Crypto billionaire and FTX founder & CEO, Sam Bankman, has provided credit lines for struggling crypto companies in an attempt to help stabilize the ecosystem.
BlockFi Inc., a crypto lending platoforn, revealed on Friday that they received a hefty credit line of $250 million courtesy of FTX. This was accompanied by a credit line of $200 million given to crypto exchange Voyager Digital Ltd., who suffered a 90% drop in its share price. The credit lines consist of a mix of USD, stablecoins, and 15,000 Bitcoin.
Mass liquidation has been a response to the recent turbulent market conditions in the crypto industry, especially after the whole Terra Fiasco. In response to the liquidation, major lenders Celcius Network and Babel Finance froze withdrawal on their platform, and even crypto hedge fund Three Arrows Capital is facing severe liquidity problems. All industry players are fearing a contagious effect if these companies must initiate a mass liquidation.
“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,” Anthony Scaramucci, founder of SkyBridge Capital, said in an interview, referring to that year’s banking panic, which led to the creation of the Federal Reserve System. Scaramucci went on to say that he would likely join Bankman-Fried and invest in these struggling companies.
An FTX spokesperson referenced a Twitter thread posted by Bankman-Fried in response to the credit lines. It read:
“We take our duty seriously to protect the digital asset ecosystem and its customers.”
Bankman-Fried stated in a recent interview with NPR that he believes it is his responsibility to step-in in times of crisis in the industry, saying, “even if it is at a loss to ourselves.” He believes his moves are ones that will help to contain the contagion that will come from potential liquidation.
“This past weekend was critical in terms of finding white knights who could help develop a bid to stabilize this market,” Jeff Dorman, chief investment officer at asset-management firm Arca, wrote in a note Tuesday. “It doesn’t take a lot of capital right now to support prices and failing lenders, and there are a lot of players incentivized to ensure this industry doesn’t fail.”
Major crypto players have a history of bailing out key troubled firms. Last year, FTX provided $120 million debt financing for Liquid Group Inc. after hackers stole from the Japanese crypto exchange. FTX later acquired Liquid. In April, Binance led a $150 million round for the creator of popular game Axie Infinity to help restore user funds affected by a hack.
Tom Dunleavy, senior research analyst at crypto-data firm Messari, said some would compare the move to Warren Buffett providing support to Goldman Sachs Group Inc. in 2008.
It’s “a respected industry player supporting a systemically important firm with capital at a time where they think the bottom could be in, or close,” 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.”
