Posted on January 22, 2023
BlockFi Sells Loan Bonds
It was revealed on the 24th that BlockFi, a crypto asset (virtual currency) lending service company that is undergoing bankruptcy proceedings, is proceeding with the sale of 20 billion yen ($160 million) in loan receivables.
The deadline for competitive bidding, which began at the end of 2022, is set for January 24, Bloomberg reported on Wednesday, citing an anonymous source.
All of these loans are designed for Bitcoin (BTC) miners and backed by a total of 68,000 mining machines. Some of them are under-collateralized as the price of mining machines has fallen.
ASIC price index
The average price of bitcoin mining equipment (ASIC) is down 80 percent year-over-year, according to market data. The main factors are the falling bitcoin price and rising electricity costs, as unprofitable miners and debt consolidation lenders put many of their mining machines up for sale.
BlockFi filed for bankruptcy under Chapter 11 of the US Bankruptcy Code in November 2022. According to the filing, the number of creditors is more than 100,000, and both assets and liabilities are between $1 billion and $10 billion.
Chapter Eleven will continue to operate and reduce debt, etc., and rebuild the company. However, in some cases, the property of the debtor company is sold to a third party to maximize recovery to the creditor. In this case, it will eventually be sold to the highest bidder and the funds will be distributed to the creditors.
BlockFi has been in touch with 106 potential acquisition candidates since December and planned to seek court approval on the bidding process on January 30.
Relation:Will Bitcoin Miners Surrender Now?Consider industry trends and impact on BTC price
Distressed investment progresses in the industry
In 2022, there were a series of deleveraging (reduction of excessive debt) events in the cryptocurrency market, such as the Terra (LUNA) shock in May and the FTX shock in November. There is a view that these have caused forced liquidation of debts by money lenders that have loaned funds to miners, adding further downward pressure to the Bitcoin price.
Ethan Vera, co-founder of U.S. mining company Luxor Technologies, estimated that mining machine-backed loans totaled up to ¥520 billion ($4 billion) as of June 2022.
The main lenders that accept mining machines as collateral are Galaxy Digital, a cryptocurrency investment company, NYDIG, an American cryptocurrency investment company, Celsius Network, Foundry Networks, a mining business subsidiary of DCG, a cryptocurrency investment company, and Hong Kong. ‘s virtual currency lending platform Babel Finance.
Of these, Celsius stopped withdrawing customer funds in June due to a chain of defaults that occurred in the virtual currency market after the collapse of the former Terra ecosystem in May 2022. In July, Chapter Eleven filed for bankruptcy in the United States.
In June 2022, Babel Finance stopped withdrawing customer funds, citing that it was “facing liquidity pressure” against the backdrop of a series of defaults by some industry giants. It was later reported that the company was looking to raise hundreds of millions of dollars in loans and equity investments as part of a rescue plan.
Under these circumstances, there is an increasing need for “distressed investment” to purchase the assets of businesses that file for bankruptcy at a low price. Jihan Wu, co-founder of Bitmain, a major Bitcoin mining machine maker, launched a fund of about 36.1 billion yen ($250 million) in September 2010.
Relation:Bitmain Founder to Establish $300 Million Fund to Buy Bad Assets
Foundry Digital announced in November that it would acquire the facilities of US mining company Compute North, which is filing for bankruptcy. Compute North filed for Chapter 11 (Chapter 11) bankruptcy protection in September 2022. There are about 200 creditors and total liabilities of $500 million (about ¥70 billion).
Relation:DCG’s Subsidiary to Acquire Compute North
Cryptocurrency exchange FTX, which filed for bankruptcy last November, said about 117 entities were interested in bidding on four businesses it was considering selling.