BlockFi Is The Next Exchange To Fail

Crypto lender BlockFi has filed for Chapter 11 bankruptcy after significant exposure to the collapsed FTX exchange. BlockFi showed signs of financial stress after the collapse of Terra Luna in May before being bailed out by FTX with a loan.

BlockFi files for bankruptcy

BlockFi filed for Chapter 11 bankruptcy on November 28. In the bankruptcy filing, BlockFi said that it had significant exposure to FTX, which created a liquidity crisis on the platform. Before the recent bankruptcy filing, BlockFi had already halted withdrawals.

The FTX exchange filed for Chapter 11 bankruptcy protection earlier this month after a bank run on the exchange saw traders withdrawing $6 billion from the platform in just a few days. A rescue deal by Binance flopped, which resulted in FTX, alongside 130 affiliated firms, filing for bankruptcy.

Berkeley Research Group (BRG) is the financial advisor leading BlockFi in the bankruptcy filing. The managing partner at BRG, Mark Renzi, has said that while the exposure of debtors to FTX had led to the bankruptcy filing, BlockFi was not facing the same issues as the ones facing FTX.

BlockFi has said that the liquidity crisis was caused by the company’s exposure to FTX and the loans that the company has issued to Alameda. Alameda is a sister company to FTX, and it was also included in the bankruptcy filing. BlockFi has listed that its assets and liabilities are worth between $1 billion and $10 billion.

The court documents also show that BlockFi owes $275 million to FTX. FTX is the largest creditor to the company after Ankura Trust Company. The latter is a trustee to the interest-bearing accounts at BlockFi, and it is owned $729 million.

The majority of large creditors at BlockFi remain unnamed. However, one of the pending payments is a $30 million settlement to the US Securities and Exchange Commission (SEC). Earlier this year, the SEC sued BlockFi over its high-yield accounts. BlockFi agreed on a settlement with the SEC and a commitment to register with the regulatory body.

After the collapse of Terra Luna in May, several crypto firms started spiraling, and FTX emerged as the “savior” at the time. FTX pledged to buy many crypto firms, including BlockFi. FTX, through Alameda, issued a $400 million revolving credit facility to BlockFi in September.

However, after FTX collapsed earlier this month, BlockFi said it sought a new investor, adding that it would lay off employees if new funding were not acquired. BlockFi halted withdrawals on the same day that FTX filed for bankruptcy.

BlockFi to sue FTX

BlockFi has also sued a holding company owned by the founder of FTX, Sam Bankman-Fried. The crypto lender seeks to recover shares of Robinhood that were pledged as collateral weeks before FTX filed for bankruptcy.

Renzi has also said that BlockFi has sold part of its cryptocurrency assets to fund the bankruptcy proceedings. The sales realized $238.6 million in cash. BlockFi is currently holding around $256 million in cash.

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