Crypto lender BlockFi files for bankruptcy, cites FTX exposure

  • Filing follows weeks after FTX collapse
  • FTX listed as BlockFi’s #2 creditor
  • Bitcoin down over 70% from 2021 peak

Nov 28 (Reuters) – Cryptocurrency lender BlockFi has filed for Chapter 11 bankruptcy, it said on Monday, the latest crypto casualty after the firm was hurt by exposure to the dramatic collapse of the FTX exchange earlier this month.

The New Jersey court filing comes as crypto prices have fallen. The price of bitcoin, by far the most popular digital currency, is down more than 70% from the 2021 peak.

“BlockFi’s Chapter 11 restructuring underscores the 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 crypto entrepreneur Zac Prince, said in a bankruptcy filing that its substantial exposure to FTX created a liquidity crunch. FTX, founded by Sam Bankman-Fried, filed for protection in the United States earlier in November after traders withdrew $6 billion from the platform in three days and rival exchange Binance quit a bailout deal.

“While debtors’ exposure to FTX is a major cause of this bankruptcy filing, debtors are not facing the myriad of issues that FTX apparently faces,” Mark Renzi said on day one of the bankruptcy filing. , managing director of Berkeley Research Group, the financial project advisor for BlockFi. “Rather the opposite.”

BlockFi said the liquidity crunch was due to its exposure to FTX through loans to Alameda, an FTX-affiliated crypto trading firm, as well as cryptocurrencies held on FTX’s platform thereon. are found trapped. BlockFi has listed its assets and liabilities between $1 billion and $10 billion.

Renzi said BlockFi sold some 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.

In a court filing on Monday, BlockFi ranked FTX as its second largest creditor, with $275 million owed on a loan made earlier this year. He said he 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 up to $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, citing extreme market conditions that had resulted in losses for both companies.

Crypto lenders, the de facto banks of the crypto world, have exploded during the pandemic, enticing retail customers with double-digit rates in exchange for their cryptocurrency deposits.

Crypto lenders aren’t required to hold capital or liquidity reserves like traditional lenders and some have found themselves exposed when a shortage of collateral has forced them – and their clients – to bear significant losses.

BlockFi’s first bankruptcy hearing set for Tuesday FTX did not respond to a request for comment.

LIST OF CREDITORS

BlockFi’s largest creditor is Ankura Trust, a company that represents creditors in crisis, which owes $729 million. Valar Ventures, a venture capital fund linked to Peter Thiel, owns 19% of BlockFi shares.

BlockFi also listed the United States Securities and Exchange Commission as one of its top creditors, with a $30 million claim. In February, a subsidiary of BlockFi agreed to pay $100 million to the SEC and 32 states to settle fees related to a retail crypto lending product the company offered to nearly 600,000 investors.

Bain Capital Ventures and Tiger Global co-led BlockFi’s funding round in March 2021, according to a press release issued by BlockFi at the time. The two companies did not immediately respond to a request for comment.

In a blog postBlockFi said its Chapter 11 cases will allow the company to stabilize its business and maximize value for all stakeholders.

“Acting in the best interests of our customers is our top priority and continues to guide our path,” BlockFi said.

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

BlockFi previously suspended withdrawals from its platform.

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

“BlockFi customers could ultimately recoup a substantial portion of their investments,” Renzi said in the filing.

ORIGINS

BlockFi was founded in 2017 by Prince, who is currently the company’s CEO, and Flori Marquez. Although based in Jersey City, BlockFi also has offices in New York, Singapore, Poland and Argentina, according to its website.

In July, Prince tweeted that “it’s time to stop putting

BlockFi in the same bucket/phrase as Voyager and Celsius.”

“Two months ago we looked the same.” They have closed and have impending losses for their customers,” he said.

According to a BlockFi profile published earlier this year by Inc.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. Before launching BlockFi with Marquez, he held jobs at Orchard Platform, a brokerage, and Zibby, a hire-purchase lender now called Katapult. (KPLT.O).

Marquez previously worked at Bond Street, a small business lending company that was 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 Additional reporting by Dietrich Knauth, editing by Megan Davies, Conor Humphries, Matthew Lewis and Anna Driver

Our standards: The Thomson Reuters Trust Principles.

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