BlockFi files for bankruptcy, latest crypto company to fail
Cryptocurrency lender BlockFi filed for Chapter 11 bankruptcy protection Monday, the latest casualty of the collapse of crypto exchange FTX.
New Jersey-based BlockFi had been struggling for much of this year but was given a lifeline this summer in the form of an FTX line of credit. FTX’s own bankruptcy, however, all but sealed BlockFi’s financial fate. BlockFi suspended withdrawals after FTX’s failure, and hired bankruptcy specialists in recent days.
BlockFi Inc was one of several crypto currency lenders to pop up in recent years. The company founded in 2017 gave loans to customers using their crypto assets as collateral. The severe drop in the value of bitcoin, ethereum and other cryptocurrencies made the collateral that BlockFi had secured often worth less than the loans it had outstanding.
In addition, this summer’s line of credit from FTX ended up being an albatross around the company’s neck. FTX’s financial rescue package was no longer available to BlockFi once it ran into its own financial trouble, and BlockFi said any attempts to get additional funds in the days before the bankruptcy were not honoured.
“This exposure created a liquidity crisis” for the company, its lawyers said in a court filing.
In its bankruptcy filing, BlockFi claimed more than 100,000 creditors, and liabilities ranging from US$1 billion to US$10 billion. It said bankruptcy protection will allow it to stabilize the company and restructure. It has US$256.9 million in cash on hand, which it expects will provide enough cushion to support some operations during the restructuring.
One creditor among BlockFi’s debts is the US Securities and Exchange Commission. Back in February, BlockFi settled with the SEC over its crypto lending products, agreeing to pay US$100 million in fines and penalties. Roughly US$30 million of that is still owed to the United States government.
“Chapter 11 is a transparent process and we will continue to communicate with our clients to ensure they hear directly from us,” BlockFi said in a tweet.
Cryptocurrencies were in retreat Monday in what has already been a disastrous year. Bitcoin, among the most widely traded cryptocurrencies, has plunged almost 70 per cent in 2022 to below US$16,000 apiece.
BlockFi Inc said bankruptcy protection will allow it to stabilise the company and restructure. That restructuring will include an attempt to recover all obligations that it is owed by its counterparties, including FTX. BlockFi, which was bailed out by Sam Bankman-Fried’s FTX early last summer, said it anticipates recoveries from FTX will be delayed.
FTX filed for bankruptcy protection earlier this month. BlockFi said that because of the FTX collapse, it was no longer able to do business as usual and was pausing client withdrawals.
“With the collapse of FTX, the BlockFi management team and board of directors immediately took action to protect clients and the company,” Mark Renzi of Berkeley Research Group, BlockFi’s financial adviser, said in a prepared statement Monday.
The implosion of FTX is still being sorted out and it is unknown how much collateral damage it could inflict.
There are already comparisons to the collapse of the storied Wall Street bank Lehman Brothers in 2008, at least within the confines of cryptocurrency. The bank trafficked heavily in subprime mortgages that lost almost all of their recognised worth and shook the US and global economy.
BlockFi expects the the US$256.9 million of cash it has on hand will provide enough cushion to support some operations during the restructuring.