- 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 exchange’s dramatic collapse FTX earlier this month.
The New Jersey court filing comes as crypto prices plummet. The price of bitcoin, the largest digital currency by far, is down more than 70% from a 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 Zac Prince, said in a bankruptcy filing that its substantial exposure to FTX created a liquidity crunch. FTX 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 dropped a bailout deal.
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. On the other hand, institutional investors such as hedge funds looking to make leveraged bets paid higher rates to borrow the funds from lenders, who profited from the difference.
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.
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.
In a blog post, BlockFi 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.
BlockFi previously suspended withdrawals from its platform and acknowledged that it had “significant exposure” to FTX and its associated entities, including “obligations owed to us by Alameda, assets held on FTX.com and amounts not drawn on our line of credit with FTX.US.”
In its bankruptcy filing, BlockFi said it hired Kirkland & Ellis and Haynes & Boone as bankruptcy counsel 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.
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 poker tournaments. on line. Before starting BlockFi with Marquez, he held jobs at Orchard Platform, a brokerage, and at Zibby, a hire-purchase lender now called Katapult (KPLT.O).
Marquez previously worked at Bond Street, a small business lending firm that was folded into Goldman Sachs 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 and Matthew Lewis
Our standards: The Thomson Reuters Trust Principles.
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