The bankruptcy petition by BlockFi comes as the effects of the collapse of FTX are still being felt throughout the market.
The aftermath of the demise of the offshore cryptocurrency exchange FTX has led to the latest major operator in the industry, the crypto lender BlockFi, to file for bankruptcy.
BlockFi claims to have $256.9 million in cash on hand and works similarly to a traditional bank, paying interest on savings and leveraging customer deposits to finance lending. The US Securities and Exchange Commission (SEC), to whom it owes $30 million, and FTX itself, to whom it owes $275 million, are among its creditors, according to court filings.
“This move follows the horrific events involving FTX and affiliated corporate entities and the tough but necessary choice we made as a result to suspend most activity on our platform,” BlockFi stated in a statement announcing its Chapter 11 bankruptcy filing.
Since the hiatus, our team has thoroughly investigated every strategic choice and option accessible to us while maintaining a laser-like focus on our fundamental goal of providing the finest service possible for our clients. These Chapter 11 lawsuits will give BlockFi the chance to stabilise the company and complete a reorganisation plan that maximises value for all parties, including our esteemed clients.
The SEC fined the business $100 million for breaking securities regulations in February, claiming that the financial packages it provided qualified as unregistered securities. Evidently, the unpaid portion of that fine is represented by the outstanding $30m debt.
In the wake of the spring’s cryptocurrency crisis, BlockFi has already come dangerously close to filing for bankruptcy once this year.
CEO Zac Prince stated that the company needed a cash infusion to prevent a liquidity problem, and as a result, the company negotiated a deal with none other than FTX, giving it access to $400 million in loans. The deal’s price was an option from FTX to purchase the lender for around $240 million, a significant decrease from the lender’s peak valuation of $3 billion.
The failure of the bitcoin exchange caused a bank run at BlockFi, which customers perceived as being dangerously linked with Sam Bankman-business. Fried’s That option was never exercised, and the bank run proved fatal. BlockFi was compelled to file for Chapter 11 bankruptcy since it was unable to access its own funds that were kept on the FTX platform or draw from the credit line.
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