US crypto lender BlockFi files for bankruptcy; cites significant FTX exposure

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New Jersey-based cryptocurrency lender BlockFi is the latest in a string of companies to seek bankruptcy protection, as the once-promising sector has failed to live up to its hype. 

BlockFi and eight affiliates announced on Monday, November 28, that it has filed for Chapter 11 of the US Bankruptcy Code in the United States Bankruptcy Court for the District of New Jersey.

“BlockFi’s Chapter 11 restructuring underscores significant asset contagion risks associated with the crypto ecosystem,” says Monsur Hussain, senior director at Fitch Ratings.

The filing comes as the industry has been grappling with a prolonged slump in prices and interest from investors. The crypto lending firm has halted most of its activity, including withdrawals on its platform, due to significant exposure to FTX.

“Since the pause, our team has explored every strategic option and alternative available to us and has remained laser-focused on our primary objective of doing the best we can for our clients. These Chapter 11 cases will enable BlockFi to stabilise the business and provide BlockFi with the opportunity to consummate a reorganisation plan that maximises value for all stakeholders, including our valued clients,” says the company.

The US company is currently seeking court protection to restructure, settle its debts and recover money for investors.

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In the court filing, the company says it owed money to more than 100,00 creditors. The crypto firm has listed FTX as its second largest creditor, with $275M owed on loan extended in January.  

The firm also mentioned that it has about $257M in cash to help support its business through bankruptcy. BlockFi listed its assets and liabilities as being between $1 billion and $10 billion, reports Reuters. 

“With the collapse of FTX, the BlockFi management team and board of directors immediately took action to protect clients and the Company,” says Mark Renzi of Berkeley Research Group, the Company’s financial advisor. “From inception, BlockFi has worked to positively shape the cryptocurrency industry and advance the sector. BlockFi looks forward to a transparent process that achieves the best outcome for all clients and other stakeholders.”

The US lender sued a holding company for Bankman-Fried soon after the filing, seeking to recover shares in Robinhood Markets Inc that were pledged as collateral three weeks ago before BlockFi and FTX filed for bankruptcy protection.

The New Jersey company also owes $30M to the US Securities and Exchange Commission, which earlier found out that the firm has failed to register its product properly and misled the public about the risk in its lending activity.

The company’s bankruptcy filing comes after two of its largest competitors, Celsius Network and Voyager Digital, filed for bankruptcy in July due to the ongoing market conditions that have caused losses for both companies.

BlockFi: What you need to know

Founded in 2017 by Zac Prince, BlockFi is a non-bank lender that offers USD loans to crypto-asset owners who collateralise the loan with their crypto-assets. 

The company’s mission is to provide liquidity, transparency, and efficiency to digital financial markets by creating products that meet the needs of consumers and corporations globally.

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