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Crypto lender BlockFi files for bankruptcy as FTX ring effect spreads




  • Submission follows weeks after the FTX collapse
  • FTX listed as BlockFi’s No. 2 creditor
  • Bitcoin down over 70% from 2021 peak

Nov 28 (Reuters) – Cryptocurrency lender BlockFi has filed for Chapter 11 bankruptcy protection, it said on Monday, the latest crypto casualty following the spectacular collapse of the FTX exchange earlier this month.

The case before a New Jersey court comes as crypto prices plunge. The price of bitcoin, by far the largest digital currency, is down more than 70% from a 2021 peak.

“BlockFi’s Chapter 11 restructuring underscores significant contagion risk 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 significant exposure to FTX created a liquidity crisis. FTX filed for protection in the US earlier in November after traders withdrew $6 billion from the platform in three days and rival exchange Binance abandoned a rescue deal.

In a court filing on Monday, BlockFi listed FTX as its second largest creditor, owing $275 million on a loan extended earlier this year. It said it 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 was given an option to purchase 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 at both companies.

Cryptolenders, the de facto banks of the crypto world, flourished during the pandemic, attracting private customers with double-digit interest rates in return for their cryptocurrency deposits. On the flip side, institutional investors such as hedge funds who wanted to make leveraged bets paid higher prices to borrow the funds from lenders, who profited from the difference.

Crypto lenders are not required to hold capital or liquidity buffers like traditional lenders, and some found themselves exposed as a lack of collateral forced them – and their customers – to take big losses.

LIST OF CREDITORS

BlockFi’s largest creditor is Ankura Trust, a company that represents creditors in distressed situations, and is owed $729 million. Valar Ventures, a Peter Thiel-affiliated venture capital fund, owns 19% of BlockFi shares.

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 fees related to a crypto-lending product the company offered to nearly 600,000 investors.

In a blog post, BlockFi said the Chapter 11 filings will enable the company to stabilize its business and maximize value for all stakeholders.

“Acting in the best interest of our customers is our top priority and continues to lead the way,” BlockFi said.

BlockFi had previously halted withdrawals from its platform, acknowledging that it had “significant exposure” to FTX and its affiliates, including “obligations owed to us by Alameda, assets held at FTX.com and undrawn amounts from our line of credit with FTX.US.”

In its bankruptcy filing, BlockFi said it had hired Kirkland & Ellis and Haynes & Boone as bankruptcy attorneys and Berkeley Research Group as a financial advisor.

At the end of June, a third of BlockFi’s $1.8 billion in outstanding loans was unsecured, according to the company.

ORIGINS

BlockFi was founded in 2017 by Prince, who is currently the company’s CEO, and Flori Marquez. 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 laying

BlockFi in the same bucket/sentence as Voyager and Celsius.”

“Two months ago we looked the same. They are closing and facing imminent losses for their clients,” he said.

According to a profile of BlockFi 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 online poker tournaments. Before starting BlockFi with Marquez, he held jobs at Orchard Platform, a broker-dealer, and at Zibby, a lender now called Katapult ( KPLT.O ).

Marquez previously worked at Bond Street, a small business lending outfit 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: Thomson Reuters Trust Principles.



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