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As crypto fallout spreads, BlockFi files for bankruptcy

According to the petition, BlockFi's assets and liabilities are between $1 billion and $10 billion each. According to the statement, the company had $257 million in cash on hand and was implementing an “internal plan to reduce expenses, including labor costs.”

November 28, 2022
5 Minutes
minute read

Cryptocurrency lender BlockFi Inc. filed for bankruptcy Monday, becoming the latest major digital-assets company to fail since FTX.

In the wake of the summer's crypto-price crash and this month's failure of FTX, a giant exchange with ties to the largely unregulated industry, BlockFi's chapter 11 filing continues the trend of crypto platforms going bankrupt.

The Jersey City-based company BlockFi is only just beginning to answer how its hundreds of thousands of customers will fare. Its top 10 creditors alone owe close to $1.2 billion, according to filings with the bankruptcy court in Trenton, N.J.The total amount of liabilities is likely to be much higher.

The company, founded by Zac Prince and Flori Marquez in 2017, lends money to customers using cryptocurrency assets as collateral. Thiel Capital spinout Valar Ventures backs the company. According to TradeAlgo private equity data, BlockFi's equity investors include Bain Capital, Tiger Global Management, and the Winklevoss twins' fund.

As a result of disclosing it had "significant exposure" to FTX, BlockFi halted withdrawals and limited activity on its platform earlier this month. Earlier this month, TradeAlgo reported that BlockFi was planning to file for bankruptcy due to its troubled relationship with the exchange.

The largest crypto company to file for bankruptcy to date, FTX, said in court papers that its 50 largest creditors are owed more than $3 billion, and its new managers are still assessing its total obligations. At the time of its bankruptcy filing in July, Celsius Network LLC listed $5.5 billion in total liabilities, including more than $4.7 billion owed to its users.

According to BlockFi, it intends to use chapter 11 to recover all obligations owed by its counterparties, including FTX.

“Due to the recent collapse of FTX and its ensuing bankruptcy process, which remains ongoing, the company expects that recoveries from FTX will be delayed,” BlockFi said.

With nearly $257 million in cash on hand, BlockFi plans to reduce its expenses, including labor costs, during the restructuring process.

As of 2021, BlockFi had between $14 billion and $20 billion in customer deposits, and had lent out $7.5 billion, though these deposits are likely worth much less due to the decline in cryptocurrency prices.

In addition to a credit line from FTX U.S., the firm was exposed to FTX's sister company Alameda Research LLC, as well as an option for FTX to buy BlockFi. According to BlockFi's chapter 11 petition, two hundred and seventy-five million dollars are owed to FTX.

In recent months, BlockFi was also one of the struggling crypto companies rescued by FTX. FTX's financial problems and federal and state investigations into its business haven't gone according to plan.

In addition to FTX.com assets, BlockFi made loans to crypto trading firm Alameda partly secured by FTX's FTT tokens.

According to the firm’s court filings, BlockFi owes the Securities and Exchange Commission $30 million for unpaid debts. The SEC fined BlockFi in February for failing to register its crypto lending offerings and sales.

Additionally to the chapter 11 filing, BlockFi filed a petition with the Supreme Court of Bermuda for its Bermuda-incorporated international arm. Nevertheless, BlockFi anticipates addressing its clients' claims through chapter 11.

Bryan Curtis
Eric Ng
John Liu
Editorial Board
Bryan Curtis
Adan Harris
Managing Editor
Cathy Hills
Associate Editor

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