Babel Finance, a Hong Kong based bitcoin and crypto lender, reportedly lost 8,000 bitcoins trading customer funds in June. Combined with altcoins, the company lost $280 million in customer funds during the cascade of liquidations that happened when bitcoin fell from around $30,000 to $20,000 last month.
The current bitcoin bear market has exposed a lot of vulnerabilities, including many exchanges, lenders and funds using excessive leverage.
Babel Finance halted withdrawals last month, citing “unusual liquidity pressures”. Babel, just like Celsius, Voyager and Three Arrows Capital was caught off guard when the bitcoin and broader crypto markets fell off a cliff in June.
The collapse of the Terra stablecoin earlier this year caused contagion which resulted in “liquidity problems” and halted withdrawals at multiple firms. New information from a restructuring proposal deck is now surfacing that Babel Finance lost 8,000 bitcoins in proprietary trading.
According to the restructuring deck, “A Proprietary Trading team operates several Trading Accounts not controlled or monitored by Trading Department; no trading mandate or risk controls were implemented for these accounts; no PnL [profit and loss] was reported”.
The deck further states:
“In that volatile week of June when BTC fell precipitously from 30k to 20k, unhedged positions in [proprietary trading] accounts chalked up significant losses, directly leading to forced liquidation of multiple Trading Accounts and wiped out ~8,000 BTC and ~56,000 ETH.”
Babel Finance is now trying to deploy a rescue plan, including converting $150 million of debt to convertible bonds, raising an additional $250 million to $300 million in convertible bonds and securing a revolving credit of $200 million.
Whether the troubled Hong Kong lender, which is backed by notable investors such as Sequoia Capital China and Circle Ventures, will be able to save itself remains to be seen.
The lesson, as bitcoin proponents like to say, is simple:
“Not your keys, not your coins”.
