Cryptocurrency lender BlockFi said Monday it has filed for Chapter 11 bankruptcy protection, the latest casualty in the industry 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. price bitcointhe most popular digital currency to date, is down more than 70 percent from its 2021 peak.
“BlockFi’s Mansour Hussain, senior director at Fitch Ratings, said the Chapter 11 restructuring underscores the significant asset contagion risks associated with the cryptocurrency ecosystem.
New Jersey-based BlockFi, which was founded by Zach Prince, a fintech executive turned crypto entrepreneur, said in a bankruptcy filing that its significant exposure to FTX Create a liquidity crisis. FTX, founded by Sam Bankman-Fried, filed for protection in the US this month after traders withdrew $6 billion (roughly Rs. 49,020) from the platform in three days and a rival exchange. binance Abandon bailout.
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 its assets and liabilities as being between $1 billion (roughly Rs. 8,170 crores) and $10 billion (roughly Rs. 81,700 crores).
BlockFi also sued a holding company on Monday for the benefit Bankman Friedin an attempt to recover shares in Robinhood Markets Inc that it pledged to offer 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 (approximately in cash) and BlockFi now has $256.5 million (approximately Rs. 2,100 crores) 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 acquire a $400 million (Rs. 3,270 crore) revolving credit facility while FTX got an option to buy it for $240 million (roughly Rs. 1,960 crores).
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.
List of creditors
BlockFi’s largest creditor is Ankura Trust, which represents creditors in distress and owes $729 million (roughly Rs. 5,600 crores). Valar Ventures, the venture capital fund associated with Peter Thiel, owns 19 percent of BlockFi stock.
BlockFi also listed the US Securities and Exchange Commission as one of its largest creditors, with a claim of $30 million (roughly Rs. 245 crores). In February, a subsidiary of BlockFi agreed to pay $100 million (about Rs. 820 crore) to the Securities and Exchange Commission 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 post, BlockFi 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.
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 tweeted, “It’s time to stop putting BlockFi in the same bucket/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 posted by Inc earlier this year, Prince 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.
Marquis previously worked at Bond Street, a small business lending firm that was merged into Goldman Sachs in 2017, according to Inc.
© Thomson Reuters 2022