BlockFi won’t accept GBTC as collateral

BlockFi will no longer accept shares of Grayscale’s bitcoin fund as collateral, the crypto lender said Tuesday.

The move appears to be a reaction to the controversy related to Three Arrows Capital, which reportedly had a huge stake in GBTC and was exploring arbitrage opportunities around the fund. Three Arrows filed for bankruptcy protection in the U.S. this month.

BlockFi said in a statement that it “currently” does not hold any positions in GBTC and is “winding down a couple of loans where GBTC is part of the collateral package.” It did not rule out allowing customers to use GBTC as collateral in the future.

Reached for comment, Grayscale said in a statement that the crypto investment firm seeks to “offer transparent investment vehicles that voluntarily exceed standard reporting requirements, meet a heightened level of disclosure, and are subject to additional regulatory oversight.”

BlockFi’s decision, which was first reported by The Block, is another sign of the crypto market’s turmoil.

Another major crypto company, Voyager Digital, announced that Three Arrows Capital had defaulted on a loan and then filed for bankruptcy protection itself.

Grayscale’s GBTC is a widely traded bitcoin fund. The crypto investment firm recently sued the SEC after the regulator rejected its proposal to convert the fund into a spot bitcoin ETF. Among the reasons the SEC offered for rejecting the application was the possibility of manipulation of bitcoin trades — an argument apparently bolstered by Three Arrows’ reported arbitrage plan.

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