Blockchain.com is acquiring assets to close a $270 million hole left by Three Arrows Capital

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In an effort to raise money, Blockchain.com, an early Bitcoin wallet provider and exchange that had a $14 billion valuation as recently as last March, has been trying to sell off assets.

In a research effort, Decrypt has discovered information about discussions made in December and January in which senior executives from Blockchain.com talked about selling off some of its operations, notably to Coinbase. It has also uncovered a private email arranging one of these calls.

However, Blockchain.com’s representative refuted the existence of such conversations and stated that “Blockchain.com is an asset buyer, not a seller.”

The company’s venture arm Blockchain Ventures recently sold off 80% of its ownership in PolySign, the representative revealed, despite the fact that the corporation denies trying to sell off assets. Blockchain.com took part in the $53 million Series B financing of the infrastructure business in 2021.

Blockchain.com had given Three Arrows Capital (3AC), a cryptocurrency hedge fund that declared bankruptcy in July as a result of the failure of the Terra ecosystem, a loan of $270 million in cash and cryptocurrencies.

A fundraising effort of more than $500 million in just 18 months

In the midst of an explosive crypto bull market, the firm enjoyed a huge year in 2021. In February 2021, it raised $120 million in strategic capital, followed by a $300 million Series C in March.

It also hired two Washington “fixers” in that month: Jim Messina, a former employee of the Obama White House, was named to the board, and Lane Kasselman, a former Uber head of communications who worked on Hillary Clinton’s 2008 campaign, joined as chief business officer (he has since been named president).

The business raised a Series D in March 2022, valuing it at $14 billion. The sum was not made public.

Then, in May 2022, Terra collapsed, taking 3AC with it.

After 3AC’s failure, Blockchain.com raised an additional $78 million in a strategic round that was co-led by Kingsway Capital and included Lightspeed Venture Partners. In a blog post at the time, CEO Peter Smith stated that transaction will “strengthen our balance sheet.” The new connection between the business and the Dallas Cowboys was also praised in the blog post.

That brings the total amount of money raised in just 18 months to $500 million, not including the unknown Series D.

However, Blockchain.com laid off 110 more employees in January of this year after laying off 150 workers in July 2022.

Sources claim that the corporation is aggressively looking to raise further funding, even at a significantly reduced valuation. These initiatives, which were previously discussed in late October, are still in progress. According to sources, the corporation is promoting debt warrants.

The SEC received a file for a Regulation D offering from Blockchain.com’s Chief Strategy Officer and Global Head of Institutional Dan Bookstaber and CFO Adam Schlisman (whose name is listed on the filing as “Schisman”) on January 4.

Capital raises for unregistered securities are covered by Regulation D offerings. They are designed to make it possible for businesses to raise money rapidly without having to go through the laborious process of registering a new security.

Tradeoffs must be made, though. For instance, the 506(c) exemption stated in Bookstaber and Schlisman’s filing limits their ability to raise money to accredited investors, who are those with a net worth of at least $1 million or a gross yearly income of at least $200,000.

The two Blockchain.com executives stated in the filing that they were selling equity in exchange for investments of at least $1 million, but as of January 4, they had not closed any deals.

A representative for Blockchain.com declined to offer any additional information regarding the filing.

The United Soccer League team Miami FC, which is co-owned by Italian businessman Riccardo Silva, who also just became a co-owner of the football team AC Milan, has its office at the address listed on the SEC filing.

A customer service line for Blockchain.com can be reached at the number listed in the SEC filing. “Thank you for calling Blockchain.com,” the answering machine says when dialing the number.”While there are now no support representatives available to accept your call, if you would kindly leave your name, phone number, and email address, we will contact you as soon as we can.”

Among the first names in cryptography

One of the first Bitcoin block explorers, Blockchain.info was developed by Ben Reeves in 2011 and is a website that records on-chain transactions in real time. It quickly added a free cryptocurrency wallet and changed its name to Blockchain.com, which currently boasts more than 85 million users. In order to assist the company monetize, it also hired CEO Peter Smith and Nic Cary (who is currently vice-chairman). Even though the wallets and block explorer didn’t make any money, some investors thought the business would succeed if it could persuade even a small portion of its wallet users to become paying clients.

In keeping with this, the business engaged TD Ameritrade veteran Nicole Sherrod in 2018 to assist with the launch of “The Pit,” its retail exchange, in 2019.

Sherrod departed the company after only 16 months, and despite the introduction of margin trading in 2021, the exchange never really took off. As of writing, Blockchain is ranked 57th by daily volume out of 576 crypto exchanges tracked by CoinGecko, with daily trading volume of roughly $6.1 million, or less than 1% of its rivals in the top 5.

The exchange was consistently subpar, they were two years behind the pace, and the UX/UI was horrible, according to a former employee of Blockchain.com who requested anonymity since they had signed a non-disclosure agreement. It was Peter’s pet project, and he served as its product manager, but he eventually had to give it up in order to concentrate on other important tasks.

But, the business’s recent strategy has placed a strong emphasis on other services, including OTC and institutional loans, which it launched in 2019. The company does not, however, need to maintain a booming exchange to succeed.

CMO Jason Karsh remarked, in an interview with Decrypt in May 2021:

If you asked me a few months ago, I think brokerage was clearly where we saw the most, meaning the buying and selling of Bitcoin in the wallet. Yet, our institutional business has been expanding rapidly.

At the time, according to Karsh, the business had “conversations” with a number of “recognized figures from mainstream finance.”

The appointment of Kasselman accelerated this focus. The former Uber communications director was hired to use the business’s funds for mergers and acquisitions (M&A). He stated in May that the M&A strategy will be concentrated on both complementing existing business units and expanding to new areas, citing a “huge balance sheet” and asserting that the wallet, exchange, and institutional financing were each in the top five in their regions.

Kasselman declared:

We’ll take advantage of opportunities. I can’t predict what will happen if and when another crypto winter occurs, but if it does, it sure seems like a good opportunity to acquire a lot of Bitcoin and buy up companies that may be having trouble.

In the end, Blockchain concentrated on enhancing loans and OTC trading for the company’s “fast-growing institutional business,” according to Kasselman.

During 2021, the firm has acquired Singapore-based Altonomy’s OTC desk as well as AiX and its “AI-powered bargaining and matching engine for institutional OTC traders.” As trade in South America stalled, a third acquisition—the Argentinean crypto investing site SeSocio—was shut down seven months after being made.

Yet during the previous year, crypto lending hasn’t been a reliable business strategy.

In July, Celsius declared bankruptcy after being pursued by authorities. Voyager followed suit after being exposed to 3AC. BlockFi had to declare bankruptcy in November after being “bailed out” by FTX. Moreover, this month Genesis, which was exposed to both 3AC and FTX, filed for Chapter 11 protection.

The company might not be sufficiently diversified and cash-strapped to survive the crypto winter without a thriving trading business—and with 3AC representing a $270 million hole in its balance sheet. Some business investors raised serious concerns about the company’s health, but the matter remains speculative at this point.

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