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BlockFi bitcoin miner loans default risk: Strategy under pressure as slumping BTC price threatens mining sector

By Darius McQuaid

15:57, 31 October 2022

By Darius McQuaid

15:57, 31 October 2022

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BTC/USD
Bitcoin / USD
27477.20 USD
-698.25 -2.480%
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 In this photo illustration the Blockfi logo seen displayed on a smartphone with an economic stock exchange index graph in the background
In 2021, BlockFi was said to be the second leading creditor to publicly listed bitcoin miners – Photo: Getty Images

Core Scientific, the largest bitcoin (BTC) miner by computing power, has announced it is ready to go through bankruptcy proceedings with its creditors and has halted debt payments.

Core Scientific has an $80m (£69m) loan from crypto bank BlockFi, Protos reported. 

BlockFi began a campaign to finance BTC miners in 2020 and has a section of its website dedicated to this service.

The firm has handed out a number of loans to crypto miners, including $32m (£27m) to Canadian outfit Bitfarms, and in 2021 BlockFi was said to be the second leading creditor to publicly listed bitcoin miners.

According to BlockFi’s Q2 2022 Transparency report, the value of its outstanding loans to borrowers was valued at $1.8bn (£1.5bn).

BTC to USD 

FTX bails out BlockFi

In June 2022, FTX, the cryptocurrency derivatives exchange, bailed out BlockFi.

SOL/USD

21.79 Price
-4.570% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 0.4398

XRP/USD

0.43 Price
-13.580% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 0.00341

BTC/USD

27,477.20 Price
-2.480% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 21:00 (UTC)
Spread 60.00

ETH/USD

1,749.62 Price
-3.040% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 21:00 (UTC)
Spread 5.00

As well as providing financial assistance to BlockFi with an injection of $250m (£217m), FTX also partnered with the crypto bank.

Zac Prince, CEO of BlockFi, said via Twitter: “This agreement also unlocks future collaboration and innovation between BlockFi and FTX as we work to accelerate prosperity worldwide through crypto financial services. This is a significant step forward in our commitment to the strength and accessibility of crypto markets.”

Sam Bankman-Fried, CEO of FTX, revealed in a series of tweets that he chose to financially aid BlockFi because it “has careful risk management and great leadership” and that “sometimes leadership means acting decisively and that’s what BlockFi did”.

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Bear market

The current crypto bear market is adding pressure to crypto miners, along with rising electricity prices, with stock prices also under pressure. As of 31 October, Bitfarms is down by almost 7% over 30 days, and is trading at CAD1.34.

Bitcoin is priced at $20,369 and has spent the majority of 2022 on a downwards price trend, according to CoinMarketCap.       

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
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