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It’s Bailout Season for Crypto Companies

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This post is republished from FIN, the premier Fintech newsletter. SUBSCRIBE HERE.

It’s amazing considering there was plenty of cash in the crypto world just a few weeks ago. Blanket Sports Stadium When Building a Blockchain Exchange for the Coachella Music Festival.

ever since The Collapse of the Terra/LUNA Stablecoin System In May, the world of cryptocurrencies was bleeding profusely, and some of the big names found themselves in need of outside help.

On June 21, Zac Prince, CEO and founder of crypto lending platform BlockFi, tweeted that his company had secured a $250 million line of credit on FTX.

At nine orders of magnitude, it’s hard to think of a precedent for this. BlockFi is not part of the cryptocurrency game. In a few rounds, he raised a whopping $1.3 billion in venture capital, with notable backers including Peter Thiel and the Winklevoss twins. (During February, BlockFi also paid a $100 million fine It was imposed by the Securities and Exchange Commission (SEC) and several states, and is the largest fine ever paid by a cryptocurrency company.)

And the rescue team (essentially FTX CEO Sam Bankman-Fried) doesn’t stop there.Canada based crypto platform Voyager Digital also accepted cash and various cryptocurrency relief packages from Alameda Research.Maintained by Bankman-Fried.

June 24th, Coindesk reported that Goldman Sachs said: “We’re raising $2 billion from investors to buy distressed assets. Troubled Crypto Lenders Celsius. “Celsius’ business is similar to BlockFi’s, also in several rounds of venture funding where he has raised over $1 billion and last year’s valuation put him above $3 billion. Celsius has been suffering for some time.November 2021, The company dismissed its chief financial officer He has been charged with fraud and sexual harassment. The following month, a hacker stole a significant amount of Bitcoin, which he invested in the BadgerDAO protocol. Celsius lost $54 million in that hack. The CEO claimed that Celsius had “minimal” exposure to his Terra/LUNA catastrophe, but Celsius had an important relationship with itThe company recently filed a secret S-1, apparently in preparation for an IPO, but now hired an advisory firm to help prepare a potential bankruptcy filing.

Then there is another cryptocurrency lender, Babel Finance, who recently imposed a $1500 monthly limit on withdrawals due to “abnormal liquidity pressures”. The Hong Kong-based company said this week It was a kind of soft bay-out, as it “has been in touch with key counterparties and relevant customers and has reached preliminary agreements on the repayment terms for some of its debts,” he said.

And no list of distressed crypto companies would be complete without this one. Three Arrows Capitalhedge funds with large crypto investments trying to find ways to sell assets and/or obtain relief.

Collective tensions over the cryptocurrency system are so severe that there is an intermittent debate about whether governments should bail out cryptocurrency companies. At the end of May UK Treasury has issued a consultation paper It is entitled “Managing Systematic Digital Payments Asset (Including Stablecoins) Corporate Failures”. The paper identifies certain firms as systemically important and uses a “special administrative system” to enable the Bank of England to safeguard financial stability in case such firms collapse. suggested to do

At this point, there appears to be little US appetite for applying this “too big to fail” approach to cryptocurrency companies. This is mainly because the companies themselves are almost completely unregulated. Bailing them out would bring the worst to American consumers and taxpayers.

SEC Commissioner Hester Peirce addressed the issue this week. forbes interview:

Crypto has no rescue mechanism. And it is recognized as one of its market strengths. I don’t want to say I’m trying to find a way to bail you out if we don’t have the authority. But even if I did, I don’t want to use that authority. You have to make these things work.

Typically, Peirce is almost intentionally out of step with SEC Chairman Gary Gensler and the Biden administration on cryptocurrency issues. But when it comes to the issue of crypto bailouts, she probably speaks for just about everyone in government. But too many crypto companies have resisted or ignored the rules for too long to deserve taxpayer support. In a macro sense, we should be grateful that most of these companies seem small enough to fail.

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