November 28 (Reuters) – Cryptocurrency lender BlockFi files for Chapter 11 bankruptcy protection spectacular collapse FTX exchange earlier this month.
The filing in a New Jersey court came as crypto prices fell. The price of bitcoin, by far the most popular digital currency, has dropped more than 70% from its 2021 peak.
“BlockFi’s Chapter 11 restructuring underlines the significant asset contagion risks associated with the crypto ecosystem,” said Monsur Hussain, senior director at Fitch Ratings.
New Jersey-based BlockFi, which was founded by crypto entrepreneur Zac Prince when he was a fintech executive, said its significant exposure to FTX in a bankruptcy filing created a liquidity crisis. FTX, founded by Sam Bankman-Fried, filed for protection in the US this month after traders withdrew $6 billion from the platform within three days and rival exchange Binance abandoned a bailout.
“While debtor exposure to FTX is a major reason for this bankruptcy filing, debtors don’t face the myriad of issues that FTX does,” BlockFi said. “The exact opposite.”
BlockFi said the liquidity crisis was caused by exposure to FTX through loans to Alameda, a crypto trading company affiliated with FTX, and cryptocurrencies being held and trapped on FTX’s platform. BlockFi has ranked its assets and liabilities between $1 billion and $10 billion.
BlockFi also on Monday Sued a holding company for Bankman-FriedWants to buy back its shares in Robinhood Markets Inc. (HOOD.O) It pledged as collateral three weeks ago, before BlockFi and FTX filed for bankruptcy protection.
Renzi said that he sold some of his crypto assets in early November to fund BlockFi’s bankruptcy. Those sales raised $238.6 million in cash, and BlockFi currently has $256.5 million in cash.
In a court filing Monday, BlockFi listed FTX as its second-largest creditor, with $275 million owed on an extended loan earlier this year. He said he owed 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 Signed deal with FTX in July BlockFi has acquired a revolving credit facility for $400 million, while FTX has the option to purchase it for up to $240 million.
BlockFi’s filing for bankruptcy comes after two of BlockFi’s biggest competitors, Celsius Network and Voyager Digital, filed for bankruptcy in July, citing extreme market conditions that led to losses at both companies.
Crypto lenders, the de facto banks of the crypto world, have exploded during the pandemic, attracting individual customers with double-digit rates in exchange for cryptocurrency deposits.
Crypto lenders do not need to maintain buffers of capital or liquidity like traditional lenders, and some have found themselves exposed to a lack of collateral that has forced them – and their clients – to cover huge losses.
BlockFi’s first bankruptcy hearing is scheduled for Tuesday. FTX did not respond to a request for comment.
LETTER OF CREDIT
BlockFi’s largest creditor is Ankura Trust, which represents creditors in stressful situations and owes $729 million. Valar Ventures, a Peter Thiel-affiliated venture capital fund, owns 19% of BlockFi’s shares.
[1/2] This illustration, dated November 28, 2022, shows figures with a smartphone and computer in front of the BlockFi logo. REUTERS/Dado Ruvic/Illustration
BlockFi also listed the U.S. 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 cover costs associated with the retail crypto loan product the company offers to nearly 600,000 investors.
In a press release issued at the time, BlockFi said that Bain Capital Ventures and Tiger Global are co-directing BlockFi’s March 2021 funding round. Neither firm immediately responded to a request for comment.
In a blog postBlockFi says Chapter 11 cases will enable 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 forward,” BlockFi said. said.
In its bankruptcy filing, BlockFi said it hired Kirkland & Ellis and Haynes & Boone as bankruptcy counsel.
BlockFi existed before paused withdrawals from the platform.
In a filing, Renzi said that Blockfi plans to seek authorization to handle customer withdrawal requests from customer wallet accounts in which crypto assets are held. However, the company has not disclosed its plans for how it will handle requests for withdrawals from its other products, including interest-bearing accounts.
“BlockFi customers can eventually get back a significant portion of their investment,” Renzi said in the filing.
ORIGINS
BlockFi was founded in 2017 by Prince and Flori Marquez, who are now the CEO of the company. 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 it off.
It’s in the same group/phrase as BlockFi, Voyager, and Celsius.”
“We looked ‘the same’ two months ago. They are closing down and there are imminent losses for their customers,” he said.
According to a profile from BlockFi published earlier this year by Inc.Prince grew up in San Antonio, Texas and financed his college education at the University of Oklahoma and Texas State University with earnings from online poker tournaments. Before starting BlockFi with Marquez, she worked at Orchard Platform, a broker-dealer, and Zibby, a rental company now called Katapult. (KPLT.O).
According to Inc., Marquez previously worked for Bond Street, a small business lender that joined Goldman Sachs in 2017.
Reported by Hannah Lang from Washington, Niket Nishant and Manya Saini from Bengaluru, and Elizabeth Howcroft from London.
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