Cryptocurrency lender BlockFi filed for bankruptcy protection on Monday, after the company suffered losses as a result of exposure to the stunning collapse of the FTX exchange earlier this month, marking the latest industry fatality.
The filing was made in a New Jersey court after crypto prices plunged. The price of bitcoin, the most famous digital currency so far, is down more than 70% from a 2021 peak.
The US credit rating agency Fitch Ratings’ senior director Monsur Hussain said, “BlockFi’s Chapter 11 restructuring underscores significant asset contagion risks associated with the crypto ecosystem.”
Zac Prince, a former fintech executive who turned crypto entrepreneur founded BlockFi in New Jersey. He mentioned in a bankruptcy filing that its major exposure to FTX created a liquidity crisis. FTX, a cryptocurrency exchange started by Sam Bankman-Fried, last month after rival exchange Binance abandoned a rescue arrangement and traders withdrew $6 billion from the site in three days and filed for protection in the US.
“Although the debtors’ exposure to FTX is a major cause of this bankruptcy filing, the debtors do not face the myriad issues apparently facing FTX,” Mark Renzi, managing director at Berkeley Research Group, the prospective financial adviser for BlockFi, stated this in his bankruptcy filing. “Quite the opposite.”
According to BlockFi, the liquidity crisis was brought on by both cryptocurrencies trapped on FTX’s platform and its exposure to FTX through loans to Alameda, a crypto trading company connected to FTX. According to BlockFi, its assets and liabilities ranging from $1 billion to $10 billion.
In an effort to recover shares of Robinhood Markets Inc. that were pledged as collateral three weeks ago, before BlockFi and FTX filed for bankruptcy protection, BlockFi on Monday also sued a holding company for Bankman-Fried.
Renzi said BlockFi had sold a portion of its crypto assets earlier in November to fund its bankruptcy. Those sales raised $238.6 million in cash, and BlockFi now has $256.5 million in cash on hand.
Renzi said that earlier in November, BlockFi had liquidated a portion of its cryptocurrency holdings to pay for its bankruptcy. BlockFi now has $256.5 million in cash on hand thanks to the $238.6 million in cash earned from those sales.
BlockFi cited FTX as its second-largest creditor in a court statement on Monday, with $275 million owing on a loan made earlier this year. It claimed to owe more than 100,000 debtors money. Additionally, the business revealed in a separate filing that it intends to fire two-thirds of its 292 staff members.
BlockFi was to receive a $400 million revolving credit facility as part of a contract signed with FTX in July, and FTX was given the option to purchase it for up to $240 million.
