BlockFi Files for Bankruptcy as FTX Contagion Spreads

BlockFi, a cryptocurrency lender, filed for bankruptcy protection on Monday, just days after suspending withdrawals in the aftermath of FTX's bankruptcy filing.

The company announced its intention to file for Chapter 11 bankruptcy protection, indicating that it hoped to restructure while continuing operations in the meantime. BlockFi has approximately $257 million in cash on hand, according to a press release. A Bermuda-based affiliate has also filed for liquidation, which is a similar procedure.

BlockFi's executives estimate the company has more than 100,000 creditors, according to the petition, and checked off the ranges. Executives estimate the company's assets and liabilities to be worth between $1 billion and $10 billion.

West Realm Shires Inc., the legal name for FTX US, has a $275 million unsecured claim against the company, and the Securities and Exchange Commission (SEC) has a $30 million unsecured claim. The names of the majority of the other top 50 creditors were withheld.

Ankura Trust Company is BlockFi's largest creditor, which the lender appears to have hired in February and now has a $730 million unsecured claim.

BlockFi has had a difficult year, having suspended withdrawals a few weeks ago due to the ongoing uncertainty surrounding FTX's assets. Earlier this year, the company liquidated a large client and required a line of credit from FTX to survive. BlockFi warned clients not to deposit funds into its wallet or interest accounts after suspending withdrawals.

After raising $350 million at a $3 billion valuation in March 2021, the lender planned to raise funding at a $1 billion down round valuation in June. As recently as last July, the company planned to go public within the next year and a half, with a $500 million fundraise on the way.

However, as part of a settlement with the SEC and several state regulators over allegations that its high-yield crypto lending product violated state and federal securities laws, the company was forced to pay $100 million in February. BlockFi was also required to register its BlockFi Yield product with the SEC as part of the settlement.

In June, the company laid off about a fifth of its workforce as the broader cryptocurrency market declined. Market capitalization - one measure of the market's overall value - fell from more than $3 trillion a year ago to $1 trillion by June.

Following the demise of Three Arrows Capital, BlockFi CEO Zac Prince announced that the company had to liquidate a large client, though he did not specify whether or not it was Three Arrows. Shortly after, crypto exchange FTX extended the lender a $250 million credit facility, which later morphed into a $400 million credit facility, giving FTX US the ability to acquire the lender.

However, after days of speculation about whether it was fully liquid, FTX filed for bankruptcy in the second week of November. A CoinDesk report revealed that much of FTX sister company Alameda's balance sheet was made up of an exchange token, FTT, issued by FTX, prompting Binance CEO Changpeng “CZ” Zhao to announce that his company would liquidate its entire set of FTT holdings. Withdrawals were later halted by FTX.

In the midst of the confusion, BlockFi announced a suspension of withdrawals, claiming that it had some assets deposited on FTX and was still owed some of the credit extended by FTX.

For more information: https://www.wikifx.com/en/newsdetail/202211299604347623.html?source=emily

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