United States: Cryptocurrency lender BlockFi announced on Monday that it has filed for Chapter 11 bankruptcy protection, becoming the latest company in the industry to fail following the spectacular collapse of the FTX exchange earlier this month.
The court filing in New Jersey comes as cryptocurrency prices plummeted. The cost of bitcoin, by far the most widely used digital currency, has dropped by more than 70% since its peak in 2021.
According to Monsur Hussain, senior director at Fitch Ratings, "BlockFi's Chapter 11 reorganization underscores the significant asset transition risks associated with the crypto ecosystem."
BlockFi, a company based in New Jersey and founded by former fintech executive turned cryptocurrency entrepreneur Zach Prince, claimed in a bankruptcy filing that a liquidity crisis was brought on by its significant exposure to FTX.
FTX founder Sam Bankman-Fried filed for protection in the US this month after traders withdrew US$6 billion from the platform in just three days and a rival exchange shut down a rescue plan.
According to the bankruptcy filing by Mark Renzi, managing director of Berkeley Research Group, the proposed financial advisor to BlockFi, “While the debtors' exposure to FTX is a major reason for this bankruptcy filing, the debtors clearly face a myriad of issues.” Don't have to deal with it. Ftx." "quite the contrary,"
Renzi claimed that earlier in November, Blockfi sold a portion of its cryptocurrency holdings to pay for its bankruptcy. These sales generated US$238.6 million in cash, bringing BlockFi's total cash to US$256.5 million.
BlockFi listed FTX as its second largest creditor in a court filing filed on Monday; The company owes $275 million to FTX for loans taken out earlier this year. It claimed to owe money to over 100,000 creditors. Additionally, the business disclosed in a separate filing that it intends to fire two-thirds of its 292 staff members.
BlockFi was to receive a US$400 million revolving credit facility under an agreement signed with FTX in July, and FTX was given an option to purchase it for up to US$240 million.
BlockFi's bankruptcy filing also follows Cels Network and Voyager Digital, BlockFi's two biggest rivals, both declared bankruptcy in July, citing adverse market conditions that caused losses in their respective businesses.
During the pandemic, crypto lenders—the de facto banks of the cryptocurrency world—exploded, luring retail customers with double-digit rates in exchange for their cryptocurrency deposits.
Unlike traditional lenders, crypto lenders are not required to hold capital or liquidity buffers, and some of them found themselves exposed when a lack of collateral forced them and their customers to take significant losses.
Tuesday will be the first bankruptcy hearing for BlockFi. Inquiries for comment from FTX were not answered.
Ankura Trust, which represents creditors in distress and is owed US$729 million, is BlockFi's largest creditor. 19% of the equity shares in BlockFi are owned by Valar Ventures, a venture capital fund linked to Peter Thiel.
The US Securities and Exchange Commission, which has a $30 million claim against BlockFi, was also listed as one of its largest creditors. A BlockFi subsidiary agreed to pay $100 million to the SEC and 32 states in February to resolve allegations regarding a retail crypto loan product the company provided to approximately 600,000 investors.
BlockFi's March 2021 funding round was co-led by Bain Capital Ventures and Tiger Global, according to a press release at the time. Inquiries for comments were not immediately answered by either company.
According to a blog post by BlockFi, the company will be able to stabilize its operations and maximize value for all stakeholders from its Chapter 11 case.
According to BlockFi, acting in the best interests of our customers is our top priority, and this continues to drive our course.
BlockFi claimed in its bankruptcy filing that it retained Kirkland & Ellis and Haynes & Boone as its bankruptcy attorneys.
Previously, BlockFi had blocked withdrawals from its system.
Renzi said in a filing that Blockfi plans to seek permission to accept customer withdrawal requests from customer wallet accounts holding cryptocurrency. However, the business did not provide any plans on how it might handle withdrawal requests from its other products, such as interest-bearing accounts.
According to Renzi's filing, "BlockFi customers could eventually recover a significant portion of their investment."
Prince, who serves as the business's chief executive officer, and Flori Marquez founded BlockFi in 2017. According to its website, BlockFi has offices not only in Jersey City but also in New York, Singapore, Poland, and Argentina.
It's time to stop comparing BlockFi to Voyager and Celsius, Prince had stated in a tweet from July.
"Two months ago, we appeared to be identical. Theyclose down and their clients are about to suffer losses, he said.
Prince was raised in San Antonio, Texas, and used winnings from online poker tournaments to pay for his college education at the University of Oklahoma and Texas State University, according to a profile of BlockFi that was published earlier this year by Inc. Prior to launching BlockFi with Marquez, he worked at Orchard.