(Reuters) – Cryptocurrency lender BlockFi said Monday it has filed for Chapter 11 bankruptcy protection, the industry’s latest 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 this month after traders withdrew $6 billion from the platform in three days and rival exchange Binance abandoned a bailout deal.
said Marc Renzi, managing director at Berkeley Research Group, the proposed financial advisor to Berkeley Research Group, the proposed financial advisor to BlockFi. “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.
BlockFi also on Monday sued a holding company for Bankman-Fried, seeking to reclaim shares of Robinhood Markets Inc. (HOOD.O) She pledged it as collateral three weeks ago, before BlockFi and FTX filed for bankruptcy protection.
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. FTX did not respond to a request for comment.
credit list
BlockFi’s largest creditor is the Ankura Trust, which represents creditors in distress and owes $729 million. Valar Ventures, the venture capital fund associated with Peter Thiel, owns 19% of the shares in BlockFi.
[1/2] Statues with smartphones and computers are seen in front of the BlockFi logo in this illustration, November 28, 2022. REUTERS/Dado Ruvic/Illustration
BlockFi also listed the US Securities and Exchange Commission as one of its largest creditors, with a claim of $30 million. In February, the BlockFi subsidiary 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, BlockFi said in a press release issued at the time. The 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 plans for how it will handle withdrawal requests from its other products, including interest-bearing accounts.
“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, 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.
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 in 2017, according to Inc.
Additional reporting by Hannah Lang in Washington, Nikitt Nishant and Manya Saini in Bengaluru, and Elizabeth Howcroft in London.
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