The cryptocurrency lender BlockFi has filed for bankruptcy.
BlockFi is the latest domino to fall in the aftermath of the liquidity crisis and meltdown at FTX, one of the world’s largest cryptocurrency exchanges, which had recently propped up BlockFi with a loan and had an option to buy the company.
FTX is now under multiple US federal investigations for mismanaging customer deposits and sending cash to its hedge fund Alameda Research to place risky bets on its behalf. Both FTX and Alameda Research filed for bankruptcy this month.
“With the collapse of FTX, the BlockFi management team and board of directors immediately took action to protect clients and the Company,” wrote Mark Renzi of Berkeley Research Group, BlockFi’s financial advisor, in a press release announcing the lender’s own Chapter 11 bankruptcy, which was filed Nov. 28 in New Jersey. While BlockFi owes money to FTX, those “recoveries…will be delayed” due to FTX’s own bankruptcy, he added.
According to court documents, BlockFi owes $275 million to FTX, which is its largest creditor after Ankura Trust Company. Ankura, which it owes $729 million, serves as the trustee to BlockFi’s interest-bearing accounts.
Most of BlockFi’s large creditors are unnamed clients, but also listed is a $30 million settlement it owes the US Securities and Exchange Commission (SEC). In February, the SEC charged BlockFi with failing to register offers of its retail crypto lending product, saying its high-yield accounts violated federal securities laws. BlockFi settled and agreed to register with the agency.
FTX isn’t crypto’s savior anymore
For much of the past six months, FTX had acted as the savior of the crypto industry, which has struggled through a crypto “winter” amid rising interest rates and declining performance in the traditional stock market. It promised to buy up failing crypto firms, including BlockFi, which it gave a $400 million revolving credit facility in September, just two months ago.
After FTX collapsed in early November, BlockFi said it would seek a new buyer—and that if one couldn’t be found, it would resort to staff layoffs and bankruptcy. The company halted customer withdrawals on Nov. 11, the same day FTX filed for bankruptcy.