Notes: 1/7: BlockFi Valuation, EU Crypto Regulation, and More CoinFlex Drama

According to reports, lending firm BlockFi is being sold in a fire sale to FTX.

The firm, which was seeking a valuation of $5 billion in its previous funding round has a price tag of $25 million now. The reasons for a crash in its valuation are not clear. BlockFi CEO Zac Prince yesterday linked to a podcast he did with Castle Island Ventures last month in which he said that the firm has no residual capital left over from their dealings with Three Arrows Capital, the hedge fund that seems to have a hand in every major crypto company. He also said the company’s products remain solvent.

What he did not mention was the firm’s exposure to Grayscale’s GBTC. Shares of the Grayscale Bitcoin Trust (GBTC) have been trading at a significant discount to its net asset value (NAV). In an earlier interview with the same firm, he said BlockFi was active in providing liquidity and making markets for GBTC. Given the steep discount of 34% to NAV at which GBTC shares have been trading recently, it is reasonable to assume that BlockFi’s balance sheet is affected by their low prices. But Prince did not reveal the extent of BlockFi’s exposure to GBTC’s shares, restricting himself to saying that they had “sized and managed their position” relative to risk consideration.

Also, it seems that BlockFi’s financial problems are no problem for its operations. The firm was approved for a money services license in Iowa after paying a fine of $943,000 to authorities for selling “unregistered securities” on its platform.

It is also increasing yields across all its products, starting today. Prince says that a shrinking marketplace, now down to two crypto lending firms, means that institutions are willing to pay more to acquire Bitcoin and the company is passing on these benefits to its customers. He tried to explain how the firm generates crypto yields earlier but was not very successful.  

Europe Moves Ahead on Crypto Regulation

Even as the United States is taking tentative steps towards stablecoin and crypto regulation, Europe is already moving ahead. Lawmakers there agreed on a deal to pass the Markets in Crypto Assets (MiCA) regulation. Here are the main points:

  1. Stablecoins must be backed by bank style reserves, meaning algorithmic stablecoins and their ilk are not allowed, and the amount of their transactions should not exceed 200 million euros a day.
  2. Non-fungible Tokens (NFTs) are excluded from regulation, unless they are fractionalized.
  3. Crypto firms will be required declare information on their environmental and climate footprint based on standards developed by the European Securities and Markets Authority (ESMA)
  4. The European Banking Agency (EBA) will maintain a public register of non-compliant crypto-asset providers.  
  5. Transfers to unhosted wallets, or wallets that are not held at a centralized regulated exchange, will need to be reported if the amounts are above $1,000.  

The regulations are good news for crypto firms looking to expand operations in Europe because it allows them to a single point of access to the entire market. But it is difficult to ascertain the effect of these regulations without looking at the final text. For example, ESMA’s standards will play a critical role in determining the operations of proof-of-work (PoW) coins. Ethereum is an example currently and, unless it moves to proof-of-stake (PoS) quickly, it may find the going tough under MiCA.

CoinFlex, Can I Withdraw?   

CoinFlex, the company that was attempting to solve its financial problems by issuing bad debt, is back in the news. The company had said it would resume withdrawals after its sale of recovery value (rvUSD) was over.

A new Marketwatch report, however, says CoinFlex is still keeping customer withdrawals in deep freeze. Mark Lamb, the company’s CEO, told the publication that it is “making significant progress” in its sale and that “tens of millions of dollars…in soft commitments have emerged” during the sale. Previously, the Seychelles-based outfit had blamed investor and account holder Roger Ver for its problems. [An investor in a company refusing to pay his margin call and making news…could he be more self-destructive?]

But his involvement seems to have generated investor funds. “Since we revealed those details, there have been a significant number of external potential buyers that have come out of the woodwork because of who the counterparty is,” Lamb said.

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