Early this morning, cryptocurrency analyst Otteroooo posted a detailed survey on the capital status of CeFi (centralized financial services institution) giant BlockFi on his personal Twitter , concluding that BlockFi is likely to fall into a liquidity crisis as well. It is the platform that has lost huge sums of money in a series of incidents such as Celsius, Three Arrows Capital, and SEC fines.
Below are the details of Otteroooo’s investigation, compiled by Odaily Planet Daily.
- BlockFi will encounter a liquidity crisis at the end of 2022. (90% sure)
- BlockFi has already lost huge sums of money in 2022. (101% sure)
The full text has five parts:
- The collateral effect of Celsius;
- The collapse of Three Arrows Capital;
- BlockFi’s wrong bet;
- SEC fines;
- BlockFi’s coping strategy.
Part 1: The Collateral Impact of Celsius
After Celsius had liquidity problems and even faced restructuring, users of other CeFi platforms were also frightened. Driven by panic, a large number of users would rather give up their profits and redeem their assets from the centralized platform as soon as possible.
In just one year today, we have seen 2000 BTC and 5000 ETH flow out of BlockFi wallets .
Note that this is just the outflow for one day.
Thinking about what I said before, the liquidity crisis will be a reverse game of cowards (meaning that when the platform is in a crisis of trust, the users who quit first can keep the profits, while the users who trust the platform the most often will lost assets), users should figure out what to do now.
For BlockFi, this is the biggest problem they are about to face.
Part2: The collapse of Three Arrows Capital
Three Arrows Capital, one of the largest hedge funds in the cryptocurrency space, has been in existential crisis for a few days. Three Arrows co- founder Su Zhu’s recent statement that “we are communicating with relevant parties and fully committed to solving the problem” can basically be understood as a bankruptcy signal.
The way Three Arrows Capital operates is that they will borrow funds from some of the larger CeFi institutions, and then invest in the market, which is simply betting with the borrowed money. The leveraged model can greatly amplify Three Arrows’ returns when the bet is in the right direction, but the problem can also dramatically worsen if the bet is in the wrong direction.
Here is an example, some institutions that lent funds to Three Arrows Capital have not been able to get their money back (referring to the 8BlocksCapita incident).
When Three Arrows Capital is insolvent, it can no longer repay loans from CeFi institutions, which is how BlockFi connects to this story. When asked by the market if BlockFi had ever lent to Three Arrows Capital, the agency responded: “Our policy is not to comment on whether an organization is a client of BlockFi. We can confirm that we have maintained this throughout the flow of our business. A rigorous, prudent and proactive approach to risk management, including managing the risks that any individual client may bring.”
Basically saying nothing.
This is a very stupid answer, because the credibility of the platform is being lost due to rumors, and users are also shrouded in panic. Any smart CEO knows at this time that it is time to appease users with a clear statement, But BlockFi chose to remain silent.
This statement undoubtedly continues to amplify the market’s doubts, and users may speculate that the reason BlockFi is silent is that they know the consequences of telling the truth will be more serious.
As far as my personal guess is concerned, BlockFi has lent funds belonging to users to Three Arrows Capital with a high probability, and it can be said that it can no longer be recovered.
Part3: BlockFi’s wrong bet
Aside from some external influences, BlockFi’s own market judgment has also been wrong.
BlockFi is the second largest holder of GBTC (Three Arrows is the largest…), and GBTC is a traditional financial product issued by Grayscale that “can be nominally corresponding to BTC one-to-one”. Large funds in the traditional financial industry.
According to the current price of 1 BTC = 1.36 GBTC, there is a very obvious arbitrage opportunity here. BTC holders can exchange their 1 BTC for 1.36 GBTC, and then exchange them back when the two return to parity, thereby obtaining 36% of the coins. Standard income.
All this sounds good, but there is a small problem, that is, GBTC is just a “pixiu”… Since GBTC is a traditional financial product, it will be regulated by the United States Securities and Exchange Commission (SEC), The SEC only allows BTC to be deposited into a trust in exchange for GBTC, but not GBTC to redeem BTC…it’s a one-way channel.
In order to realize the function of free redemption, GBTC must be turned into another form of financial product (spot ETF), and Grayscale has been lobbying the SEC, but no progress has been made so far (add, the reason for the SEC’s refusal One is that Tether manipulates the market, we’ll talk about that story next time).
Therefore, for BlockFi, there are only two ways to get rid of GBTC, one is to sell GBTC, and the other is to wait for the SEC’s attitude to change, adjust the positioning of GBTC to a spot ETF, and then open for redemption.
The first way, due to the huge discount of GBTC, can only get back 71% of the value of BTC; as for the second way, if you have enough time, this is obviously an ideal choice, but in the face of the upcoming During the liquidity crisis of 2019, BlockFi simply couldn’t wait, because users wanted to withdraw funds now, rather than wait for an event that saw no progress at all.
So there is only one way for BlockFi to sell GBTC, and doing so means the platform will lose further user funds.
The truth is, BlockFi made a big bet that they wouldn’t have a liquidity crisis until GBTC turned into an ETF, but with Terra , Celsius, Three Arrows, and so on, it now looks like they’re going to lose the bet.
Part4: SEC fines
This year, BlockFi was charged by the SEC and 32 states for peddling cryptocurrency lending products to about 600,000 investors without registration. The final result was that BlockFi agreed to pay a $100 million fine to settle the lawsuit. . This is another sizeable asset loss.
Just two days ago, BlockFi announced that it would pay another $943,000 settlement to the state of Iowa. Interestingly, BlockFi paid this “small” penalty in installments. Why does such a large institution need to pay in installments? This is thought provoking.
To sum up, the current situation is that the funds of BlockFi are trapped in GBTC, the loan to Three Arrows Capital cannot be recovered, the settlement with the SEC has cost more than 100 million US dollars, and most users are in a hurry to withdraw their funds…
In addition, there are some unconfirmed rumors.
On June 7th, there were media reports that BlockFi is conducting a new round of financing, but its valuation has dropped from $3 billion to $1 billion compared to the previous round. I learned from some other sources that the current round The financing only received $50-80 million in commitments…not enough to pay a penalty, and many investors were intimidated by their outrageous operating numbers.
Note, this happened before Celsius crashed! (It is estimated that the financing will not be received now)
Part5: BlockFi’s coping strategy
So, in the face of the current situation, what does BlockFi plan to do? Here are 5 common strategies.
The first trick is to delay time and find various excuses to delay the speed of user withdrawals.
Yesterday, BlockFi just announced that it will not be open for business next Monday because of the Juneteenth holiday in the United States…you know.
The second trick is to revise the terms of service before the situation is completely out of control, and modify the description to be more beneficial to the company.
On June 15, BlockFi published an article in response to users’ questions about the platform’s asset risks. Interestingly, although this article was published on June 15th, if you read through the article, you will find that all data calculations are based on March 31st, which may be because BlockFi has not completed the second quarter audit , or it may not want to expose book losses after March 31.
The biggest problem is that the price of Bitcoin on March 31 was $45,528.
Now may be the time to take note of BlockFi’s current terms of service.
The third trick, cut spending, now every penny counts.
In fact, it was reported a few days ago that BlockFi would lay off 20% of its workforce.
The fourth trick is that there is a coincidental failure. It can be a technical reason or a KYC reason. Anyway, it cannot allow users to withdraw funds smoothly.
In fact, they have indeed exhausted the above means.
The fifth trick is to confuse the voice of the market and disrupt the difficulty of analysis and investigation through various information, so you can imagine that it is very difficult for me to sort out this article.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/is-blockfi-on-the-eve-of-a-thunderstorm-after-celsius-and-three-arrows/
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