In a report dated January 23. 2023, Bloomberg reported that BlockFi, the bankrupt crypto lender, plans to sell off $160 Million of Loans which are backed by approximately 68,000 Bitcoin Mining machines. This attempt at debt liquidation by BlockFi is most likely part of its efforts to pay its creditors. A review of the bankruptcy filing reveals BlockFi has in excess of 100,000 creditors. [BlockFi filed a Chapter 11 Bankruptcy proceeding in November, 2022, and specified its trouble was a significant exposure to FTX].
The Bloomberg report further discloses that two people familiar with the situation claim BlockFi began the process of selling these loans 'last year'.
But now with the passage of time and negative market environment, some of the loans in question may have defaulted. Plus, due to the significant decline in the price of Bitcoin Mining machines some of the loans in question could be undercollateralized. Today, January 24, 2023 is the last day to submit bids for these loans.
Speaking with Cointelegraph, Harrison Dell, cryptocurrency lawyer commented that should the value of the Bitcoin Mining machines be less that the face value of the loan, the loans are "not worth their paper value anymore to BlockFi" [Lyons, C. BlockFi to sell $160M in Bitcoin miner-backed loans: Report. (Accessed January 24, 2023)]. Additionally he stated that those bidding on these loans are most likely debt collection businesses seeking to buy for 'cents on the dollar'.
It is Dell's position that the sale of this debt is all the bankruptcy administrators can do to salvage any value for the underlying assets. He added:
This is just the start of the asset sales from BlockFi and other crypto firms in Chapter 11 bankruptcy in the US.
[Id].
At the time of the filing of the bankruptcy petition, it was disclosed that BlockFi had already sold $239 Million of crypto assets to pay bankruptcy expenses. BlockFi warned that about 70% of its work force were at risk of losing their jobs.
BlockFi held a major leadership position in the now embattled mining sector. The situation facing BlockFi, nonetheless, is not unique as several mining firms have experienced a struggle with liquidity over the past year. One of the biggest within the sector, Core Scientific, filed bankruptcy in December, 2022. Also, Argo Blockchain sold its Texas Mining unit to Galaxy digital reaping $65 Million and securing a $35 Million loan from Galaxy in December 2022.
According to Hashrate Index Data, the price of Bitcoin miners fell by approximately 85% over the past year. Additionally Miners experienced pain resulting from the fall in the price of Bitcoin, which in effect reduced the demand for Bitcoin mining rigs.
However, it should be noted that there now exists a market for distressed assets in the nature of those held by BlockFi. Crypto asset manager Grayscale has established a Fund with Foundry to invest in Bitcoin mining hardware in the hopes of capitalizing on this distressed asset market.