Just when you thought crypto couldn’t get more chaotic, another firm has filed for bankruptcy — lender BlockFi.
The firm was one of the most heavily exposed to the collapse of FTX and its sister company Alameda Research earlier in November, having taken a $400m credit line that also gave FTX an option to buy the company.
It is the latest example of the chaos sweeping the crypto space, which has driven the price of bitcoin down to $16,500 – a fraction of its $69,000 high just over a year ago.
Fitch Ratings’ Monsur Hussain, senior director for financial institutions, said it “underscores significant asset contagion risks associated with the crypto ecosystem, and, potentially, deficient risk management processes”.
Celsius directors lay it all out
One of BlockFi’s main competitors was Celsius Network, another lending giant which went bankrupt in June after a run on its assets.
Now, Financial News has spoken to two of Celsius’ top directors about what went wrong, and what issues are likely being replicated across the crypto ecosystem (spoiler: there are a worrying amount).
When it comes to keeping track of customer funds and recording transactions, many crypto firms are just not up to scratch, they said.
“We simply don’t have the ecosystem of partners and providers available to enable us to do those jobs,” said Matthew De La Fuente, Celsius’ former director of operations.
“It’s human sweat and Google Sheets all the way down – whether you’re a giant exchange or a startup.”
“For most people in traditional finance, that would be shocking,” added Rohit Sabhlok, a former director overseeing trading and infrastructure. “But it is still just technology to [people in crypto]. They haven’t lifted up a layer to corporate governance, legal entities and accounting. They don’t have that language yet.”
Headlines this week
Bahamas bears the brunt of FTX’s brutal collapse
FTSE Russell launches first crypto-based index series
Binance’s $1bn crypto industry recovery fund prompts antitrust concerns
FTX hires former regulators to investigate what led to bankruptcy
Scared? Are you kidding?
The turmoil doesn’t seem to have put BlackRock off digital assets’ underlying technology, mind you.
Stephen Cohen, head of BlackRock’s business across Europe, the Middle East and Africa, told FN the world’s largest money manager is “exploring” how it can use crypto tech in traditional finance.
“The biggest impact on asset management over time will not be crypto as an asset class — although we can debate back and forth about that,” he said. “The more interesting discussion is about the technology being developed in the crypto and digital assets world and how that will have an application to the traditional asset management world.”
One area the $8tn asset manager is exploring is tokenisation — where shares or units in an investment fund are digitally represented and can be traded and recorded on a distributed ledger.
“Tokenisation is about trying to give more people access to investments. That will be the ultimate goal,” said Cohen. “There is a valuable opportunity over time for the industry.”
Reminder: BlackRock is deep into cryptocurrency, having announced a tie up with Coinbase earlier this year. It was also one of several traditional finance giants with significant exposure to FTX when it collapsed.
Our favourite stories from around the web
The crypto world may be reeling, but EU policymakers are patting themselves on the back. Politico reports on how an FTX-style scandal couldn’t possibly happen with the bloc’s new Markets in Crypto-assets rulebook…or could it?
UK crypto fraud rose by a third in one year, police records show, with criminals stealing hundreds of millions of pounds from consumers, the Financial Times reports.
A pair of Elon Musk fans spent $600,000 to build a giant statue that features the new Twitter boss’s head on a goat’s body, riding a rocket, a homage to their Elon Goat crypto token. Sadly for them, Musk didn’t seem to care, reports the Wall Street Journal.
Tory crypto donor concerns grow
Remember when we reported that Christopher Harborne, a prominent crypto investor and businessman, had donated £500,000 to the Conservative Party?
Well, he’s done it again, FN revealed on 24 November, bringing his annual donation to £1m and making Harborne the party’s biggest donor.
The Conservative Party insisted there was no connection between the donations and its much-publicised backing of crypto.
Labour accused the Tories of “looking after the interests of their wealthy donors”.
We’ll leave readers to form their own opinions…
To contact the author of this story with feedback or news, email Alex Daniel