The Crypto world is facing a brand new blow: BlockFi, a crypto firm, has filed for bankruptcy protection and is now in receivership. PitchBook estimates BlockFi's last value at $4.8 billion and says the company is among the many crypto companies suffering from the collapse of FTX.
In the wake of FTX's collapse and the liquidity crisis, BlockFi is the latest crypto domino to fall. A series of investigations led by US authorities are currently underway into FTX's mismanagement of client deposits and the transfer of money to its hedge fund Alameda Research so that the same fund would protect the money for the benefit of FTX.
This month, Alameda Research and FTX declared bankruptcy. "BlockFi's Chapter 11 restructuring underscores significant asset contagion risks associated with the crypto ecosystem," said Monsur Hussain, senior director at Fitch Ratings.
A heavy blow to the cryptocurrency market
Withdrawals from BlockFi have been suspended following the bankruptcy filing of FTX exchange, causing the crypto lender to seek bankruptcy protection. New Jersey's United States Bankruptcy Court has granted Chapter 11 bankruptcy protection to the company.
The company disclosed in its filing that it has over 100,000 creditors, along with liabilities and assets ranging from $1 billion to $10 billion. It also has an outstanding $275 million loan to FTX US, the American arm of Sam Bankman-Fried's now-bankrupt empire.
BlockFi also has a Bermuda-based subsidiary that has filed for bankruptcy, like FTX. Meanwhile, the company has continued to operate and has indicated it hopes to restructure, and began talking to restructuring experts in the days after FTX filed for bankruptcy.
"Although the debtors' exposure to FTX is a major cause of this bankruptcy filing, the debtors do not face the myriad issues apparently facing FTX," said the bankruptcy filing by Mark Renzi, managing director at Berkeley Research Group, the proposed financial advisor for BlockFi.
"Quite the opposite."
FTX is not saving the crypto world
Amidst crypto winter, rising interest rates, and underperformance on the stock market, FTX has become the savior for the crypto industry. Just two months ago, FTX approved a revolving loan of 400 million dollars to BlockFi, a failed crypto company.
In the wake of FTX's collapse in early November, BlockFi announced it was seeking a new buyer, and that if they couldn't find one, layoffs and bankruptcy might be an option. The company stopped payments to its users on November 11, 2022, the same day FTX filed for bankruptcy protection.