February 4, 2023

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Crypto Lender BlockFi files for bankruptcy, cites FTX exposure

Crypto Lender BlockFi files for bankruptcy, cites FTX exposure

  • The filing comes weeks after the FTX collapse
  • FTX is listed as BlockFi’s No. 2 creditor
  • Bitcoin is down more than 70% from its 2021 peak

Nov. 28 (Reuters) – Cryptocurrency lender BlockFi said Monday it has filed for Chapter 11 bankruptcy protection, in the latest cryptocurrency casualty after the company was hit by exposure to the spectacular crash of the FTX exchange earlier this month.

The filing in the New Jersey court comes as cryptocurrency prices plummet. The price of bitcoin, the most popular digital currency by far, is down more than 70% from its 2021 peak.

“BlockFi’s Chapter 11 restructuring underscores the significant asset contagion risks associated with the cryptocurrency ecosystem,” said Mansoor Hussain, Senior Director at Fitch Ratings.

BlockFi, the New Jersey-based company founded by fintech CEO-turned-crypto-entrepreneur Zac Prince, said in a bankruptcy filing that its large exposure to FTX had caused a liquidity crunch. FTX, founded by Sam Bankman-Fried, filed for protection in the US earlier in November after traders withdrew $6 billion from the platform in three days and rival exchange Binance abandoned a bailout deal.

“Although debtors’ exposure to FTX is a major reason for filing for bankruptcy, debtors do not face the myriad of problems that appear to be facing FTX,” Marc Renzi, managing director at Berkeley Research Group, said on the first day of the filing. bankruptcy application BlockFi Advisor. “Quite the opposite.”

BlockFi said the liquidity crunch was due to its exposure to FTX through loans to Alameda, a cryptocurrency trading affiliate of FTX, as well as cryptocurrencies on the FTX platform becoming stuck there. BlockFi has listed assets and liabilities between $1 billion and $10 billion.

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

In Monday’s lawsuit, BlockFi listed FTX as its second-largest creditor, with $275 million owed 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 had an option to buy it for $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 due to harsh market conditions that led to losses for both companies.

Cryptocurrency lenders, the de facto banks of the crypto world, have thrived during the pandemic, attracting retail customers with double-digit rates for their cryptocurrency deposits.

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

BlockFi’s first bankruptcy hearing is scheduled for Tuesday, and FTX did not respond to a request for comment.

List of delegates

BlockFi’s largest creditor is the Ankura Trust, a firm that represents creditors in distress, with $729 million in debt. Valar Ventures, the venture capital fund associated with Peter Thiel, owns 19% of the shares in BlockFi.

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

Bain Capital Ventures and Tiger Global co-led BlockFi’s funding round in March 2021, according to a BlockFi press release at the time. The two companies did not immediately respond to a request for comment.

in a blog postBlockFi said the Chapter 11 cases will enable the company to stabilize its business and maximize value for all stakeholders.

“Working in the interest of our customers is our top priority and we will continue to steer our path forward,” said BlockFi.

In its bankruptcy filing, BlockFi said it had hired Kirkland & Ellis and Haynes & Boone as bankruptcy counsel.

BlockFi had earlier suspended withdrawals from its platform.

In a filing, Renzi said that Blockfi intends to seek authority to honor customer withdrawal requests from its customer wallet accounts, where crypto assets are held. However, the company did not disclose its plans for how it will handle withdrawal requests from its other products, including which accounts earn interest.

“BlockFi customers may eventually get a significant portion of their investment back,” Renzi said in the filing.

assets

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

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In July, Prince wrote on Twitter, “It’s time to stop posting

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

“Two months ago, we looked ‘the same thing.’ They closed their doors and their customers suffered imminent losses.”

According to a BlockFi profile published earlier this year from IncPrince grew up in San Antonio, Texas, and funded his college education at the University of Oklahoma and Texas State University with winnings from online poker tournaments. Prior to starting BlockFi with Marquez, he held jobs at Orchard Platform, a brokerage broker, and at Zibby, a lease-to-own lender now called Katapult. (KPLT.O).

Marquis previously worked at Bond Street, a small business lending firm that was merged into Goldman Sachs (GS.N) In 2017, according to Inc.

Additional reporting by Hannah Lang in Washington, Nikitt Nishant and Manya Saini in Bengaluru, and Elizabeth Howcroft in London.

Our standards: Thomson Reuters Trust Principles.