Sam Bankman-Fried is not only a billionaire vegan but a billionaire philanthropist who is going around town bailing one crypto company out from another. The Stanford native is making headlines this week for agreeing to bail out BlockFi and Voyager Digital to a tune of more than $800 million.
Bankman-Fried’s FTX and Alameda Research are granting major crypto exchange, BlockFi, a revolving credit line of $250 million. While on the other side, Bankman’s Alameda Research, the quantitative investing firm he founded after attending MIT, is poised to loan $200 million in cash and 15,000 Bitcoin to Voyager Digital to make sure it maintains its solvency.
Voyager Digital fell into its financial conundrum after one of its biggest brokers defaulted on a loan of more than $667 million. Leaving Voyager Digital in a mess of its own and having to gather up other sources of income to make up for the incredible loss brought by Three Arrows Capital.
Will Sam Bank-man Fried be able to bail out the entire crypto market? Or will he watch as some of the major players on the market burn and crash?
According to a recent interview with Forbes, Sam Bankman went on to say,
“There are companies that are too far gone and it’s not practical to backstop them for reasons like a substantial hole in the balance sheet, regulatory issues, or that there is not much of a business left to be saved.”
Under The Hood of BlockFi
BlockFi is not immune to the overly interconnected major lending platforms and the very unreliable stablecoins that dominate the crypto market. And it is exactly because of this interconnectivity and almost ironically—its centralized nature—that it is currently asking Bankman-Fried for help.
BlockFi CEO Zac Prince expressed his concerns in an interview with the Wall Street Journal stating,
“Our deal with Alameda Research reinforces the commitment that BlockFi has to serve its clients and ensuring their funds are safeguarded.”
Explaining that no matter what happens, the first and foremost important aspect is to cover its ability to pay back its investors.
“Crucially, the original announcement stated that the $250 million was intended to be contractually subordinated to all client balances across all account types.”
Morgan Creek Digital Joins The Bailout
Sam Bankman-Fried isn’t the only billionaire investor who is taking advantage of this bear market where crypto assets are on sale for a severely discounted price—Youtube celebrity Anthony Pompliano and his investment firm, Morgan Creek Digital are throwing their names into the hat as well.
This past Sunday, Morgan Creek Digital announced that it was raising more than $250 million to take a controlling stake in BlockFi. In a statement from Morgan Creek Digital, its managing partner told investors,
FTX’s offer includes an option to allow Morgan Creek Digital to acquire BlockFi at essentially zero price, effectively kicking Morgan Creek and other existing backers to the curb without anything to show for their investment.
Yusko, who founded Morgan Creek Digital back in 2018 with then Youtube star Anthony Pompliano, appeared quite skeptical about the fund’s lack of ability to raise funds and ultimately preserve its stake in BlockFi. Yusko finished the statement by saying,
“There is a 10% possibility” of finding wealthy saps willing to throw more good money after bad.”
Morgan Creek Digital vs Bankman-Fried
At first glance, it may seem obvious why Morgan Creek would want to secure its spot in the BlockFi bailout, but exactly why Bankman-Fried wants to help the embattled giant is less obvious.
Just this year, BlockFi was hit with a jaw-dropping $100 million penalty from the U.S. federal government for unregistered lending products. And then earlier this month, BlockFi had to cut 20% of its staff just to keep the lights on. Now because of the fines, the cuts, and the needed bailout, the company is valued at just under $1 billion, a third of its overall value just a year ago.
This puts BlockFi in a perfect position for purchasing from Bankman-Fried and his FTX, who just last February acquired the Liquid Group, as well. All this generosity and corporate philanthropy are reminiscent of J.P Morgan and his generous bailout of companies back in 1907.
Will Bankman-Fried be the next J.P Morgan, bailing out every crypto company when they need it most?