Crypto lender BlockFi files for bankruptcy, cites FTX exposure

  • Filing is done a few weeks after FTX closes
  • FTX Listed as BlockFi’s No. 2 Creditor
  • Bitcoin down more than 70% from 2021 peak

Nov 28 (Reuters) – Cryptocurrency lender BlockFi has filed for Chapter 11 bankruptcy protection, it said on Monday, the latest industry casualty after the spectacular collapse of the FTX exchange earlier this month hurt the firm.

The filing in New Jersey court comes as crypto prices have plummeted. The price of bitcoin, the most popular digital currency ever, is down more than 70% from its 2021 peak.

“BlockFi’s Chapter 11 reorganization underscores the significant asset transition risks associated with the crypto ecosystem,” said Mansoor Hussain, senior director at Fitch Ratings.

New Jersey-based BlockFi, founded by fintech executive-turned-crypto entrepreneur Zack Prince, said in a bankruptcy filing that its substantial exposure to FTX created a liquidity crisis. FTX, founded by Sam Bankman-Fried, filed for protection in the United States this month after traders pulled $6 billion from the platform in three days and rival exchange Binance abandoned a rescue deal.

“While debtors’ exposure to FTX is a major reason for this bankruptcy filing, debtors clearly do not face the myriad issues facing FTX,” said Mark Renzi, managing director of Berkeley Research Group. BlockFi. “Exactly the opposite.”

BlockFi said the liquidity crisis was due to FTX’s exposure through loans to FTX, a crypto trading firm affiliated with FTX, as well as cryptocurrencies held on FTX’s platform that were stuck there. BlockFi lists its assets and liabilities as between $1 billion and $10 billion.

Also Read :  Amazon, Apple, Alphabet report as season heats up

BlockFi on Monday sued Bankman-Fried, a holding company seeking to recover shares in Robinhood Markets Inc (HOOD.O), three weeks before BlockFi and FTX filed for bankruptcy protection .

Renzi said that BlockFi sold a portion of its crypto assets in early November to fund its bankruptcy. Those sales raised $238.6 million in cash, and Blockfi now has $256.5 million in cash.

In a court filing on Monday, BlockFi listed FTX as its second largest creditor, owed $275 million on a loan extended earlier this year. It said it owed money to more than 100,000 creditors. The company also said in a separate filing that it plans to lay off two-thirds of its 292 employees.

Under a deal signed with FTX in July, BlockFi was to receive a $400 million revolving credit facility, while FTX got an option to buy it out for up to $240 million.

BlockFi’s bankruptcy filing also comes after two of BlockFi’s biggest competitors, Celsius Network and Voyager Digital, filed for bankruptcy in July, citing extreme market conditions that caused losses for both companies .

Crypto lenders, the de facto banks of the crypto world, boomed during the pandemic, luring retail customers with double-digit rates in exchange for their cryptocurrency deposits.

Crypto lenders are not required to hold capital or liquidity buffers like traditional lenders and some found themselves exposed when a lack of collateral forced them – and their customers – to take large losses.

Blockfi’s first bankruptcy hearing is set to take place on Tuesday. FTX did not respond to a request for comment.

Also Read :  What Don’t People Get About Your Job?

creditor list

BlockFi’s largest creditor is Ankura Trust, which represents creditors in stressed situations, and is owed $729 million. Valar Ventures, a Peter Thiel-linked venture capital fund, owns 19% of BlockFi equity shares.

BlockFi listed the US Securities and Exchange Commission as one of its largest creditors with a claim of $30 million. In February, a BlockFi subsidiary agreed to pay $100 million to the SEC and 32 states to settle charges regarding a product that offered retail crypto loans to approximately 600,000 investors.

Bain Capital Ventures and Tiger Global co-led the March 2021 funding round, BlockFi said in a press release issued at the time. Both firms did not immediately respond to a request for comment.

In a blog post, BlockFi said that its Chapter 11 case will enable the company to stabilize its business and maximize value for all stakeholders.

“Acting in the best interests of our customers is our top priority and continues to guide us going forward,” BlockFi said.

In its bankruptcy filing, Blockfi said it hired Kirkland & Ellis and Haynes & Boone as bankruptcy attorneys.

BlockFi previously halted withdrawals from its platform.

In a filing, Renzi said that Blockfi intends to seek authorization to honor customer withdrawal requests from its customer wallet accounts in which crypto assets are held in custody. However, the company did not disclose plans for how it might treat withdrawal requests from its other products, including interest-bearing accounts.

Also Read :  Want a Four-Day Work Week? Here's How to Convince Your Boss

“Blockfi clients could eventually recover a substantial portion of their investments,” Renzi said in the filing.

Original

BlockFi was founded in 2017 by Prince, currently the company’s CEO, and Flory Marquez. Although it is headquartered in Jersey City, according to its website, it also has offices in New York, Singapore, Poland, and Argentina.

In July, Prince tweeted that “It’s time to stop putting

BlockFi in the same bucket/sentence as Voyager and Celsius.”

“Two months ago we looked ‘identical’. They shut down and their customers are at an imminent loss,” he said.

According to a profile of BlockFi published earlier this year by Inc., Prince was raised in San Antonio, Texas, and funded his college education at the University of Oklahoma and Texas State University with winnings from online poker tournaments. Before starting BlockFi with Marquez, he held jobs at Orchard Platform, a broker dealer, and Zibby, a lease-to-own lender that is now called Catapult (KPLT.O).

Marquez previously worked at Bond Street, a small business lending organization that was folded into Goldman Sachs in 2017, according to Inc.

Reporting by Hannah Lang in Washington, Niket Nishant and Manya Saini in Bengaluru and Elizabeth Howcroft in London Additional reporting by Dietrich Knauth Editing by Megan Davis, Connor Humphreys, Matthew Lewis, Anna Driver and Richard Chang

Our Standards: The Thomson Reuters Trust Principles.

Source

Leave a Reply

Your email address will not be published.