- It is presented a few weeks after the collapse of FTX
- FTX is listed as BlockFi’s #2 lender
- Bitcoin is down more than 70% from its 2021 peak
Nov 28 (Reuters) – Cryptocurrency lender BlockFi filed for Chapter 11 bankruptcy protection in what it said was the latest crypto loss since the firm was hit by the FTX stock market crash earlier this month.
The New Jersey court filing comes amid a sharp drop in cryptocurrency prices. By far the most popular digital currency, the price of bitcoin is down more than 70% from its 2021 peak.
“BlockFi’s Chapter 11 restructuring highlights the significant asset contagion risks associated with the cryptocurrency ecosystem,” said Monsur Hussain, CEO of Fitch Ratings.
New Jersey-based BlockFi, founded by fintech executive-turned-crypto entrepreneur Zac Prince, said in its bankruptcy filing that its significant exposure to FTX created a liquidity crunch. FTX, founded by Sam Bankman-Fried, filed for protection in the US in early November after traders withdrew $6 billion from the platform in three days and rival exchange Binance backed out of a bailout deal.
“While the debtors’ exposure to FTX is the main reason for this bankruptcy filing, the debtors do not face the myriad of problems faced by FTX,” said Mark Renzi, managing director of Berkeley Research Group, on the first day of the bankruptcy filing. Advisor for BlockFi. “Quite the opposite.”
BlockFi said the liquidity crunch was due to its exposure to FTX through its loans to FTX-affiliated cryptocurrency trading firm Alameda and cryptocurrencies held on the FTX platform. BlockFi listed assets and liabilities between $1 billion and $10 billion.
Renzi said he sold some of his crypto assets in early November to finance BlockFi’s bankruptcy. Those sales raised $238.6 million in cash, and BlockFi currently has $256.5 million in cash.
In Monday’s filing, BlockFi listed FTX as the second-largest creditor, owing $275 million in a loan extended earlier this year. He said that he owes more than 100,000 creditors. The company said in a separate filing that it plans to lay off two-thirds of its 292 employees.
According to the agreement signed with FTX in July, BlockFi will receive a $400 million revolving credit facility, while FTX had the option to purchase it up to $240 million.
BlockFi’s bankruptcy filing also follows two of BlockFi’s biggest rivals, Celsius Network and Voyager Digital, filing for bankruptcy in July, citing extreme market conditions that resulted in losses at both companies.
Crypto lenders, the de facto banks of the cryptocurrency world, have boomed during the pandemic, attracting retail customers at double-digit rates in exchange for cryptocurrency deposits.
Crypto lenders are not required to hold the same capital or liquidity buffers as traditional lenders, and some have exposed themselves when a lack of collateral forced them and their customers to take huge 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, a company that represents creditors in distressed situations and has $729 million in debt. Valar Ventures, a venture capital fund associated with Peter Thiel, owns 19% of BlockFi shares.
BlockFi also listed the US Securities and Exchange Commission as one of its biggest creditors with a $30 million lawsuit. In February, a subsidiary of BlockFi agreed to pay $100 million to the SEC and 32 states to settle charges related to a retail cryptocurrency loan product the company offered to about 600,000 investors.
Bain Capital Ventures and Tiger Global led BlockFi’s March 2021 funding round, according to a press release issued by BlockFi at the time. Neither firm immediately responded to a request for comment.
In a blog post, BlockFi said the Chapter 11 cases will allow the company to stabilize its business and increase value for all stakeholders.
“Acting in the best interests of our customers is our top priority and continues to guide our path forward,” BlockFi said.
BlockFi said in its bankruptcy filing that it has hired Kirkland & Ellis and Haynes & Boone as bankruptcy counsel.
BlockFi previously suspended withdrawals from its platform.
In a filing, Renzi said Blockfi intends to seek authority to honor customer withdrawal requests from customer wallet accounts where crypto assets are held. However, the company has not disclosed its plans for how it will handle withdrawal requests from its other products, including interest-bearing accounts.
“BlockFi customers can ultimately recover a significant portion of their investment,” Renzi said in the filing.
BlockFi was founded in 2017 by Prince and Flori Marquez, who is now the company’s CEO. Although headquartered in Jersey City, BlockFi also has offices in New York, Singapore, Poland and Argentina, according to its website.
In July, Prince tweeted, “It’s time to stop putting
In the same bucket/sentence as BlockFi Voyager and Celsius.”
“Two months ago, we looked ‘the same.’ They are closed and there are expected losses for their customers,” he said.
According to a profile of BlockFi published by Inc. earlier this year, Prince grew up in San Antonio, Texas, and financed his college education at the University of Oklahoma and Texas State University with winnings from online poker tournaments. Before starting BlockFi with Marquez, he worked at Orchard Platform, a broker-dealer, and now at Zibby, a leased lender called Katapult ( KPLT.O ).
Marquez previously worked on Bond Street, joining Goldman Sachs ( GS.N ) Inc in 2017 for small business lending.
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
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