Cryptocurrency billionaire doles out credit lines to stem industry contagion

NEW YORK • Mr Sam Bankman-Fried, the 30-year-old crypto billionaire who co-founded digital asset exchange FTX Trading, is providing credit lines to try to stem contagions for his beleaguered industry.

Crypto lending platform BlockFi, which had been raising funds at a reduced valuation, said on Tuesday that it secured a US$250 million (S$347.3 million) revolving line of credit from FTX.

Last week, crypto exchange Voyager Digital, whose shares are down 90 per cent this year on the Toronto Stock Exchange, received a US$200 million credit line - a mix of cash and USDC stablecoins - as well as a separate, 15,000-Bitcoin revolving facility from Alameda Research, Mr Bankman-Fried's trading firm.

A wave of liquidation has triggered fear of contagion risks in the crypto industry, after a broad-based sell-off in digital assets and the spectacular collapse of the TerraUSD and Luna tokens.

Major lenders Celsius Network and Babel Finance have frozen withdrawals, while crypto hedge fund Three Arrows Capital is facing liquidity troubles.

"Sam Bankman-Fried is the new John Pierpont Morgan - he is bailing out cryptocurrency markets the way the original J.P. Morgan did after the crisis of 1907," SkyBridge Capital founder Anthony Scaramucci said in an interview, referring to that year's banking panic, which led to the creation of the United States Federal Reserve System.

Mr Scaramucci said he had invested alongside Mr Bankman-Fried in several crypto ventures.

An FTX spokesman, asked for comment about the credit lines, referred to a Twitter thread on Tuesday from Mr Bankman-Fried.

"We take our duty seriously to protect the digital asset ecosystem and its customers," he wrote.

In a recent interview with National Public Radio, Mr Bankman-Fried said he had a responsibility to consider stepping in, "even if it is at a loss to ourselves", to stem contagions and help the industry thrive.

"This past weekend was critical in terms of finding white knights who could help develop a bid to stabilise this market," Mr Jeff Dorman, chief investment officer at asset-management firm Arca, wrote in a note on Tuesday.

"It doesn't take a lot of capital right now to support prices and failing lenders, and there are a lot of players incentivised to ensure this industry doesn't fail."

Major crypto players have a history of bailing out key troubled companies.

Last year, FTX provided US$120 million debt financing for Liquid Group after hackers stole from the Japanese crypto exchange. FTX later acquired Liquid.

In April, Binance led a US$150 million round for the creator of popular game Axie Infinity to help restore user funds affected by a hack.

The latest financing provided by Mr Bankman-Fried is "not unlike private equity shops that will invest more capital into portfolio companies amid distress - sometimes it's enough, sometimes not", said Mr Noel Hebert, director of credit research at Bloomberg Intelligence.

"Intra-crypto industry players are among the only ones with an incentive to lend here."

Mr Tom Dunleavy, senior research analyst at crypto-data company Messari, said some would compare the move to business magnate Warren Buffett providing support to Goldman Sachs in 2008.

It is a respected industry player "supporting a systemically important firm with capital at a time where they think the bottom could be in, or close", Mr Dunleavy said.

While recent liquidations have stemmed from the collapse of TerraUSD, he added, "the further we get from the Terra incident, the more things start to calm down, the less potentially broader liquidity issues we will see".

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A version of this article appeared in the print edition of The Straits Times on June 23, 2022, with the headline Cryptocurrency billionaire doles out credit lines to stem industry contagion. Subscribe