- The presentation follows weeks after the collapse of FTX
- FTX is listed as BlockFi’s #2 creditor
- Bitcoin is down more than 70% from its 2021 peak
Nov 28 (Reuters) – Cryptocurrency lender BlockFi has filed for Chapter 11 bankruptcy protection, it said on Monday, the latest industry casualty after the company was hit by exposure to spectacular collapse of the FTX exchange earlier this month.
The filing in a New Jersey court comes as crypto prices have plummeted. The price of bitcoin, by far the most popular digital currency, is down more than 70% from its 2021 high.
“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 fintech executive turned crypto entrepreneur Zac Prince, said in a bankruptcy filing that its substantial exposure to FTX created a liquidity crunch. FTX, founded by Sam Bankman-Fried, filed for protection in the United States this month after traders withdrew $6 billion from the platform in three days and rival exchange Binance abandoned a bailout deal.
“While the Debtors’ exposure to FTX is a major cause of this bankruptcy filing, the Debtors are not facing the myriad problems that FTX apparently faces,” the bankruptcy filing said by Mark Renzi, CEO of Berkeley Research Group, the proposed financial advisor to FTX. BlockFi. “Not even close”.
BlockFi said the liquidity crunch was due to its exposure to FTX through loans to Alameda, an FTX-affiliated crypto trading firm, as well as cryptocurrencies held on the FTX platform that were trapped there . BlockFi listed its assets and liabilities as between $1 billion and $10 billion.
BlockFi also sued a Bankman-Fried holding company on Monday, seeking to recover shares of Robinhood Markets Inc ( HOOD.O ) pledged as collateral three weeks ago, before BlockFi and FTX filed for bankruptcy protection.
Renzi said BlockFi had sold some of its crypto assets in early November to finance its bankruptcy. Those sales raised $238.6 million in cash, and BlockFi now has $256.5 million in cash on hand.
In a court filing Monday, BlockFi listed FTX as its second-largest creditor, with $275 million owed on a loan extended earlier this year. He said he owes 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 an agreement 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 caused losses for both companies.
Cryptocurrency lenders, the de facto banks of the crypto world, surged during the pandemic, luring retail customers with double-digit fees in exchange for their cryptocurrency deposits.
Crypto lenders are not required to maintain buffers of capital or liquidity like traditional lenders and some found themselves exposed when collateral shortages forced them – and their customers – to bear large losses.
BlockFi’s first bankruptcy hearing is scheduled for Tuesday. FTX did not respond to a request for comment.
LIST OF CREDITS
BlockFi’s largest creditor is Ankura Trust, which represents stressed creditors and is owed $729 million. Valar Ventures, a venture capital fund linked to Peter Thiel, owns 19% of BlockFi shares.
[1/2] Stick figures with smartphones and computers are seen in front of the BlockFi logo in this November 28, 2022 illustration. REUTERS/Dado Ruvic/Illustration
BlockFi also listed the US Securities and Exchange Commission as one of its largest creditors, with a claim of $30 million. In February, a BlockFi subsidiary agreed to pay $100 million to the SEC and 32 states to settle charges related to a retail crypto-lending product the company offered to nearly 600,000 investors.
Bain Capital Ventures and Tiger Global are co-leading BlockFi’s March 2021 funding round, BlockFi said in a press release issued at the time. Both companies did not immediately respond to a request for comment.
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 interest of our customers is our highest priority and continues to guide our path forward,” BlockFi said.
In its bankruptcy filing, BlockFi said it had hired Kirkland & Ellis and Haynes & Boone as bankruptcy counsel.
BlockFi had previously paused withdrawals from its platform.
In a filing, Renzi said that Blockfi intends to seek authority to handle customer withdrawal requests from its customers’ wallet accounts, in which crypto assets are held in custody. However, the company did not disclose plans for how it might handle withdrawal requests for its other products, including interest-bearing accounts.
“BlockFi customers can finally get back a substantial part of their investments,” Renzi said in the presentation.
ORIGIN
BlockFi was founded in 2017 by Prince, currently the company’s CEO, and Flori Márquez. Although headquartered in Jersey City, BlockFi also has offices in New York, Singapore, Poland and Argentina, according to its website.
In July, Prince had tweeted that “it’s time to stop posing
BlockFi in the same bucket/phrase as Voyager and Celsius.”
“Two months ago we looked the same. They close and have imminent losses for their customers,” he said.
According to a BlockFi profile published earlier this year by Inc, Prince was raised in San Antonio, Texas, and funded his college education at the University of Oklahoma and Texas State University with winnings from poker tournaments in line Before starting BlockFi with Marquez, he held jobs at Orchard Platform, a broker-dealer, and Zibby, a rental property lender now called Katapult ( KPLT.O ).
Marquez previously worked at Bond Street, a small business lending firm that joined Goldman Sachs in 2017, according to Inc.
Reporting by Hannah Lang in Washington, Niket Nishant and Manya Saini in Bangalore and Elizabeth Howcroft in London Additional reporting by Dietrich Knauth Editing by Megan Davies, Conor Humphries, Matthew Lewis, Anna Driver and Richard Chang
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