BlockFi plays down reports on stop accepting Grayscale fund as collateral

Crypto lender BlockFi has played down reports that it is about to stop accepting shares of Grayscale Bitcoin Trust, the world’s biggest bitcoin fund, as collateral.


The beleaguered firm took the U-turn from its words and issued another statement noting that they will evaluate the use of Grayscale as collateral in the future, but they are not saying that they won’t support GBTC moving forward.

According to a BlockFi representative: “While we don’t currently hold any positions in GBTC and are winding down a couple of loans where GBTC is part of the collateral package, we are not saying that we won’t support GBTC as collateral moving forward. Like any collateral, we constantly evaluate appropriate collateral haircut ratios and aim to accept as many types of collateral that our client’s hold as possible.”

The New Jersey-based lender used to take various assets pledged by borrowers to back up their requests for crypto loans. If the borrower gets the loan and fails to repay it, the lender has the right to seize the collateral to make up for the lost income.

BlockFi warrants’ valuation slashed to $0

The move is part of shock waves that the collapse and subsequent liquidation of Three Arrows Capital sent throughout the industry. Both Grayscale and BlockFi had exposure to the insolvency of the giant crypto hedge fund. At one point, 3AC owned more than 5% of the Grayscale Bitcoin Trust while its bad debts towards BlockFi amounted to $80 million.

Warrants tied to cryptocurrency firms are signaling deep doubts about whether those securities will find someone to buy, and little or no relief for investors after plunging prices have gutted their assets.

Earlier this week, a prominent private fund downgraded the status of its investments in BlockFi. The Private Shares Fund has slashed valuations of BlockFi series E warrants to “worthless” compared to a valuation of $67 per unit in April.

A warrant agreement is a contract that provides one party the right to purchase a company’s stock at a specific price and at a specific date. As revealed in its report released at the end of June, the private fund also downgraded BlockFi’s preferred shares valuation to $20 per share, down from $77 three months ago.

The news came hot on the heels of Bankman-Fried’s decision to provide a $250 million credit line for BlockFi. The investment comes as BlockFi tries to restore confidence during a period of accelerating pressure after rivals Celsius Networks and Babel Finance froze withdrawals and transfers.