Rapture #219: BlockFi Equity Potentially Going to Zero and Gensler Comments
Welp, the bad news is piling up for crypto. This bear market continues to ravage the heroes of the previous bull market, and more pain is likely to come. Alex Mashinsky, CEO and Founder of Celsisus, was allegedly stopped by US authorities from leaving the US, though the company has formally denied the allegations. Additionally, BlockFi is truly on the brink of implosion, as the SBF deal I mentioned in previous newsletters is set to wipe out all of the equity value of current holders. Finally, Gary Gensler came out swinging, stating that BTC was the only cryptocurrency he would label a commodity.
Let's analyze some of these events in a bit more depth.
BlockFi in a precarious situation
Man, would I hate to be an equity investor in BlockFi right now. Equity investors in BlockFi, who previously saw their investments go up by multiples if not orders of magnitude, now have to face the reality that their equity investments might be worth nothing.
The $250 million credit facility SBF proposed for BlockFi effectively gave FTX the option to buy BlockFi at essentially zero price, wiping out all of BlockFi's existing equity holders. While retail depositors in BlockFi would effectively be made whole in this situation, its investors would not.
Mark Yusko of Morgan Creek is now spearheading a process to save BlockFi via equity financing, though he admitted he thought the chances of this deal going through were around 10%.
Pomp was one of the major investors in BlockFi's recent rounds as well, so this situation will seriously affect him in addition to other VC firms like Bain, DST, and Tiger Global.
Gensler calls BTC a commodity
While Gensler further cemented everyone's already held views that BTC is indeed a commodity, he continued to state that many cryptoassets have key attributes of securities and therefore are under the SEC's jurisdiction. Gensler has avoided giving similar answers on assets like ETH, despite previous CFTC commissioners acknowledging that ETH is a commodity. Furthermore, in 2018 SEC director for the Division of Corporation Finance William Hinman stated that he believed both Ethereum and Bitcoin should be classified as commodities since they were sufficiently decentralized.
Much of these comments were politically targeted at trying to build bridges with the CFTC, giving them a win on BTC being a commodity and acknowledging that the two agencies should work together to regulate crypto.
The political battle over purview between the CFTC and SEC will likely continue for some time. Still, I do believe the SEC will continue to increase the legal actions they levy against industry players in the near future, which I have outlined before, regardless of how the CFTC feels about those cases.
Takeaways
On the BlockFi deal, all I will say is that effective altruism seems to be a double edged sword. Capitalists are capitalists.
On Gensler, I see increasing sabre rattling and posturing to placate the CFTC. The fact that Gensler feels he has to placate the CFTC means the jurisdiction question is by no means answered.
Disclaimer:
The Content on this email is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained on this site constitutes a solicitation, recommendation, endorsement, or offer by Rapture Associates or Mattison Asher or any third party service provider to buy or sell any securities or other financial instruments in this or in in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction.
All Content on this site is information of a general nature and does not address the circumstances of any particular individual or entity. Nothing in the Site constitutes professional and/or financial advice, nor does any information on the Site constitute a comprehensive or complete statement of the matters discussed or the law relating thereto. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of any information or other Content on the Site before making any decisions based on such information or other Content. In exchange for using the Site, you agree not to hold Rapture Associates, Mattison Asher, and its affiliates or any third party service provider liable for any possible claim for damages arising from any decision you make based on information or other Content made available to you through the Site.