Cryptocurrency lender BlockFi said it has filed for Chapter 11 bankruptcy protection, in the latest crypto casualty after the spectacular crash of the FTX exchange earlier this month.
The filing in the New Jersey court comes as cryptocurrency prices plummet. Bitcoin, the largest cryptocurrency to date, is down more than 70% from its 2021 peak.
“BlockFi’s Chapter 11 restructuring underscores the significant asset contagion risks associated with the cryptocurrency ecosystem,” said Mansoor Hussain, Senior Director at Fitch Ratings.
New Jersey-based BlockFi, which was founded by Zac Prince, said in a bankruptcy filing that its large exposure to FTX created a liquidity crunch. FTX filed for protection in the US earlier in November after traders withdrew $6 billion from the exchange in three days and rival exchange Binance abandoned the bailout deal.
In Monday’s lawsuit, BlockFi listed FTX as its second-largest creditor, with $275 million owed on a loan extended earlier this year. It said it 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 $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 due to harsh market conditions that led to losses for both companies.
Cryptocurrency lenders, the de facto banks of the crypto world, have thrived during the pandemic, attracting retail customers with double-digit rates for their cryptocurrency deposits. On the flip side, institutional investors, such as hedge funds looking for leveraged bets, paid higher rates to borrow money from lenders, who cashed in on the difference.
Cryptocurrency lenders are not required to hold capital or liquidity in reserve like traditional lenders and some found themselves exposed when a lack of collateral forced them – and their clients – to take large losses.
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BlockFi’s largest creditor is the Ankura Trust, a firm that represents creditors in distress, with $729 million in debt. Valar Ventures, the venture capital fund associated with Peter Thiel, owns 19% of the shares in BlockFi.
BlockFi also listed the US Securities and Exchange Commission as one of its largest creditors, with a claim of $30 million. In February, a subsidiary of BlockFi agreed to pay $100 million to the SEC and 32 states to settle charges related to a cryptocurrency retail lending product that the company offered to nearly 600,000 investors.
in a blog postBlockFi said the Chapter 11 cases will enable the company to stabilize its business and maximize value for all stakeholders.
“Working in the interest of our customers is our top priority and we will continue to steer our path forward,” said BlockFi.
BlockFi had previously halted withdrawals from its platform and acknowledged that it had “significant exposure” to FTX and its related entities, including “liabilities owed to us by Alameda, assets held at FTX.com, and unwithdrawn amounts from a private credit line.” Us with FTX.US.”
In its bankruptcy filing, BlockFi said it hired Kirkland & Ellis, Haynes & Boone as bankruptcy advisor and Berkeley Research Group as financial advisor.
At the end of June, a third of BlockFi’s $1.8 billion in outstanding loans were unsecured, according to the company.
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BlockFi was founded in 2017 by Prince, who is currently the CEO of the company, and Flori Marquez. Although it is headquartered in Jersey City, BlockFi has offices in New York, Singapore, Poland and Argentina, according to its website.
In July, Prince wrote on Twitter, “It’s time to stop posting
BlockFi is in the same group/sentence as Voyager and Celsius.”
“Two months ago, we looked ‘the same thing.’ They closed their doors and their customers suffered imminent losses.”
According to a BlockFi profile published earlier this year from IncPrince 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. Prior to starting BlockFi with Marquez, he held jobs at Orchard Platform, a brokerage broker, and at Zibby, a lease-to-own lender now called Katapult. (KPLT.O).
Marquis previously worked at Bond Street, a small business lending firm that was merged into Goldman Sachs in 2017, according to Inc.
Additional reporting by Hannah Lang in Washington, Nikitt Nishant and Manya Saini in Bengaluru, and Elizabeth Howcroft in London.
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