WASHINGTON/LONDON: Cryptocurrency lender BlockFi said on Monday (Nov 28) it has filed for Chapter 11 bankruptcy protection, the latest crypto casualty after the firm was hurt by exposure to the spectacular collapse of the FTX exchange earlier this month.
The filing in a New Jersey court comes as crypto prices have plummeted. The price of bitcoin, the most popular digital currency by far, is down more than 70% from a 2021 peak.
“BlockFi’s Chapter 11 restructuring underscores significant asset contagion risks associated with the crypto ecosystem,” said Monsur Hussain, senior director at Fitch Ratings.
New Jersey-based BlockFi, founded by fintech executive-turned-crypto entrepreneur Zac Prince, said in a bankruptcy filing that its substantial exposure to FTX created a liquidity crisis. FTX, founded by Sam Bankman-Fried, filed for protection in the United States earlier in November after traders pulled US$6 billion (RM26.8 billion) from the platform in three days and rival exchange Binance abandoned a rescue deal.
“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 First Day bankruptcty filing by Mark Renzi, managing director at Berkeley Research Group, the proposed financial adviser for BlockFi. “Quite the opposite.”
BlockFi said the liquidity crisis was due to its exposure to FTX via loans to Alameda, a crypto trading firm affiliated with FTX, as well as cryptocurrencies held on FTX's platform that became trapped there. BlockFi listed its assets and liabilities as being between US$1 billion and US$10 billion.
Renzi said that BlockFi had sold a portion of its crypto assets earlier in November to fund its bankruptcy. Those sales raised US$238.6 million in cash, and BlockFi now has US$256.5 million in cash on hand.
In a court filing on Monday, BlockFi listed FTX as its second-largest creditor, with US$275 million owed on a loan extended earlier this year. It said it owes money to more than 100,000 creditors. The company also said in a separate filing it plans to lay off two-thirds of its 292 employees.
Under a deal signed with FTX in July BlockFi was to receive a US$400 million revolving credit facility while FTX got an option to buy it for up to US$240 million.
BlockFi's bankruptcy filing also comes after two of BlockFi's largest competitors, Celsius Network and Voyager Digital, filed for bankruptcy in July citing extreme market conditions that had resulted in losses at both companies.
BlockFi's first bankruptcy hearing is scheduled to take place today (Nov 29). FTX did not respond to a request for comment.
BlockFi's largest creditor is Ankura Trust, a company that represents creditors in stressed situations, and is owed US$729 million. Valar Ventures, a Peter Thiel-linked venture capital fund, owns 19% of BlockFi equity shares.
BlockFi also listed the US Securities and Exchange Commission as one of its largest creditors, with a US$30 million claim. In February, a subsidiary of BlockFi agreed to pay US$100 million to the SEC and 32 states to settle charges in connection with a retail crypto lending product the company offered to nearly 600,000 investors.
Bain Capital Ventures and Tiger Global co-led BlockFi's March 2021 funding round, according to a press release issued by BlockFi at the time. Both firms did not immediately respond to a request for comment.
In a blog post, BlockFi said its Chapter 11 cases will enable the company to stabilise its business and maximise value for all stakeholders.
“Acting in the best interest of our clients is our top priority and continues to guide our path forward,” BlockFi said.
In its bankruptcy filing, BlockFi said it had hired Kirkland & Ellis and Haynes & Boone as bankruptcy counsel.
BlockFi had earlier paused withdrawals from its platform.
In another development, FTX and its affiliated companies said on Monday most subsidiaries would resume ordinary course payment of salary and benefits to employees worldwide.
The relief includes cash payments with respect to both pre-petition and post-petition periods, subject to limits established by the orders of the Bankruptcy Court.
“With the Court’s approval of our First Day motions and the work being done on global cash management, I am pleased that the FTX group is resuming ordinary course cash payments of salaries and benefits to our remaining employees around the world,” chief xecutive John Ray said in a statement. – Reuters