Crypto lending startup BlockFi secured more than $52mn in funding from Mike Novogratz’s Galaxy Digital Ventures. The round will be split up; $2.5mn is in equity being led by Galaxy and other early backers and the additional $50mn will be used as a lending facility for BlockFi customers.
BlockFi allows individuals and companies to leverage bitcoin and ether for what they term as low cost USD loans. They have built out an operation focused on risk management, compliance and regulation. They operate in 42 states where they hold lending licenses.
The way it works is crypto holders give custody of their bitcoin or ether to BlockFi who then issues the loan typically on a 12-month loan term. Borrowers make interest only payments monthly and then have the option to pay back or refinance at the end of the loan term. The loan to value of their crypto assets is set at 35% and if the price of the crypto assets fall to a certain point then trigger events occur similar to a margin call.
When asked about the round and what it means for the company’s early traction BlockFi CEO Zac Prince said, “It’s validating for BlockFi and the entire crypto industry. For these assets to be valued as collateral for USD denominated loans and funded via a traditional, institutional method is a big step.”
The company currently uses bitcoin and ether as collateral but has plans to add additional cryptocurrencies not classified as securities by the SEC soon. As part of the round Chris Ferraro, Head of Principal Investments at Galaxy Digital Ventures LLC joined the BlockFi Board of Directors.
There has been an increased demand for debt in this market and startups have stepped in to help crypto holders gain access to capital. In addition to BlockFi you have Salt Lending, Compound, ETHLend and Unchained Capital to name a few. Traditional lenders have yet to make a shift in accepting cryptocurrencies as collateral, a move that would go a long way to legitimizing the asset class.
The main goals of the round are to ramp up visibility through marketing. The company has been building for more than a year to set the stage for scaling their operation. This infusion of capital will help put them on the right trajectory. They also recently hired Rene van Kesteren, a former Managing Director at Bank of America Merrill Lynch, as their Chief Risk Officer which highlights their emphasis on risk.
One of the big questions in the crypto market is when will institutions make a significant move into crypto investing strategies?
Zac provided us with thoughts on whether or not a tipping point is coming for institutions, “Not a tipping point but a slow building wave. There isn’t a single silver bullet for adoption but we expect continued adoption and are watching it start to pick up steam! Crypto has only really been on the radar since Q4 of last year so it is still working through an education and understanding phase. We have seen adoption from some of the fastest moving institutions including proprietary trading firms and hedge funds.”
BlockFi allows loans of up to $10mn and has not yet released how much they have lent to date.
Todd is the host of PitchIt: the fintech startups podcast, a weekly interview show featuring emerging fintech founders and leading venture capitalists. He is responsible for leading the content team which covers fintech through daily & weekly email newsletters, editorial, virtual events, and in-person conferences. He has been covering fintech, banking, and venture capital for more than 15 years, including speaking regularly at industry events.