Private fund cuts valuation of BlockFi E warrants to $0

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Warrants tied to cryptocurrency companies signal deep doubts about whether these stocks will find anyone to buy, and little to no relief for investors after falling prices emptied their assets.

BlockFi

In its latest report ending in June 2022, a leading private fund downgraded the status of its investments in embattled crypto lender BlockFi. The Private Shares Fund has reduced valuations of BlockFi’s Series E warrants to “worthless” from a valuation of $67 per unit in April.

A warrant agreement is a contract that gives one party the right to buy shares of a company at a specific price and date. As revealed in its report released in late June, the private fund also lowered the valuation of BlockFi’s preferred stock to $20 per share from $77 three months ago.

Earlier in June, BlockFi was reportedly in late-stage talks with new and existing investors to close a seed round at a lower valuation of around $1 billion. In 2021, the New Jersey-based company was valued at $5 billion, months after completing a $350 million Series D funding round that earned it a $3 billion valuation.

BlockFi, founded in 2017, provides traditional financial services to cryptocurrency holders. Crypto exchange FTX is reportedly looking to acquire a stake in the beleaguered crypto lender as concern grows in the industry over liquidity following the recent price crash.

The news came on the heels of Bankman-Fried’s decision to provide a $250 million line of credit to BlockFi. Through the other company he controls, Alameda Research, the crypto billionaire also stepped in to bail out Canadian crypto broker Voyager Digital.

The new investment comes as BlockFi attempts to restore confidence during a period of mounting pressure after rivals Celsius Networks and Babel Finance froze withdrawals and transfers.

BlockFi also announced major layoffs amid a brutal bear market and also liquidated a large client’s overcollateralized margin loan to mitigate risk. On the regulatory side, the Iowa watchdog fined the company $1 million to settle charges of offering unlicensed interest-bearing accounts to retail investors. Several state regulators in the United States have already issued cease-and-desist notices to BlockFi, which claims more than $10 billion in client assets. This coordinated regulatory review was based on the company’s crypto savings and loan product, dubbed BlockFi Interest Accounts (BIA).

Earlier this year, BlockFi agreed to pay a $50 million fine to the SEC and additional fines of $50 million to 32 states to settle similar charges. The company and its parent company also agreed to stop selling its interest accounts, which allow users to earn income on cryptocurrencies, and to attempt to register their business within 60 days.

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