BlockFi, a cryptocurrency lender, announced on Monday that it has filed for Chapter 11 bankruptcy protection, becoming the latest company to fail in the market after being exposed to the stunning collapse of the FTX exchange earlier this month.
The court petition in New Jersey comes as cryptocurrency values have fallen sharply. The cost of bitcoin, by far the most widely used digital currency, has decreased by more than 70% since its peak in 2021.
According to Monsur Hussain, senior director at Fitch Ratings, "BlockFi's Chapter 11 restructuring shows considerable asset contagion risks connected with the crypto ecosystem."
BlockFi, a company situated in New Jersey and owned by former finance executive turned cryptocurrency entrepreneur Zac Prince, claimed in a bankruptcy petition that a liquidity crisis was brought on by its significant exposure to FTX. Sam Bankman-Fried, the founder of FTX, filed for protection in the US this month after investors withdrew $6 billion from the exchange in just three days and Binance, a rival exchange, abandoned a rescue plan.
The bankruptcy filing by Mark Renzi, managing director at Berkeley Research Group, the proposed financial advisor for BlockFi, "Although the debtors' exposure to FTX is a primary cause of this bankruptcy petition, the debtors do not suffer the many concerns reportedly confronting FTX." "Quite the contrary,"
The liquidity crisis, according to BlockFi, was caused by its exposure to FTX through loans to Alameda, a crypto trading firm linked with FTX, as well as bitcoins kept on FTX's platform that was locked there. BlockFi's assets and liabilities were listed as being between $1 billion and $10 billion.
BlockFi also sued a holding company for Bankman-Fried on Monday, trying to collect shares in Robinhood Markets Inc (HOOD.O) provided as collateral three weeks before BlockFi and FTX filed for bankruptcy.
Renzi stated that BlockFi had sold a portion of its crypto assets to cover its bankruptcy earlier in November. These sales raised $238.6 million in cash, bringing BlockFi's total cash on hand to $256.5 million.
BlockFi cited FTX as its second-largest creditor in a court statement on Monday, with $275 million owing on a loan extended earlier this year. It claims to owe money to over 100,000 creditors. In a separate filing, the company stated that it intends to lay off two-thirds of its 292 employees.
BlockFi was to obtain a $400 million revolving credit line under a July agreement with FTX, with FTX having the option to purchase it for up to $240 million.
BlockFi's bankruptcy filing comes after two of BlockFi's main competitors, Celsius Network and Voyager Digital, declared bankruptcy in July, claiming harsh market conditions that had resulted in losses for both companies.
During the epidemic, crypto lenders, the de facto banks of the crypto world, proliferated, enticing ordinary consumers with double-digit interest rates in exchange for cryptocurrency deposits.
Crypto lenders are not allowed to maintain capital or liquidity buffers in the same way that traditional lenders are, and some have found themselves exposed when a lack of collateral forced them - and their customers - to bear big losses.
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