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.
Why did fall of FTX started and its impact on BlockFi
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.
Following the suspension of withdrawals on November 10th, BlockFi has now become the most recent cryptocurrency company to file for Chapter 11 bankruptcy. The company cites an ambiguity on the facts surrounding FTX, the defunct company going through its own bankruptcy procedure while being accused of fraud and poor record-keeping.
BlockFi said on Monday that it was declaring bankruptcy in order to maintain its business. In a blog post BlockFi stated: “This action follows the shocking events surrounding FTX and associated corporate entities (FTX) and the difficult but necessary decision we made as a result to pause most activities on our platform. Since the pause, our team has explored every strategic option and alternative available to us, and has remained laser-focused on our primary objective of doing the best we can for our clients. These Chapter 11 cases will enable BlockFi to stabilize the business and provide BlockFi with the opportunity to consummate a reorganization plan that maximizes value for all stakeholders, including our valued clients.”
The cost of bitcoin, the most widely used digital currency, has decreased by more than 70% since its peak in 2021. Ankura Trust Company is listed as the company’s largest creditor in the bankruptcy petition filed in New Jersey, with a $729 million debt, followed by FTX US with a $275 million debt. Fourth on the list, the SEC owes $30 million in fines from earlier this year.
BlockFi reports having $256.9 million in cash on hand, which it expects will be enough liquidity to keep the business operating while it is reorganised. The company will concentrate on collecting any debts owing to BlockFi by its counterparties, including FTX, even though it anticipates that this process would take longer given FTX’s demise.
Users could trade and lend cryptocurrencies on the BlockFi platform in the hopes of earning interest. The company agreed to pay $100 million in fines to the SEC and other regulators as a result of its BlockFi Interest Accounts, which were deemed to be unregistered securities and that BlockFi wasn’t properly registered as an investment company. The company fired about 20% of its employees in June, blaming the decline in the cryptocurrency market.
Following a financial scandal, FTX has now almost completely failed. According to reports, founder Sam Bankman-Fried used consumer cash to support his other company, Alameda Research. Estimates of Bankman-personal Fried’s assets dropped from $26 billion to nothing in a matter of days.
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