With no central bank willing to come to the rescue, beleaguered crypto firms are turning to their peers for help.
Billionaire cryptocurrency exchange boss Sam Bankman-Fried has signed deals to bail out two companies in as many weeks: BlockFi, a quasi-bank, and Voyager Digital, a digital asset brokerage.
Bankman-Fried cryptocurrency exchange FTX agreed on Tuesday to provide BlockFi with a $250 million revolving credit facility. Bankman-Fried said the funding would help BlockFi “navigate the market from a position of strength.”
“We take seriously our duty to protect the digital asset ecosystem and its customers,” he tweeted.
It comes after BlockFi said earlier this month that it would lay off 20% of its staff. Meanwhile, a report by The Block said earlier this month that BlockFi was in talks to raise a downside round that valued the company at $1bn, down from $3bn last year.
BlockFi was not immediately available for comment when contacted by CNBC.
Last week, Voyager Digital said Alameda Research, Bankman-Fried’s quantitative research firm, would provide $500 million in financing.
The deal consists of a $200 million USDC cash and stablecoin line of credit, as well as a separate revolving facility of 15,000 bitcoins worth approximately $300 million at current prices.
A drop in the value of digital currencies in recent weeks has caused numerous key players in the space to face financial difficulties.
Bitcoin and other cryptocurrencies are falling sharply as the market grapples with interest rate hikes from the Federal Reserve and the collapse of $60 billion of terraUSD, a purported stablecoin, and its sister token luna.
Last week, crypto lender Celsius halted all account withdrawals, blaming “extreme market conditions.” The company, which takes users’ cryptocurrencies and lends them for higher returns, is believed to have hundreds of millions of dollars tied up in an illiquid token derivative called stETH.
Elsewhere, cryptocurrency hedge fund Three Arrows Capital has been forced to liquidate leveraged bets on various tokens, according to the Financial Times.
On Wednesday, Voyager revealed the extent of the damage inflicted by the 3AC problems.
The company said it would take a $650 million loss on loans issued to 3AC if the company defaults. 3AC had borrowed 15,250 bitcoins, worth more than $300 million as of Wednesday, and $350 million worth of USDC stablecoins.
3AC requested an initial payment of $25 million in USDC by June 24 and full payment of the entire USDC and bitcoin balance by June 27, Voyager said, adding that no amount has yet been paid.
The firm said it intends to recover the funds from 3AC and is in talks with its advisers “about available legal remedies.”
“The Company cannot assess at this time how much it will be able to recover from 3AC,” Voyager said.
Voyager shares plunged on the news, falling as much as 60% on Wednesday.
Zhu Su, co-founder of 3AC, previously said that his company is considering asset sales and a bailout by another company to avoid collapse. The company did not respond to multiple requests for comment.
Bankman-Fried is one of the richest people in crypto, with an estimated net worth of $20.5 billion, according to Forbes. His crypto exchange FTX garnered a $32 billion valuation in early 2022.
The 30-year-old has become something of a savior for the $900 billion crypto market as it faces a deepening liquidity crisis. In an interview with NPR, Bankman-Fried said he feels his trade has a “responsibility to seriously consider intervening, even if it’s at a loss for us, to stop the contagion.”
His actions highlight how a lack of regulation for the crypto industry means companies cannot turn to the federal government for a bailout when things go wrong, a stark contrast to the banking industry in 2008.