01 July 2022 |

DOJ is coming for crypto scams—Will FTX Buy Blockfi?


FTX Blockfi & Robinhood

SBF is an absolute beast. 

Rumor-wise, this was a big week for FTX, the Bahamas-based crypto exchange. The company is worth ~$32 billion based on a January 2022 fundraise and has a ton of cash in the bank. And with crypto as an ecosystem seeing a massive correction over the past few months, FTX has a particularly aggressive to acquire or buy stakes in struggling companies in the ecosystem. 

First his quant trading company, Alameda Research, extended a $500 million loan to Voyager Digital, which was struggling thanks to a loan to 3AC. Then, there was the $250 million credit facility to Blockfi, the crypto lender that has been struggling because of a rumored $1 billion+ loan to 3AC. Then, yesterday, that turned into a potential acquisition of Blockfi for $25 million—a massive discount from the $4.8 billion valuation Blockfi was rumored to be raising around a year ago.

I wrote about FTX’s strategy of acquiring stakes in distressed crypto companies on Tuesday, and not to toot my own horn but it’s pretty good. I don’t think many other companies, especially in crypto, can pull this off at this scale. There are other firms thinking a lot about distressed crypto acquisitions/investments but they’re more financial institutions and private equity firms. 

For what it’s worth, Blockfi’s CEO Zac Prince denied the $25 million dollar price. Nonetheless it’s a pretty wild event after an even wilder week for crypto. 

DOJ’s Coming After Crypto Scams

Not great news for the crypto scammers out there. The Department of Justice is pursuing criminal charges against 6 defendants in 4 different cases of crypto crime. The Financial Times (one of my favorite mainstream media publications btw) has a great overview of the cases. But if all these folks get convicted they’ll be facing a cumulative 310 years in prison. 

My wife Stevie and I spend a lot of time talking about crypto regulation (it’s our version of flirting.) When the Biden Executive Order surrounding crypto was announced in early March 2022, I remember her sounding an alarm around the fact that the Order was getting Homeland Security involved. With such an expansive mandate and open-ended purview, Homeland Security can pursue a lot of cases that fall in between the cracks of the law. If the DOJ is getting involved there’s a solid shot that Homeland Security is deeply involved in the investigation as well. Not only that but based on our research at Vol. 1 Ventures, there’s definitely reason to believe that more of these criminal cases are coming. So far, they seem restricted to NFT related scams, but with massive debacles like Luna/Terra (Do Kwon already has had some legal issues with the SEC in the past), expect that focus to expand more broadly.