BlockFi Files for Bankruptcy as Latest Crypto Casualty
The crypto lender plans to use bankruptcy to recover what it can from failed exchange FTX
Cryptocurrency lender BlockFi Inc. filed for bankruptcy Monday, making it the latest major digital-assets firm to fail since FTX, with which BlockFi is financially intertwined.
BlockFi’s chapter 11 filing continues the march of crypto platforms forced into insolvency following this summer’s crypto-price downturn and this month’s failure of FTX, a big exchange with ties throughout the largely unregulated industry.
BlockFi, based in Jersey City, N.J., is only beginning to answer how its hundreds of thousands of customers will fare. The company’s top 10 creditors alone are owed close to $1.2 billion, according to its filings with the U.S. Bankruptcy Court in Trenton, N.J, with the total amount of liabilities likely to be much larger.
The firm, founded in 2017 by Zac Prince and Flori Marquez and backed by Thiel Capital spinout Valar Ventures, lends money to customers using their cryptocurrency assets as collateral. Bain Capital, Tiger Global Management and a fund operated by the Winklevoss twins are also included among BlockFi’s equity investors, according to PitchBook Data Inc.
BlockFi halted withdrawals and limited activity on its platform earlier this month after disclosing it had “significant exposure” to FTX. The Wall Street Journal reported earlier this month that BlockFi was preparing to file for bankruptcy in part due to its troubled relationship with the exchange.
FTX, the largest crypto company to file for bankruptcy to date, has said in court papers that its 50 largest creditors are owed more than $3 billion, and its new managers are still assessing its total obligations to customers. Celsius Network LLC, a crypto lender that filed bankruptcy in July, listed $5.5 billion in total liabilities when it entered court protection, including more than $4.7 billion owed to its users.
BlockFi said Monday it would use chapter 11 to focus on recovering all obligations owed to it by its counterparties, including FTX.
“Due to the recent collapse of FTX and its ensuing bankruptcy process, which remains ongoing, the company expects that recoveries from FTX will be delayed,” BlockFi said.
BlockFi said it plans to reduce its expenses, including labor costs, in chapter 11 and it has nearly $257 million in cash on hand to support its operations during the restructuring process.
As of 2021, BlockFi had between $14 billion and $20 billion in customer deposits and had lent out $7.5 billion, though those deposits are likely worth much less given the decline in cryptocurrency prices this year, The Wall Street Journal has reported.
The firm has said it was exposed to both FTX and FTX’s sister company Alameda Research LLC, including a credit line from FTX U.S. that also gave FTX an option to buy BlockFi. Monday’s chapter 11 petition lists $275 million owed to FTX as one of the largest creditor claims against BlockFi.
BlockFi was also among the struggling crypto firms that signed deals to be rescued by FTX in the past months. The agreement hasn’t gone as planned as FTX itself sorts through its financial problems and federal and state investigations into its business.
BlockFi also holds assets at FTX.com and it made loans to crypto trading firm Alameda partly secured by FTX’s FTT tokens.
BlockFi owes the U.S. Securities and Exchange Commission $30 million, according to the firm’s court filings. In February, BlockFi agreed to settle SEC charges that the firm failed to register the offers and sales of its crypto lending products.
In addition to the chapter 11 filing, BlockFi also filed a petition with the Supreme Court of Bermuda for the firm’s international arm, incorporated in the island nation. However, BlockFi anticipates that its client claims will be addressed through the chapter 11 process.
BlockFi is advised by law firms Haynes & Boone LLP, Kirkland & Ellis LLP, and Cole Schotz PC, investment bank Moelis & Co. and financial adviser Berkeley Research Group. C Street Advisory Group is BlockFi’s strategic restructuring and communications adviser.