Blockchain.com Shopping Assets to Fill $270M Gap from Three Arrows Capital: Sources

Blockchain.com, the early Bitcoin wallet provider and exchange that boasted a $14 billion valuation as recently as last March, has sought to sell off assets in a battle for capital.

Decrypt has learned from multiple sources of conversations in December and January that Blockchain.com executives have traded parts of the business, including to Coinbase. Decrypt have also seen a private email setting up one of these conversations.

A spokesperson for Blockchain.com denied that such talks have occurred, commenting: “Blockchain.com is a real estate buyer, not a seller.”

Although the company denies any attempt to sell assets, the spokesperson shared that Blockchain.com recently sold 80% of its stake in PolySign. Blockchain.com participated in the start-up of the infrastructure 2021 $53 million Series B round.

Blockchain.com had lent $270 million in cash and crypto to Three Arrows Capital (3AC), the crypto hedge fund that filed for bankruptcy in July after the collapse of the Terra ecosystem.

More than $500 million in fundraising in just 18 months

The company had a tremendous year in 2021 amid a booming crypto bull market. It raised $120 million in strategic financing in February 2021, then a $300 million Series C in March.

That month too brought on two Washington “fixers”: Lane Kasselman, a former Uber communications executive who worked on Hillary Clinton’s 2008 presidential campaign, joined as chief business officer (he has since been named president); and Jim Messina, who worked in the Obama White House, was appointed to the board.

In March 2022, the company raised a Series D that valued it at $14 billion. The amount was not disclosed.

Then in May 2022, Terra went down, and 3AC went down with it.

After 3AC’s crash, Blockchain.com raised another $78 million in a strategic round led by Kingsway Capital, with participation from Lightspeed Venture Partners. CEO Peter Smith wrote in a blog post at the time that it would “strengthen our balance sheet.” The blog post also featured the company’s new partnership with the Dallas Cowboys.

That puts the total money raised in just one 18-month period at half a billion dollars — not even counting the undisclosed Series D.

Nevertheless, Blockchain.com laid off 150 people in July 2022 and laid off a further 110 people in January this year.

The company is also actively seeking to raise more capital, even at a greatly reduced value, according to sources. These efforts were previously reported at the end of October, and they are ongoing. Sources say Decrypt the company offers debt warrants.

On January 4, Blockchain.com’s Chief Strategy Officer and Global Head of Institutional Dan Bookstaber and CFO Adam Schlisman (whose name appears as “Schisman” on the filing) filed an application for a Regulation D offering with the SEC: Blockchain Capital Solutions DeFi, LLC.

Rule D offerings cover capital raising for unregistered securities. They are intended to allow companies to quickly raise money without going through the time-consuming process of registering a new security.

But that means there are trade-offs. For example, the 506(c) exemption cited in Bookstaber and Schlisman’s filing means they can only raise capital from accredited investors — people with a gross annual income of at least $200,000 or a net worth of more than $1 million, as defined by the SEC.

In the filing, the two Blockchain.com executives indicated they were offering equity in exchange for investments of at least $1 million, but they had not made any sales as of Jan. 4.

A spokesperson for Blockchain.com declined to provide further details about the filing.

The address of the SEC archive is the office of Miami FC, a team in the United Soccer League that is part-owned by the Italian businessman Riccardo Silva, who in August also became part owner of the football club AC Milan.

The phone number on the SEC filing matches a Blockchain.com customer service line. When Decrypt called the number, an answering machine picked up: “Thank you for calling Blockchain.com. There are no support agents available to take your call right now, but please leave your number, phone number and email address and we’ll get back to you as soon as possible.”

One of the earliest names in crypto

Created by Ben Reeves in 2011, Blockchain.info was one of the earliest Bitcoin block explorers – a site that documents transactions on the chain in real time. It soon added a free crypto wallet, which now claims more than 85 million users, and changed its name to Blockchain.com. It also brought on board Nic Cary (now deputy chairman) and managing director Peter Smith to help monetise the business. While the blockchain explorer and wallets did not generate revenue, some investors believed that if the company could convert even a fraction of its wallet users into paying customers, it would flourish.

As such, the company hired TD Ameritrade vet Nicole Sherrod in 2018 to help spin up the retail business, which launched in 2019 as “The Pit”. Sherrod quit after just 16 months, and the exchange never heated up, even with the addition of margin trading in 2021. Out of 576 crypto exchanges tracked by CoinGecko, Blockchain ranks 57th by daily volume as of publication, with around $6.1 million in daily trading volume – less than 1% of the volume of top 5 competitors.

“The exchange was always flawed, they were two years behind the curve and the UX/UI was terrible,” said a former Blockchain.com employee who spoke on condition of anonymity due to signing a non-disclosure agreement. “It was Peter’s pet project and he was personally the product manager on it, but then he had to let it go to focus on bigger things.”

But the company doesn’t need a thriving stock market to succeed, and its recent strategy has leaned heavily on other services, including OTC and institutional lending, which it rolled out in 2019.

Talking to Decrypt in May 2021 about where the bulk of Blockchain.com’s revenue came from, CMO Jason Karsh said: “If you asked me a few months ago, I think brokerage was definitely where we saw the most, meaning the buying and selling of Bitcoin in a wallet. But our institutional business has grown like gangbusters.”

At the time, Karsh said the company was “in conversation with” many “recognizable names from mainstream finance.”

Kasselman’s appointment accelerated this focus. Uber’s former communications manager was brought in to use the company’s capital on mergers and acquisitions (M&A). He pointed to a “great balance sheet” and claimed that wallet, exchange and institutional lending were among the top five in their markets, he said Decrypt in May 2021 that the M&A strategy would be focused on both complementing existing business units and expanding into new areas.

“We’re going to be opportunistic,” Kasselman said. “I can’t predict what’s going to happen if and when there’s another crypto winter, but if there is, it seems like a good time to buy a lot of Bitcoin and buy up companies that might be struggling.”

Finally, Blockchain focused on improving lending and OTC trading for what Kasselman called the company’s “fast-growing institutional business.”

Since 2021, the company has bought AiX and its “AI-powered negotiation and matching engine for institutional OTC traders” as well as the OTC desk of Singapore-based Altonomy. A third acquisition, Argentina-based crypto investment platform SeSocio, was shut down seven months after being acquired, as trading in Latin America stagnated.

But crypto lending has not been a safe business model for the past year. Celsius filed for bankruptcy in July after being pursued by regulators. Voyager did the same after exposure to 3AC. BlockFi, which had been “saved out” by FTX, was forced to file for bankruptcy in November. And Genesis, which had exposure to both 3AC and FTX, filed for Chapter 11 protection this month.

Without a busy trading business – and with 3AC representing a $270 million hole in its balance sheet – the company may be insufficiently diversified and short on cash to survive the crypto winter. In conversations with decrypt, several industry investors expressed strong doubts about the health of the company.

Meanwhile, last month, Peter Smith bought an 8 million dollar house on the lake in Pacific Palisades.