Liquidity crisis suddenly, BlockFi will also face the risk of lightning?

BlockFi is On the Eve of a Violent Thunderstorm After Celsius and Three Arrows

Original post by Otteroooo

原文编译： Azuma ，Odaily 星球日报 

Earlier this morning, cryptocurrency analyst Otteroooo took to his twitter account to post an extensive investigation of the financial position of CeFi giant BlockFi, concluding that BlockFi is likely to be in a liquidity crisis as well, The reason is that the platform has been installed on Celsius, Sanjian Capital, SEC  They lost a lot of money in a series of events like fines.

Here are the details of the Otteroooo survey, compiled by Odaily Planet.

Investigation Conclusions:

BlockFi will hit a liquidity crisis by the end of 2022. (90% sure)

BlockFi has already lost billions of dollars in 2022. (101% sure)

The thesis consists of five parts:

Celsius impact;

The collapse of Three Arrows capital;

BlockFi's bad bet;

SEC fines;

Strategies for BlockFi.

Part 1: Celsius Impact

Other CeFi users were spooked when Celsius suffered liquidity problems and even faced a shake-up. The number of users who would rather forgo revenue than withdraw their assets from the centralized platform was high.

Today alone, we saw 2000. BTC  And 5000 & have spent ETH  Outflow BlockFi  The wallet.

Note that this is just one day's outflow.

Considering my previous argument that a liquidity crisis is a reverse game of chicken, users need to figure out what to do now.

For BlockFi, this is their biggest challenge yet.

Part2: The collapse of Three Arrows Capital

Three Arrows Capital, one of the largest hedge funds in the cryptocurrency space, was in existential crisis within days. The co-founder of Three Arrows & NBSP; Mr Zhu's recent statement that "we are in communication with relevant parties and are fully committed to resolving the issue" could be interpreted as a bankruptcy signal.

The way Three Arrows works is they borrow money from some of the larger CeFi institutions and then invest it in the market, which is simply a bet with borrowed money. When the bets were in the right direction, the leveraged model greatly amplified Three Arrows' gains, but when the bets went wrong, the problem worsened dramatically.

Here is an example where some institutions that lent money to three arrows capital have been unable to get their money back (referring to the 8BlocksCapita incident).

When Sanjian capital became insolvent, it was unable to repay the loans from CeFi institutions, which is how BlockFi relates to the story. When asked by the market whether BlockFi had lent to Three Arrows, the agency had this to say: "It is our policy not to comment on whether an organisation is a BlockFi client or not. We can confirm that we have maintained a rigorous, prudent and proactive approach to risk management throughout our business, including to manage the risks that may arise from any individual customer."

It's almost as good as nothing.

This is a stupid answer, because the credibility of the platform is eroding with rumors and users are in a state of panic. Any smart CEO would know this is the time to reassure users with a clear statement, but BlockFi has remained silent.

The announcement will no doubt amplify the market's doubts, and users may speculate that BlockFi is keeping quiet because they know the consequences of telling the truth will be worse.

As far as I am aware, BlockFi has probably lent funds belonging to users to Sanjian Capital, which can never be recovered.

Part3: Bad bet for BlockFi

Despite some external collateral effects, BlockFi's own market judgment was wrong.

BlockFi is the second largest holder of GBTC (Three Arrows is the largest...) , GBTC is a traditional financial product issued by gray scale, which is "nominally corresponding to BTC". It mainly serves large funds in the traditional financial industry.

Based on the current price of 1 BTC = 1.36GbTC, there is a very clear arbitrage opportunity, BTC holders can exchange their 1 BTC for 1.36GbTC, and then exchange back when the parity is restored, thus gaining 36% of the currency standard return.

This all sounds very good, but there is a small problem, that is GBTC is a "PI xiu"... As GBTC is a traditional financial product, it will be regulated by THE US Securities and Exchange Commission (SEC), which only allows BTC to be deposited in trust in exchange for GBTC, but not to redeem BTC with GBTC... This is a one-way channel.

In order to do so, GBTC would have to become another form of financial product (spot ETF), something grayscale has been lobbying the SEC for, but so far has made no progress on. (Add that one of the SEC's reasons for refusing is that Tether manipulates the market, a story we'll cover next time.)

Therefore, there are only two ways for BlockFi to get rid of GBTC: one is to sell GBTC; the other is to wait for the change of SEC's attitude and adjust GBTC's positioning as spot ETF, so as to open redemption. Obviously, neither path is easy.

In the first way, because GBTC has a large discount, it can only get back 71% of the value of BTC by selling now; The second option, obviously ideal if you have enough time, but BlockFi can't afford to wait in the face of an impending liquidity crisis because users want to pull their money out now, rather than wait for an event that doesn't show progress.

So BlockFi's only option is to sell GBTC, which means losing users' money even more.

The fact is, BlockFi made a big bet that they wouldn't have a liquidity crisis until GBTC became a spot ETF, but as the GBTC became a spot ETF, BlockFi made a big bet that they wouldn't have a liquidity crisis until GBTC became a spot ETF. Now it looks like they're going to lose.

Part4: SEC fines

This year, BlockFi was sued by the SEC and 32 states for peddling crypto-lending products to some 600,000 investors without registering them, eventually agreeing to pay a $100 million fine to settle the lawsuit. This is another sizeable loss of assets.

Just the other day, BlockFi announced another $943,000 settlement to the State of Iowa. Interestingly, BlockFi is paying this "small" fine in installments. Why does such a large institution need installment payments? This makes one ponder.

To sum up, the current situation is that BlockFi's funds are trapped in GBTC, unable to collect its loans to Sanarrow Capital, the settlement with SEC cost more than $100 million, and most users are in a hurry to withdraw their funds...

There are also unconfirmed rumors.

On June 7th it was reported that BlockFi was in the process of raising a new round of funding, but its valuation has been reduced from $3 billion to $1 billion compared to the last round, and I have heard from some other sources that this round has only received commitments of $50-80 million so far... Not enough to cover the first fine, many investors were spooked by their outlandish business numbers.

Note that this happened before Celsius's accident! (Now it is expected to receive even less financing)

Part5: Coping strategies of BlockFi

So what does BlockFi plan to do? Here are five common strategies.

The first tactic is to buy time and find excuses to slow down withdrawals.

Yesterday, BlockFi announced that it would not open next Monday to mark the June Holiday in the US... You know.

Second, change the terms of service to make the description more favorable to the company before things get out of hand.

On June 15, BlockFi published an article in response to user concerns about the risks of the platform's assets. Interestingly, this article was published on June 15th, but if you read through it, all the calculations are based on March 31st, either because BlockFi hasn't finished its q2 audit, or because they don't want to expose paper losses after March 31st.

The biggest problem is that on March 31, bitcoin was trading at $45,528.

Maybe it's time to take note of BlockFi's current terms of service.

Cut expenses. Now every penny counts.

In fact, it was announced a few days ago that BlockFi would cut 20% of its workforce.

Fourth, there happens to be a fault, which can be technical reasons, or KYC reasons, but it can not allow users to smoothly withdraw money.

In fact, they did.

Fifth, confound the market and confuse the difficulty of analysis and investigation with all kinds of information, so you can imagine how difficult it is for me to sort out this article.

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