that he considers he has an important role to play in supporting struggling market participants, even in cases where FTX is not involved. “I think that’s what’s healthy for the ecosystem, and I want to do what can help it grow and thrive,” he tweeted.
Voyager agreed to a credit facility of $200 million in cash and USDC — a popular stablecoin in the crypto industry — and a second for 15,000 bitcoin, which equates to around $285 million. Both facilities expire at the end of 2024 and have an annual interest rate of 5%.
Zac Prince, chief executive of BlockFi, said his company’s deal would provide the company with “access to capital that will further strengthen our balance sheet.”
“Our team has proven itself and weathered many storms over the years, which only makes us stronger and more resilient as we navigate today’s market environment,” he added. .
As the industry has grown, major crypto exchanges have repeatedly stepped in to bail out struggling projects or businesses.
Last year, FTX provided $120 million in debt funding to Liquid, a crypto exchange that lost around $90 million in crypto tokens to hackers. FTX then acquired the smaller exchange.
Earlier this year, Binance, the world’s largest crypto exchange by volume, led the bailout of Sky Mavis, the company that runs popular game Axie Infinity, which was hacked to the tune of over $6 million.
“We are confident that Sky Mavis will bring a lot of value and growth to the wider industry and we believe it is necessary to support them as they work hard to resolve the recent incident,” he said. Changpeng Zhao era, general manager of Binance.