The contagion that continues to spread across the industry after the fall of crypto exchange FTX and was made evident again this week when crypto lender BlockFi declared bankruptcy.
Of course, we should take note that BlockFi’s difficulties are not at all unexpected because the company began reducing headcount as its value dropped by more than 66% earlier this year. The FTX collapse was just a nail in the troubled firm’s coffin.
Ask an Advisor
There’s Still Investment Opportunity After the Fall of FTX
(CSA Images/Getty Images)
Those of us who are experienced investors know that often the times of greatest calamity provide some of the greatest investment opportunities. Here’s a few places that the crypto-curious clientele of financial advisors can look:
👉 Funds: One likely source of opportunity is already being exploited by leading investors like Cathie Wood, chief investment officer of technology-oriented ARK Investment Management: crypto funds.
The Grayscale Bitcoin Trust (GBTC) has been trading at as much as a 45% discount to their net-asset value in recent weeks. (Grayscale is a CoinDesk sister company.) Several other closed- and open-ended crypto funds have been trading at similarly steep discounts.
👉 Options and futures: Another potential option for crypto-curious investors seeking a little security: options, according to emailed comments Simeon Hyman, global investment strategist at exchange-traded fund (ETF) issuer Proshares Investments.
“Bitcoin futures-linked ETFs, such as ProShares Bitcoin Strategy ETF (BITO) and ProShares Short Bitcoin Strategy ETF (BITI), provide a belt-and-suspenders approach,” wrote Hyman. “They use regulated futures to gain exposure to bitcoin-linked returns, and they do so in the efficient, regulated wrapper of an ETF.”
👉 Crypto stocks: While many crypto stocks may have been overvalued during retail investors’ digital gold rush, today’s stock pickers may find opportunities for valuation expansion in some companies.
Publicly traded crypto stocks such as Coinbase Global (COIN), operator of the Coinbase crypto exchange, have experienced declines in value of nearly 90% from their 52-week peak.
👉 Or, you know, tokens: It might not be such a bad idea just to buy the tokens themselves, according to recent research from the CFA Institute.
The CFA Institute, in researching asset prices from the past three years, found that five of the largest crypto tokens – BTC, ETH, LTC, XRP and ADA – have relatively weak correlations compared to a full range of equity style indexes and sector ETFs – meaning that cryptos may offer potential diversification benefits for long-horizon investors who can withstand added short-term volatility
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Decrypting Crypto
BlockFi’s Rise and Fall: A Timeline
(BlockFi)
Crypto lender BlockFi is kaput. The platform, which offered high yields on crypto deposits, has filed for bankruptcy protection.
It’s the latest company to fall after the catastrophic collapse of FTX. Indeed, bankruptcy filings show that BlockFi had $355 million worth of cryptocurrencies frozen in FTX and relied on the firm for its credit facility.
But how did it all go so wrong? CoinDesk has compiled a timeline to help you piece together the picture.
October 2017 – January 2018 BlockFi begins
Zac Prince and Flori Marquez founded BlockFi in October 2017 with a lofty mission: provide credit services to the cryptocurrency market. In January 2018, BlockFi launched its first offering: loans of U.S. dollars backed by cryptocurrencies. Simply, clients could deposit bitcoin (BTC) or ether (ETH) and take out loans in fiat against that crypto collateral.
February 2018 to December 2018 – BlockFi’s first funding rounds
Venture capital money followed swiftly. In February 2018, BlockFi raised $1.55 million in a seed round led by ConsenSys Ventures. In July 2018, it raised a hefty $52.5 million in a funding round led by Mike Novogratz’s Galaxy Digital. And at the end of 2018, BlockFi raised another $4 million by issuing convertible notes, with Akuna Capital the main buyer.
March 2019 – BlockFi offers compound interest account
Flush with cash, the startup got to work. In March 2019 it launched a crypto deposit account that would reinvest earnings from bitcoin or ether deposits and provide an opportunity to earn compound interest at a 6.2% annual percentage yield (APY). BlockFi adjusted these rates over time; in May 2019 it almost halved the interest rate on ETH deposits.
The risk of the high-interest account, as explained to CoinDesk, was that it “doesn’t come with the backing of the federal government like a savings account at a bank does.” As the market heated up over the next few years and BlockFi continued to grow, that didn’t seem to hold people back from depositing their money with the company.
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The FTX founder said he unpaused Bahamian FTX withdrawals to “appease” local customers and added his lawyers to the groups of people he said can “go f**k themselves.”
Sam Bankman-Fried is a con man and fraudster of historic proportions. But you might not learn that from the New York Times, CoinDesk’s Chief Insights Columnist David Z. Morris writes.
Disclaimer: The information contained in this newsletter, and any information linked through the items contained herein, is not intended to provide sufficient information to form the basis for an investment decision. You should seek additional information regarding the merits and risks of investing in any cryptocurrency or digital assets.
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