BlockFi faces heavy losses from loan to Core Scientific
Last week, young American miner Core Scientific, which has sold most of its bitcoin throughout the year, announced that it was ready to start bankruptcy proceedings with its creditors as it suspended all his debt payments.
Core Scientific has more than $1 billion outstanding with various creditors, including an $80 million loan from BlockFi. Core currently only holds 24 bitcoins (worth just under $500,000) and about $26.6 million in cash. It is also recording a loss on its operations and estimates the total cost of its property, plant and equipment to be around $99 million, which means the company is seriously short of its obligations to its creditors.
Two years ago, BlockFi launched a massive campaign to fund bitcoin miners and even has a section on its website dedicated to the service. Under the leadership of financial markets veteran Joseph Chu, BlockFi has issued various loans to miners, including $46.9 million to Alborz JV and $32 million to Bitfarms. As of last summer, bitcoin miners had up to $4 billion in debt and BlockFi was reportedly the second largest creditor to publicly traded bitcoin miners.
According to its latest transparency report, BlockFi is exposed to $1.8 billion in loans to institutional and retail clients and up to $3.9 billion in client assets that he can deploy.
BlockFi’s term sheets are not publicly available, but a reddit post alleged that BlockFi offered loans of over €10 million with a 10% deposit in bitcoins as well as a guarantee against equipment. . In its filing with the SEC, Core Scientific said it borrowed two loan tranches from BlockFi, to purchase mining hardware, one for $60 million in December 2021 and another for $20 million with interest at 13. 1% and payable within 24 months. He did not, however, list any guarantees against them.
Companies in the crypto-finance sector like BlockFi and Celsius have based their business models on giving customers high-interest payments from the profits they would have made either by trading crypto or from the interest payments they would receive from loans to retail and institutional clients against their crypto collateral. BlockFi points out that, unlike Celsius, it has always honored customer withdrawal requests.
However, reckless trading, bad debt and high leverage meant it never worked out that way. BlockFi itself was previously bailed out by Sam Bankman-Fried with $250 million after losing over $285 million in 2020 and 2021. This is according to leaked alleged earnings documents.
Notable companies that have gone bankrupt so far this year include Three Arrows Capital (3AC) and Celsius, while BlockFi had to be bailed out. However, we have so far not seen a large-scale deleveraging of bitcoin miners.
Read more: Make your bets: how many bitcoin miners will survive the winter?
Miners are nonetheless under severe strain, with electricity prices yet to fall back to pre-2022 levels and bitcoin stuck in a bear market. Share prices of most publicly traded miners have crashed while Riot Blockchain, one of the largest in the US, has suffered losses of at least $330 million this year alone. A crypto miner crisis could again throw BlockFi into financial turmoil.
Following the release, BlockFi reached out to Protos with a statement from the company’s Chief Risk Officer, Yuri Mishkin:
“BlockFi runs a diverse lending business to the crypto ecosystem, with mining-backed loans making up a minority portion of our larger loan portfolio,” Mishkin said.
“These mining-backed loans are collateralized by mining equipment, and we follow the same prudent risk and underwriting practices that we implement in the rest of our institutional business. BlockFi holds venture capital reserves to protect against potential defaults, which includes the mining equipment finance business.
“In addition, our credit risk management team closely monitors the bitcoin mining sector and speaks regularly with borrowers in the portfolio. “is working to support the industry during this time. BlockFi client funds are unaffected and remain protected, and all institutional, private and retail client products and services continue to operate as normal.”
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Edit 6:55 PM UTC, October 31: Following BlockFi’s statement, the article has also been edited to point out that the $285 million figure mentioned in paragraph 7 was taken from leaked documents., and to reflect BlockFi’s position on customer withdrawal requests.