The next victim of the demise of the FTX exchange is cryptocurrency lender BlockFi, which on Monday filed for Chapter 11 bankruptcy protection.
Based in New Jersey BlockFi was offered a lifeline this summer in the shape of an FTX line of credit after suffering for most of this year. But FTX’s own insolvency all but sealed BlockFi’s financial doom. Following FTX’s demise, BlockFi stopped allowing withdrawals and recently recruited bankruptcy experts.
One of the many new cryptocurrency lenders that have emerged in recent years is BlockFi. Customers’ crypto assets were used as collateral when the firm provided loans to them. Due to the sharp decline in the value of bitcoin, Ethereum, and other cryptocurrencies, BlockFi frequently had collateral that was worth less than the debts it was still owing.
Additionally, FTX’s line of credit from this summer turned out to be an albatross around the business’s neck. BlockFi claimed that after it ran into its own financial difficulties, FTX’s financial rescue package was no longer available to it and that any attempts to obtain extra cash in the days before to the bankruptcy were not recognized.
Several cryptocurrency lenders have emerged in recent years, including BlockFi. Customers’ crypto assets are used as collateral for loans provided by the firm. The dramatic decline in the value of bitcoin, Ethereum, and other cryptocurrencies caused BlockFi’s collateral to frequently be worth less than the existing loans it had taken out.
Furthermore, the company’s line of credit from FTX this summer turned out to be an albatross around its neck. BlockFi claimed that any attempts to obtain further cash in the days before the bankruptcy was not respected and that FTX’s financial rescue package was no longer accessible after it encountered its own financial difficulties.
For the company, “this exposure created a liquidity crisis,” according to its attorneys’ court brief.
BlockFi listed more than 100,000 creditors and liabilities between $1 billion and $10 billion in its bankruptcy case. It claimed that filing for bankruptcy will enable it to reorganize and stabilize the business. Its cash on hand, which totals $256.9 million, should be enough to cover certain activities during the restructuring, according to the company.
The Securities and Exchange Commission is one creditor among BlockFi’s creditors. BlockFi reached a settlement with the SEC in February regarding its cryptocurrency lending products and agreed to pay $100 million in fines and penalties. Of that, the U.S. government is still due about $30 million.