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BlockFi Declares Bankruptcy As FTX Tremors Through Crypto Industry

by William R Simmons
29 November 2022
BlockFi Declares Bankruptcy As FTX Tremors Through Crypto Industry

BlockFi Inc., a Crypto lender, filed for bankruptcy, becoming the most recent digital asset company to fail during the rapid collapse of the FTX exchange and stoking concerns that there will be more business failures in the future.

BlockFi filed for bankruptcy on Monday, and had stopped accepting withdrawals earlier this month due to significant exposure to the exchange run by Bankman- FTX fried and its affiliated hedge fund Alameda. FTX, Alameda, and other affiliates filed for bankruptcy on November 11.

With this, BlockFi has become the most recent firm in the cryptocurrency sector to suffer a setback as a result of the collapse of the unstable exchange FTX.

BlockFi had already been in trouble since the spring when several significant cryptocurrency companies went under, sending the market into chaos and causing the value of cryptocurrencies like Bitcoin to drop by 20% in a single week. Shortly after this, two more cryptocurrency lenders, Celsius Network and Voyager Digital, also declared bankruptcy.

BlockFi Inc.

It claimed to owe more than 100,000 creditors money. BlockFi was to receive a $400 million revolving credit facility as part of a contract with FTX in July, and FTX was given the option to purchase it for up to $ 240 million.

In a statement released on Monday, BlockFi stated that it would use the chapter 11 procedure to “focus on recovering all obligations owed to BlockFi by its counterparties, including FTX and associated corporate entities.” a business that files for chapter 11 bankruptcy is still able to run while formulating a repayment strategy for its creditors.

BlockFi’s assets and liabilities are listed as ranging from $1 billion to $10 billion each in the petition filed in New Jersey.

According to a statement from the company, it has about $257 million in cash on hand and is beginning an “internal plan to considerably reduce expenses, including labor costs.”

Ankura Trust, a corporation that represents creditors in difficult situations, is BlockFi’s largest creditor and is due $729 million. 19% of BlockFi shares are owned by Valar Ventures, a venture capital firm affiliated with Peter Theil.

Another one of BlockFi’s largest creditors was the US Securities and Exchange Commission with a $30 million claim.

To resolve allegations regarding a retail cryptocurrency lending product the company provided to almost 60,000 investors, a BlockFi subsidiary agreed to pay the SEC and 32 states $100 million in February.

According to Eric Snyder, partner and head of the bankruptcy section at law firm Wilk Auslander, BlockFi’s bankruptcy is similar to FTX’s. Many of the important creditors’ names were withheld in both files, which is unusual for bankruptcy filings. Snyder added that it will take some time to figure out how much money is owed to creditors in total in each case.

BlockFi stated in its bankruptcy filing that it had retained Berkeley Research Group as a financial advisor, along with Kirkland and Ellis and Haynes & Boone as bankruptcy counsel.

Also Read:- Mbah Entices Investors To Enugu’s $30 Billion Economy

Zac Prince and Flori Marquez established BlockFi in 2017. In the beginning, influential Wall Street investors like Mike Novogratz and eventually Valar Ventures, a venture capital firm sponsored by Peter Theil as well as Winklevoss Capital, among others, supported the company.

According to BlockFi’s website, the business expanded during the pandemic years and had locations in New York, New Jersey, Singapore, Poland, and Argentina.

In a March 2021 interview with Bloomberg, the co-founder Prince stated that BlockFi was utilizing the profits from a $360 million investment round to enter new markets and finance new projects. Among the investors in that round were Bain Capital Ventures and Tiger Global.

However, as a result of the agreement, BlockFi became financially dependent on FTX, making its future increasingly uncertain as reports this month appeared about FTX’s questionable management and several corporate blunders. As it turned out, the dialogue broke down a short time after the revelations.

Before declaring bankruptcy, BlockFi sold nearly $239 million of its cryptocurrency and informed almost 250 employees that they were at risk, according to the court filings.

Read More:- Bizarre $600K Elon Musk’s Crypto Statue Flops!

William R Simmons

William R Simmons

William R Simmons is a staff writer at LifeStyle UG specializing in topics related to finance and the business field. He has been a part of vibrant newsrooms and has also worked as a reporter for various reputed news channels. Simmons’ expertise cuts across topics like finance, management, and strategy.

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