BlockFi files for bankruptcy in the wake of FTX collapse

  • BlockFi is the latest victim of the FTX collapse.
  • After Celsius and Voyager, BlockFi is the latest lender to shut shop this year.
  • Crypto winter and big collapses are crippling investor and retailer confidence.

FTX exposure caused liquidity crisis in BlockFi

Cryptocurrency lender BlockFi filed for chapter 11 bankruptcy protection Monday, per the reports of a wire news agency. The company reasoned that crypto exchange FTX’s collapse was the reason.

BlockFI’s competitors Celsius network and Voyager filed for bankruptcy earlier this year citing unfavorable market conditions which caused losses in big sums.

Crypto prices plummeted this year from last year’s all-time-highs and have remained stagnant since. BlockFi’s filed for bankruptcy in New Jersey.

The founder, Zac Finder, said that FTX’s collapse caused a liquidity crisis. FTX, founded by Sam Bankman Fried (SBF), filed for bankruptcy earlier this month. $6 billion was pulled out by traders after a rival crypto exchange pulled out of a deal to buy out FTX.

In the filing, FTX was listed as BlockFi’s 2nd largest creditor with a loan of $275 million extended last year. The company owes 100,000 creditors. Also, it would lay off two-thirds of its 292 employees according to a separate filing.

BlockFi was to receive $400 million in a revolving credit facility according to a deal struck with FTX this July. FTX had the option to buy out BlockFi for $240 million as per the deal.

Mark Renzi, managing director of Berkeley Research Group and proposed financial advisor to BlockFinoted: “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.”

Renzi added that BlockFi sold a share its crypto assets earlier in November to deal with bankruptcy, which raised $238.6 million. Now it has $256.5 million in cash.

BlockFi said that exposure to FTX loans via Alameda Research caused the liquidity crisis. Alameda Research is a trading firm founded by SBF which used FTTs sourced from FTX as leverage to obtain loans.

The lender listed its assets and liabilities as anything between $1 billion and $10 billion.

Also, BlockFi sued a holding company for SBF in order to recover shares in Robinhood Markets Inc that were pledged as collateral three weeks ago; before BlockFi and FTX filed for bankruptcy.

Crypto lenders are not required to hold collateral, unlike other lenders, exposing them to default risk.

List of creditors includes the SEC

BlockFi owes $729 million to Ankura Trust, its largest creditor. 19% of BlockFi shares are owned by Valar Ventures, a venture capital fund linked with Peter Thiel.

The Securities and Exchange Commission (SEC) is also listed as its creditor lending $30 million. BlockFi was supposed to pay $100 million in settlement to the regulator and 32 states involving charges over the sale of a crypto lending product to 600,000 customers.

Other investors in BlockFi include Tiger Global and Bain Capital Ventures. These two were the largest investors in the 2021 funding round as per a press release issued by the lender at the time.

Per the bankruptcy filing, Kirkland & Ellis and Haynes & Boone have been hired for counsel.

BlockFi has informed that withdrawals from the platform have been paused.

BlockFi intends to honor client withdrawal requests from customer wallet accounts, according to a filing by Renzi. However, plans for other products including interest bearing accounts have not been revealed.

“BlockFi clients may ultimately recover a substantial portion of their investments,” Renzi stated in the filing.

BlockFi was founded by present CEO Zac Prince and Flori Marquez in 2017. The company is headquartered in New Jersey and has offices in New York, Argentina, Poland and SIngapore.

On July 11th, after Celsius and Voyager had filed for bankruptcy, Prince took to Twitter to state that BlockFi must not be perceived like Celsius and Voyager. 

Nancy J. Allen
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