Original linkOriginal link); Compilation: Odaily Azuma

This morning, cryptocurrency analyst Otteroooo posted a detailed investigation on the capital status of CeFi (centralized financial service institution) giant BlockFi on his personal Twitter, and concluded that BlockFi is likely to fall into a liquidity crisis. It is the platform that has lost huge sums of money in a series of incidents such as Celsius, Three Arrows Capital, and SEC fines.

Below are the details of Otteroooo's investigation, compiled by Odaily.

Findings:

• BlockFi will encounter a liquidity crisis at the end of 2022. (90% sure)

• BlockFi has already lost a huge amount of money in 2022. (101% sure)

The full text has five parts:

• The cascading effects of Celsius;

• The collapse of Three Arrows Capital;

• BlockFi's bad bet;

• SEC fines;

• BlockFi's response strategy.

Part 1: Collateral effects of Celsius

After Celsius had liquidity problems and even faced restructuring, users of other CeFi platforms were also frightened. Driven by panic, a large number of users would rather give up their income and redeem their assets from the centralized platform as soon as possible.

In today alone we saw 2000 BTC and 5000 ETH out of BlockFi wallets.

Note that this is just a one-day outflow.

Think about what I said before, the liquidity crisis will be a reverse game of chickens (meaning that when the platform falls into a crisis of trust, users who quit first can keep their profits, while users who trust the platform the most often lose lost assets), users should think about what they should do now.

For BlockFi, this is the biggest challenge they will face.

Part2: The collapse of Three Arrows Capital

Three Arrows Capital, one of the largest hedge funds in the cryptocurrency space, found itself in an existential crisis within days. Su Zhu, the co-founder of Three Arrows, recently stated that "we are communicating with relevant parties and are fully committed to solving the problem", which can basically be understood as a bankruptcy signal.

The way Three Arrows Capital operates is that they will borrow funds from some larger CeFi institutions and then invest in the market. Simply put, they use the borrowed money to bet. When the bet is in the right direction, the leveraged model will greatly amplify the gains of Three Arrows Capital, but if the bet is in the wrong direction, the problem will also deteriorate dramatically.

Here is an example where some institutions that have lent funds to Three Arrows Capital have been unable to get their money back (referred to as8BlocksCapita Events）。

When Sanjian Capital became insolvent, it could no longer repay loans from CeFi institutions, which is how BlockFi is connected to this story. When asked by the market whether BlockFi had ever lent to Three Arrows Capital, the agency responded: “Our policy is not to comment on whether an organization is a BlockFi client. We can confirm that we have maintained We take a rigorous, prudent and proactive approach to risk management, including managing the risks that any individual client may pose."

Basically, what was said was equal to what was not said.

This is a very stupid answer, because the reputation of the platform is being lost with rumors, and users are also shrouded in panic. Any smart CEO at this time knows that at this time, it is time to appease users with a clear statement. But BlockFi chose to remain silent.

This statement undoubtedly continues to amplify the doubts in the market. Users may speculate that the reason for BlockFi's silence is that they know that the consequences of telling the truth will be more serious.

Based on my personal guess, BlockFi has most likely lent the funds belonging to users to Three Arrows Capital, and it can be said that they can no longer be recovered.

Part3: BlockFi’s Wrong Bet

Aside from some external collateral effects, BlockFi's own market judgment has also been wrong.

BlockFi is the second largest holder of GBTC (Three Arrows is the largest...), GBTC is a traditional financial product issued by Grayscale, which is "one-to-one nominally corresponding to BTC", the main service Large funds in the traditional financial industry.

According to the current price calculation of 1 BTC = 1.36 GBTC, there is a very obvious arbitrage opportunity here. BTC holders can exchange their 1 BTC for 1.36 GBTC, and then exchange them back when the two return to parity, thus obtaining 36% of the currency Standard income.

All this sounds very good, but there is a small problem, that is, GBTC is a "pixiu"... Since GBTC is a traditional financial product, it will be regulated by the US Securities and Exchange Commission (SEC), The SEC only allows BTC to be deposited into a trust in exchange for GBTC, but GBTC is not allowed to be redeemed for BTC...it's a one-way street.

In order to realize the function of free redemption, GBTC must become another form of financial product (spot ETF). Grayscale has been lobbying the SEC for this, but so far there has been no progress (to add, the reasons for the SEC’s rejection One is Tether manipulating the market, we will talk about this story next time).

Therefore, for BlockFi, there are only two ways to get rid of GBTC, one is to sell GBTC, and the other is to wait for the attitude of the SEC to change, adjust the positioning of GBTC to a spot ETF, and then open redemption. Obviously, neither of these paths is easy to follow.

The first way, because GBTC has a large discount, now selling BTC can only get back 71% of the value; the second way, if you have enough time, this is obviously an ideal choice, but in the face of the upcoming During the liquidity crisis, BlockFi couldn't afford to wait at all, because users wanted to withdraw their funds now instead of waiting for an event that could not see any progress at all.

So there is only one way before BlockFi - sell GBTC, and doing so means that the platform will further lose user funds.

The fact is that BlockFi took a huge gamble that they would not have a liquidity crisis before GBTC became a spot ETF, but with Terra, Celsius, Three Arrows and other events happening, it now looks like they are going to lose the bet .

Part4: SEC's fine

This year, BlockFi attracted charges from the SEC and 32 states for selling unregistered cryptocurrency lending products to about 600,000 investors. The final result was that BlockFi agreed to pay a $100 million fine to resolve the lawsuit . This is another sizable asset loss.

Just two days ago, BlockFi announced that it would pay another $943,000 settlement to the state of Iowa. Interestingly, BlockFi paid this "small" fine in installments. Why does such a large institution need to pay in installments? This can't help but be thought-provoking.

To sum up, the current situation is that BlockFi's funds are trapped in GBTC, and the loan to Three Arrows Capital cannot be recovered, and the settlement with the SEC has cost more than 100 million US dollars. Most users are eager to withdraw their funds...

Also, there are some unconfirmed rumors.

On June 7, it was reported by the media that BlockFi is conducting a new round of financing, but compared with the previous round, its valuation has dropped from $3 billion to $1 billion. I learned from other sources that the current round The financing only got a commitment of 50-80 million US dollars...not enough to pay the first fine, and many investors were frightened by their outrageous operating data.

Note, this happened before the Celsius accident! (Now it is estimated that the financing will not be received even more)

Part5: BlockFi's coping strategies

So, facing the current situation, what does BlockFi plan to do? Below are 5 common strategies.

The first trick is to delay the time and find various excuses to delay the speed of the user's withdrawal.

Yesterday, BlockFi just announced that it will be closed next Monday in honor of the US holiday of Juneteenth...you get the idea.

The second measure is to modify the terms of service before the situation completely gets out of control, and modify the description to be more beneficial to the company.

articlearticle, in response to users' doubts about the asset risk of the platform. Interestingly, although this article was published on June 15, if you read through the article, you will find that all data calculations are based on March 31, which may be because BlockFi has not yet completed the second quarter audit , or maybe because they didn't want to expose paper losses after March 31.

The biggest problem is that the Bitcoin price on March 31 was $45,528.

Maybe it's time to take note of BlockFi's current terms of service.

The third measure is to cut expenses. Now every penny counts.

In fact, a few days ago, there was news that BlockFi would lay off 20% of its staff.

The fourth measure is that if something happens to fail, it can be due to technical reasons or KYC reasons. Anyway, users cannot withdraw funds smoothly.

In fact, they did exhaust the above means.

The fifth trick is to confuse the voice of the market and disrupt the difficulty of analysis and investigation through various information, so you can imagine how difficult it is for me to sort out this article.