U.S. subsidiary of Cryptocurrency exchange FTX has closed a deal with BlockFi that values the troubled lender at up to $680 million.
BlockFi's valuation after its most recent series D funding round in March of last year stood at $3 billion, according to data from Crunchbase.
The deal includes a $400 million credit line, as well as an option for FTX US to acquire BlockFi at a "variable price of up to $240M based on performance triggers."
In a release, BlockFi said the deal, "together with other potential consideration, represents a total value of up to $680M."
Yesterday we signed definitive agreements, subject to shareholder approval, with FTX US for:
1. A $400M revolving credit facility which is subordinate to all client funds, and
2. An option to acquire BlockFi at a variable price of up to $240M based on performance triggers.
— Zac Prince (@BlockFiZac) July 1, 2022
BlockFi was founded in August 2017 and has raised $1.3 billion, most recently in its Series D fundraising led Bain Capital Ventures, Pomp Investments, and Tiger Global, among others.
The deal comes after FTX extended a $250 million line of credit to BlockFi after the firm announced it had liquidated a “large client” likely to be the financially struggling crypto hedge fund Three Arrows Capital, which has both heavily invested equity into BlockFi and borrowed from its coffers.
In a lengthy Twitter thread on Friday, Prince said BlockFi suffered a total of $80 million in losses, twice what Three Arrows borrowed from the firm on June 7, according to a recent report from Nansen.
"Crypto market volatility, particularly market events related to Celsius and 3AC, had a negative impact on BlockFi. The Celsius news on June 12th started an uptick in client withdrawals from BlockFi’s platform despite us having no exposure to them," Prince added.
The deal comes at the end of a very bad first half of the year for cryptocurrencies.
A more than $50 billion collapse of Terra’s algorithmic stablecoin, UST, and its LUNA token in early May has sent shockwaves across the emerging sector of finance.
Major firms including Coinbase (COIN), Gemini, BlockFi, and Crypto.com have laid off over 1,500 workers. Firms including Three Arrows, Celsius Network, and Babel Finance have all hired legal teams for restructuring.
In the first quarter of 2022, bitcoin (BTC-USD) suffered only a 2% loss, but the world's largest cryptocurrency tumbled more than 57% in the second quarter, dropping to $19,985 on June 30 from $45,528 on March 31.
Currently accounting for 43.5% of the total market capitalization for cryptocurrencies according to TradingView, bitcoin was changing hands around $19,300 per coin on Friday afternoon.
The drop in crypto comes amid a challenging year for investors across asset classes, with the S&P 500 just finishing its worst first 6 months to a year since 1970 as the Fed raises rates aggressively to fight inflation.
All the while, the market chaos has also served as a signpost for which firms are making versus taking deals. For example, Binance’s CEO Changpeng Zhao told Yahoo Finance a week ago his firm was considering “50 to 100 deals” in light of weakening market conditions, though the firm would not share the details of specific deal.
But as Tom Dunleavy, a senior market analyst with crypto research firm, recently pointed out, the annual bottom for cryptocurrencies isn’t in yet if their high correlation with stocks continues.
Crypto companies will continue to be hard pressed for cash and survival might emerge as the winning strategy, with Dunleavy declaring Bitcoin below $10,000 and the second largest cryptocurrency, ether, selling per coin at a price in the mid-hundreds “very much on the table.”
“Grab a mojito, hang by the pool, and put the laptop away because it's going to be a tough summer,” Dunleavy added.
Correction: FTX subsidiary, FTX.US, reached a deal with BlockFi on Friday. An earlier version stated the deal had been reached between FTX and BlockFi.
David Hollerith covers cryptocurrency for Yahoo Finance. Follow him @dshollers.