Falling crypto tokens.
Illustration: Christopher T. Fong/Protocol

Here comes the crypto contagion

Source Code

Good morning! FTX’s problems are increasingly other people’s problems, and BlockFi is the latest company to fall victim. Let’s dive in.

Well hello there, crypto contagion

The latest crypto casualty is upon us. Yesterday, BlockFi announced that it had filed for chapter 11 bankruptcy protection.

  • BlockFi has as much as $10 billion in liabilities and as many as 100,000 creditors. It currently has $256.9 million in cash on hand, which it hopes will provide it with enough liquidity “to support certain operations.”
  • According to the filing, Ankura Trust Company is its largest creditor, with a claim to $729 million, followed by none other than FTX US, which has a claim to $275 million.

BlockFi is deeply entangled with FTX, as the Financial Times points out, and BlockFi cited a “lack of clarity” around Sam Bankman-Fried’s operations as one of the reasons for its bankruptcy.

  • FTX came to BlockFi’s rescue in the spring, offering it a credit line of $400 million.
  • FTX’s Alameda Research borrowed nearly $700 million from BlockFi, and BockFi’s cryptocurrency is, unsurprisingly, currently stuck on FTX’s platform.
  • The FT also reported that BlockFi is now suing Sam Bankmen-Fried “to seize shares in Robinhood that the FTX founder allegedly pledged as collateral just days before his exchange collapsed.”

In the filing, BlockFi distanced itself from FTX. "Although the debtors' exposure to FTX is a major cause of this bankruptcy filing, the debtors do not face the myriad issues apparently facing FTX," Mark Renzi, managing director at Berkeley Research Group and advisor for BlockFi, wrote in the filing.

  • BlockFi is suggesting that bankruptcy offers it a chance to “stabilize the business” and “consummate a reorganization plan that maximizes value for all stakeholders, including our valued clients.”

How big is this house of cards? As Protocol’s Tomio Geron wrote earlier this month, the crypto industry is a sprawling mess, and it’s unclear which companies and individuals are exposed to which risks.

  • There’s a very real possibility that, rather than a handful of organizations falling, the contagion continues to spread. So far, we don’t have a clear picture of how entangled the industry is, though Reuters is piecing together what we know so far about exposure to FTX across the sector.
  • If the fallout keeps spreading, BlockFi’s vision of emerging as a phoenix from the flames may prove to be overly optimistic.

What’s got the attention of VC right now?

Hindsight is a wonderful thing. And there could be plenty of it on display in coming months, according to a new analysis of where VC money went in Q3.

DeFi and Web3 were the emerging technologies of choice for the world's top-15 most successful VC firms in the third quarter of 2022, according to PitchBook’s latest quarterly emerging tech indicator.

  • Across the deals analyzed in the report, those sectors drew a combined $879 million in investment in Q3 across 24 deals.
  • Just behind them were fintech, with $737 million of investment across 24 deals, and biotech, with $726 million of investment across 11 deals.

Crypto investment is headed downard, though. The same analysis shows that crypto investment has crashed from a peak in Q1 2022 of over $2.3 billion across 33 deals. Meanwhile, second-place fintech has held pretty steady over recent quarters.

  • Things could yet get worse for crypto startups. “The recent failure of cryptocurrency trading platform FTX and the subsequent contagion across the industry is likely to have a negative impact on future investment levels,” Pitchbook writes.
  • Looking for something to peg your crypto hopes on? “There are areas of the cryptocurrency ecosystem that are less exposed to trading activity, which could be less impacted by the fallout from FTX,” the report adds.

A MESSAGE FROM HASHICORP

Organizations moving to the cloud need a new operating model — one that rethinks how they manage infrastructure, handle security, and connect systems. Platform teams trust HashiCorp’s stack of automation software to build the powerful, easy-to-use infrastructure their business needs to innovate.

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People are talking

There’s no question over Senator Chuck Schumer’s view on the China chip situation:

  • "If American business wants the federal government to buy their products or services, they shouldn't be using the kind of Chinese-made chips that, because of Chinese government involvement, put our national security at risk."

What’s on Bob Iger’s to-do list? Making Disney’s streaming business profitable is near the top:

  • "Instead of chasing [subscribers] with aggressive marketing and aggressive spend on content, we have to start chasing profitability."

Elon Musk’s Boring Company has been ghosting cities that it promised to work with, according to Chicago alderman Scott Waguespack:

  • “Every time I see him on TV with a new project, or whatever, I’m like: Oh, I remember that bullet train to Chicago O’Hare.”

Making moves

Faraday Future has a new global CEO in Xuefeng Chen, who was most recently CEO of the company's China division. Chen replaces Carsten Breitfeld.

Remember how Justin Zhu was fired from his role as CEO of Iterable for taking LSD? Now he’s suing the company, alleging discrimination over his East Asian background.

In other news

Elon Musk accused Apple of threatening to remove the social media company’s app from the App Store and said it had largely stopped advertising on the platform. No response from Apple so far, but this could easily become A Thing, so have popcorn at the ready.

AWS is rolling out access to new chips that promise the kind of high performance required for workloads such as weather forecasting and gene sequencing.

The U.S. is pushing its allies to consider mirroring its own semiconductor bans against China, according to the CEO of the Dutch chip toolmaker ASMI.

Crypto exchange Kraken settled with the Treasury, agreeing to pay more than $360,000 over accusations that it violated U.S. sanctions.

Google is settling with the FTC, paying $9.4 million to draw a line under an investigation into potentially deceptive endorsements.

Meta was fined $275 million by Ireland’s Data Protection Commission for a data leak that violated the EU’s General Data Protection Regulation.

The U.K. government is scrapping a rule that would have allowed it to force tech companies to take down “legal but harmful” content, after it received heavy criticism. That U-turn is also now facing criticism.

Foxconn is offering bonuses to factory workers who agree to return to its production facilities in Zhengzhou as it struggles to keep its workforce staffed up.

Snap will require employees to be in its offices for 80% of their time starting the end of February.

A MESSAGE FROM HASHICORP

Organizations moving to the cloud need a new operating model — one that rethinks how they manage infrastructure, handle security, and connect systems. Platform teams trust HashiCorp’s stack of automation software to build the powerful, easy-to-use infrastructure their business needs to innovate.

Learn more

Thoughts, questions, tips? Send them to sourcecode@protocol.com, or our tips line, tips@protocol.com. Enjoy your day, see you tomorrow.

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