Crypto lender BlockFi files for bankruptcy, cites FTX exposure


  • Presentation follows weeks after FTX collapse
  • FTX appears as BlockFi’s number 2 creditor
  • Bitcoin is down over 70% from the 2021 peak

Nov 28 (Reuters) – Cryptocurrency lender BlockFi has filed for Chapter 11 bankruptcy protection, the industry’s latest casualty said on Monday after the company was hit by exposure to the spectacular collapse from the FTX exchange earlier this month.

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

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

New Jersey-based BlockFi, founded by fintech executive-turned-crypto-entrepreneur Zac 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 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 cause of this bankruptcy filing, debtors do not face the myriad of problems that FTX appears to face,” said Mark Renzi, managing director of Berkeley Research Group, the proposed financial adviser. for filing bankruptcy. BlockFi. “Just the opposite.”

BlockFi said the liquidity crunch stemmed from its exposure to FTX through loans to Alameda, an FTX-affiliated crypto trading firm, as well as cryptocurrencies held on the FTX platform that got trapped there. BlockFi listed its assets and liabilities between $1 billion and $10 billion.

BlockFi on Monday too sued a Bankman-Fried holding companyseeking to recover shares in Robinhood Markets Inc. (HOOD.O) pledged as collateral three weeks ago, before BlockFi and FTX filed for bankruptcy.

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

In a court filing Monday, BlockFi listed FTX as its second-largest creditor, with $275 million owed on a loan made earlier this year. He said he owes 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 an agreement signed with FTX in July BlockFi was to receive a $400 million revolving credit facility, while FTX had the option to buy it 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 had led to losses at both companies.

Cryptocurrency lenders, the de facto banks of the cryptocurrency world, grew during the pandemic, luring retail customers with double-digit rates for their cryptocurrency deposits.

Crypto lenders are not required to maintain capital or liquidity reserves like traditional lenders and some found themselves exposed when collateral shortages forced them, and their clients, to take heavy losses.

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

LIST OF CREDITORS

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

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

Bain Capital Ventures and Tiger Global co-led BlockFi’s 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 postBlockFi said its Chapter 11 cases will allow the company to stabilize its business and maximize value for all stakeholders.

“Acting in the best interest of our clients is our top priority and continues to guide our path forward,” BlockFi said.

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

BlockFi had before withdrawals on pause from your platform.

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

“BlockFi customers can ultimately recoup a substantial portion of their investments,” Renzi said in the filing.

ORIGINS

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

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

BlockFi in the same cube/phrase as Voyager and Celsius.”

“Two months ago we looked ‘the same’. They went out of business and have imminent losses for their customers,” she said.

According to a BlockFi profile published earlier this year by incRaised in San Antonio, Texas, Prince financed his college education at the University of Oklahoma and Texas State University with winnings from online poker tournaments. Before starting BlockFi with Márquez, he worked at Orchard Platform, a stockbroker, and at Zibby, a rent-to-own lender now called Katapult. (KPLT.O).

Márquez previously worked at Bond Street, a small business lending team that joined 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 Davies, Conor Humphries, Matthew Lewis, Anna Driver, and Richard Chang

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