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Tuesday, November 29, 2022

BlockFi, a cryptocurrency lender, declares bankruptcy, citing FTX exposure

Crypto lender BlockFi files for bankruptcy, cites FTX exposure


BlockFi, a cryptocurrency lender, announced on Monday that it would be filing for Chapter 11 bankruptcy protection. The company was harmed earlier this month when it was exposed to the spectacular collapse of the FTX exchange.


The court filing in New Jersey comes as crypto prices have dropped dramatically.The price of bitcoin, the most widely used digital currency, has dropped by more than 70% since its peak in 2021.


Fitch Ratings senior director Monsur Hussain stated, "BlockFi's Chapter 11 restructuring underscores significant asset contagion risks associated with the crypto ecosystem."


In a bankruptcy filing, BlockFi, based in New Jersey and led by fintech executive and crypto entrepreneur Zac Prince, claimed that its substantial exposure to FTX caused a liquidity crisis.After traders took $6 billion from the platform in three days and rival exchange Binance abandoned a rescue deal, FTX, which was founded by Sam Bankman-Fried, filed for protection in the United States this month.


Mark Renzi, managing director at Berkeley Research Group, the proposed financial advisor for BlockFi, stated in the bankruptcy filing, "Although the debtors' exposure to FTX is a major cause of this bankruptcy filing, the debtors do not face the myriad issues apparently facing FTX."Quite the contrary."


BlockFi claimed that its exposure to FTX through loans to Alameda, a FTX-affiliated crypto trading firm, and cryptocurrencies held on FTX's platform that became stuck there were the causes of the liquidity crisis.Between $1 billion and $10 billion were listed as BlockFi's assets and liabilities.


On Monday, BlockFi also filed a lawsuit against a Bankman-Fried holding company to recover shares of Robinhood Markets Inc. pledged as collateral three weeks prior to BlockFi and FTX's bankruptcy filing.


Renzi stated that BlockFi had, earlier in November, sold a portion of its crypto assets to fund its bankruptcy.BlockFi now has $256.5 million in cash on hand as a result of those sales, which brought in $238.6 million in cash.


BlockFi listed FTX as its second-largest creditor in a court filing on Monday, with $275 million owed on a loan extended earlier this year.It stated that more than 100,000 creditors owe it money.Additionally, the business stated in a separate filing that it intends to fire two-thirds of its 292 employees.


BlockFi received a $400 million revolving credit facility from FTX as part of a July agreement, and FTX had the option to purchase BlockFi for up to $240 million.


In addition, BlockFi's bankruptcy filing comes after Celsius Network and Voyager Digital, two of BlockFi's biggest rivals, filed for bankruptcy in July, citing difficult market conditions that had caused losses at both businesses.


During the pandemic, crypto lenders, the de facto banks of the cryptocurrency industry, flourished by offering retail customers interest rates in the double digits in exchange for cryptocurrency deposits.


As opposed to traditional lenders, crypto lenders are not required to maintain capital or liquidity buffers. As a result, some of them became vulnerable when a lack of collateral forced them—along with their customers—to bear significant losses.


The first bankruptcy hearing for BlockFi is scheduled for Tuesday.A request for clarification was not received by FTX.


List of creditors Ankura Trust, which represents stressed creditors and owes $729 million, is BlockFi's largest creditor.19% of BlockFi's equity shares are held by Valar Ventures, a venture capital fund linked to Peter Thiel.


The US Securities and Exchange Commission was also listed as one of BlockFi's largest creditors, with a $30 million claim.A BlockFi subsidiary agreed in February to settle charges relating to a retail crypto lending product the company offered to nearly 600,000 investors by paying the SEC and 32 states $100 million.


According to a press release issued at the time, BlockFi stated that Tiger Global and Bain Capital Ventures co-led the company's March 2021 funding round.A request for clarification was not immediately met by either company.


BlockFi stated in a blog post that the company will be able to stabilize its business and maximize value for all stakeholders thanks to its Chapter 11 cases.


BlockFi stated, "Acting in the best interest of our customers is our top priority and continues to guide our path forward."


BlockFi stated in its bankruptcy filing that it had retained Haynes & Boone and Kirkland & Ellis as bankruptcy counsel.


In the past, BlockFi had put an end to withdrawals from its platform.


Renzi stated in a filing that Blockfi intends to seek authority to honor client withdrawal requests from the crypto assets held in custody in its customer wallet accounts.However, the company didn't say what it planned to do about requests to withdraw money from other products, like interest-bearing accounts.


"BlockFi clients may eventually recuperate a significant piece of their speculations," Renzi said in the recording.


Origins BlockFi was established in 2017 by Flori Marquez and Prince, who is currently the chief executive officer of the business.However settled in Jersey City, BlockFi likewise has workplaces in New York, Singapore, Poland and Argentina, as per its site.


"It's time to stop putting BlockFi in the same bucket / sentence as Voyager and Celsius," Prince tweeted in July.


"We looked "same" two months ago.He stated, "They shut down and have imminent losses for their clients."


Prince, according to a profile of BlockFi that Inc. published earlier this year, was raised in San Antonio, Texas, and used winnings from online poker tournaments to pay for his education at the University of Oklahoma and Texas State Universities.He worked at Orchard Platform, a broker-dealer, and Zibby, a lease-to-own lender that is now Katapult, prior to starting BlockFi with Marquez.


According to Inc., Marquez previously worked at Bond Street, a small business lending company that was merged into Goldman Sachs in 2017.

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