FTX billionaire Sam Bankman-Fried is eyeing distressed mining companies as potential acquisitions next after extending a credit line to BlockFi.
The CEO of the exchange wants to stem the contagion affecting lenders and borrowers during the current bear market. Some miners, he says, have used mining hardware as collateral to borrow money and hence could contribute to the credit contagion.
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He noted that FTX is open to opportunities in the mining industry after the firm threw lender BlockFi a lifeline with a $400 million credit line.
And Bankman-Fried’s other firm, Alameda Research, is providing a credit facility to crypto broker Voyager Digital after the company announced that embattled hedge fund Three Arrows Capital had defaulted on a $660 million loan.
His loan to Voyager Digital has an element of self-interest, since Alameda Research owns 11% of the Canadian company.
FTX helping lenders by helping mining companies
For now, Bankman-Fried is focusing on mining companies struggling for enough cash to pay off their loans, which has an adverse effect on lenders’ balance sheets. Mining companies expanded aggressively throughout the extended bull market that ended this year, racking up a huge debt, while the new bear market put pressure on liquidity, leading to a squeeze.
While few miners have defaulted, some mining heavyweights have had to change their hold strategy, selling bitcoins to boost their balance sheets.
Loans backed by ASICs, the computers used in mining, an energy-intensive process by which a transaction is verified and ordered on the blockchain, have come under pressure as ASIC prices have fallen.
It is estimated that $4 billion in loans is backed by ASIC collateral. Canadian miner Bitfarms recently took out a loan from New York Digital Investment Group secured against mining ASICs.
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Anthony Scaramucci, who recently appeared on CNBC advising investors to remain disciplined during the current market downturn, went on record as saying that Bankman-Fried’s assistance of cryptocurrency firms draws comparisons with John Pierpont Morgan’s role as a lender of last resort to banks during the 1907 banking crisis.
This view was criticized by Bloomberg Opinion columnist Lionel Laurent. He pointed out that despite Bankman-Fried’s clout in the crypto industry, his assistance to other crypto firms is very different from how JPMorgan and other regulated Wall Street banks would handle last-resort lending.
He points out that data firm Kaiko grades FTX number 22 on a list of crypto exchanges ranked according to risk controls, data quality, and security. Should bitcoin fall further, he argues, FTX would not be immune.
CNBC revealed last week that FTX could pay around $25 billion for BlockFi, a figure denied by BlockFi CEO Zac Prince, with later revelations pointing to a maximum selling price of $240 million.
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