Crypto lender BlockFi files for bankruptcy, cites FTX exposure

  • FTX Files Weeks After Crash
  • FTX Listed as BlockFi’s Second Largest Creditor
  • Bitcoin down over 70% from 2021 peak

Nov 28 (Reuters) – Cryptocurrency lender BlockFi said on Monday it has filed for Chapter 11 bankruptcy protection, the latest cryptocurrency casualty after the firm was hurt by a plunge on the FTX exchange earlier this month.

Cryptocurrency prices plummeted amid New Jersey court filings. The price of bitcoin, by far the most popular digital currency, is down more than 70% from its 2021 peak.

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

New Jersey-based BlockFi, founded by fintech executive turned cryptocurrency entrepreneur Zac Prince, said in a bankruptcy filing that its large exposure to FTX created a liquidity crisis. FTX, founded by Sam Bankman-Fried, filed for protection in the U.S. in early November after traders pulled $6 billion from the platform in three days, while rival exchange Binance dropped a bailout deal.

“While the debtor’s exposure to FTX was a major reason for filing for bankruptcy, the debtor did not face the myriad of problems FTX clearly faced,” said Mark Renzie, managing director of Berkeley Research Group, on the first day of filing the proposed bankruptcy filing. Financial Advisor of BlockFi. “On the contrary.”

BlockFi said the liquidity crisis was due to its exposure to FTX through lending to FTX-affiliated cryptocurrency trading firm Alameda, and the cryptocurrencies held on the FTX platform being trapped there. BlockFi lists its assets and liabilities at between $1 billion and $10 billion.

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

In a court filing Monday, BlockFi named FTX as its second-largest creditor, owing $275 million 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 the agreement signed with FTX in July, BlockFi will receive a $400 million revolving credit facility, while FTX has the option to purchase it for up to $240 million.

BlockFi’s bankruptcy filing also comes after two of BlockFi’s biggest rivals, Celsius Network and Voyager Digital, filed for bankruptcy in July, citing losses to both companies due to extreme market conditions.

The crypto lender, the de facto bank of the crypto world, has thrived during the pandemic, luring retail clients with double-digit interest rates in exchange for their crypto deposits.

Crypto lenders don’t need to hold capital or liquidity buffers like traditional lenders, and when collateral shortages force them — and their clients — to incur large losses, some find themselves exposed.

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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, a firm that represents creditors in stressful situations, owed $729 million. Valar Ventures, a venture capital fund associated with Peter Thiel, owns 19 percent of BlockFi.

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

Bain Capital Ventures and Tiger Global co-led BlockFi’s March 2021 funding round, according to a press release issued by BlockFi at the time. Neither company immediately responded to a request for comment.

In a blog post, BlockFi said its Chapter 11 case will allow the company to stabilize its business and maximize value for all stakeholders.

“Acting in the best interests of our clients is our top priority and will continue to guide us on the way forward,” BlockFi said.

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

BlockFi earlier suspended withdrawals from its platform.

In a filing, Renzi said Blockfi intends to seek authorization to honor customer requests for withdrawals from its customer wallet accounts, where crypto assets are held in custody. However, the company did not disclose how it plans to handle withdrawal requests for other products, including interest-bearing accounts.

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“BlockFi clients may eventually recoup most of their investments,” Renzi said in the filing.

origin

BlockFi was founded in 2017 by current company CEOs Prince and Flori Marquez. According to its website, BlockFi, while headquartered in Jersey City, also has offices in New York, Singapore, Poland and Argentina.

In July, Prince tweeted: “Time to stop

BlockFi is in the same bucket/sentence as Voyager and Celsius. “

“We looked ‘the same’ two months ago. They’re out of business and the loss of customers is imminent,” he said.

According to a BlockFi profile published by Inc earlier this year, Prince grew up in San Antonio, Texas, and used winnings from online poker tournaments to fund his college education at the University of Oklahoma and Texas State University. Before launching BlockFi with Marquez, he worked at brokerage Orchard Platform and Zibby, a lease-to-own lender now known as Katapult (KPLT.O).

Marquez previously worked at Bond Street, a small business lender that folded into Goldman Sachs (GS.N) in 2017, according to Inc.

Reporting by Hannah Lang in Washington, Niket Nishant and Manya Saini in Bengaluru and Elizabeth Howcroft in London

Our Standards: The Thomson Reuters Trust Principles.

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