Crypto lender BlockFi is struggling to raise cash despite offering to take a steep discount on its valuation, raising the risk that it could be forced into a financial restructuring, The Post has learned.
The Jersey City, NJ based startup, which last fall raised $400 million in a funding round that valued the company at $5 billion, has for at least a month been trying to raise $100 million at a valuation of just $1 billion — a haircut that amounts to 80% over half a year, according to sources briefed on the situation.
BlockFi’s advisor JPMorgan pitching the deal as a massive bargain, and has reached out to prospective investors this week that already said they were not interested in participating in the round, a source said.
Nevertheless, insiders say investors have grown increasingly concerned the firm could soon end up like crypto lender Celsius Network, which this week hired restructuring advisors after freezing all withdrawals, swaps and transfers last week because of market volatility, a source close to the situation said.
“This could be the next one,” the source said, referring to BlockFi.
“BlockFi does not comment on market rumors,” a company spokeswoman told The Post on Friday.
A spokesperson for JPMorgan declined to comment.
On Thursday, BlockFi Founder and CEO Zac Prince tweeted, “Over the past five years, BlockFi has been battle tested through all types of market conditions. Throughout this current period of market volatility, BlockFi continues to fulfill all withdrawal requests pursuant to our terms of service.”
BlockFi’s previous investors have included Bain Capital Ventures, Valar Ventures, Galaxy Digital, Akuna Capital, SoFi, and Coinbase Ventures.
BlockFi on Thursday confirmed that a large client recently failed to meet its obligations on a margin loan, Bloomberg reported. BlockFi “fully accelerated the loan and fully liquidated or hedged all the associated collateral,” BlockFi’s Chief Executive Zac Prince said on Twitter. “We believe we were one of the first to take action with this counterparty.”
Prince didn’t name the client but earlier, the Financial Times reported that BlockFi was among companies that liquidated at least some of their positions with Three Arrows, a giant, Singapore-based hedge fund that’s focused on cyrpto which reportedly has been failing to meet margin calls.
On Tuesday, Three Arrows co-founder Zhu Su tweeted that the company is committed to “working this out” without elaborating.
BlockFi recently slashed its workforce by 20% and a spokesperson told Bloomberg its executive team, including founders Prince and Flori Marquez, took a pay cut. Bloomberg earlier reported that BlockFi is looking to raise funds at a reduced valuation of $1 billion, citing unnamed sources.
Dan Loeb’s Third Point had been poised to become the lead investor in the BlockFi round last fall but pulled out because the Securities and Exchange Commission had started investigating the crypto lending making Loeb nervous, the source said.
The SEC in February reached a $100 million settlement with BlockFi and 32 states for failing to register the offers and sales of its retail crypto lending product, according to a public filing.
BlockFi in the settlement agreed to stop unregistered sales.
The Texas securities regulator announced Thursday it is investigating Celsius’ plan to freeze withdrawals and transfers, according to Reuters, and several other states too are reportedly starting their own investigations.
Crypto news service The Block first reported on the BlockFi fund raising earlier this month.