BlockFi Prepares for Potential Bankruptcy as Crypto Contagion Spreads
BlockFi, financially entangled with the now-bankrupt FTX, is planning to lay off workers and exploring a bankruptcy filing itself, people familiar say
Cryptocurrency lender BlockFi Inc. is preparing a potential bankruptcy filing after halting withdrawals of customer deposits and acknowledging it has “significant exposure” to bankrupt exchange FTX, people familiar with the matter said.
BlockFi paused withdrawals and limited activity on its platform last week, saying it couldn’t operate business as usual given the uncertainty about FTX. BlockFi is now planning to lay off some of its workers while the troubled firm prepares for a possible chapter 11 itself, people familiar with the matter said.
BlockFi didn’t respond to requests for comment. A bankruptcy filing would make Jersey City, N.J.-based BlockFi the latest casualty of the sudden collapse of Sam Bankman -Fried’s crypto empire, which comprises FTX, FTX US, trading firm Alameda Research and more than 100 affiliated entities.
FTX and its related companies filed for bankruptcy protection Friday without disclosing which other crypto firms may have holdings tied up on its exchange.
In a blog post on Monday, BlockFi said it has “significant exposure” to FTX and Alameda, including loans to Alameda, assets held at FTX.com and undrawn amounts from its credit line with FTX US. The company denied that a majority of its assets are custodied at FTX.
“There are a number of scenarios that may be available to us, and we are doing the work now to determine the best path forward,” the company post said. BlockFi also said Monday that law firm Haynes & Boone LLP continues to serve as the firm’s primary outside counsel, and Berkeley Research Group has been hired as financial adviser.
Cryptocurrency exchange FTX was seen as a survivor in a struggling industry, but over the course of six days the exchange collapsed due to a sudden liquidity crunch. WSJ explains the factors that drove FTX’s growth and what led to its downfall. Illustration: Alexandra Larkin
“BlockFi has the necessary liquidity to explore all options and we have engaged expert outside advisors that are helping us navigate BlockFi’s next steps,” the company said in the post.
BlockFi has recently been working with Kenric Kattner, a bankruptcy partner at Haynes & Boone, people familiar with the matter said. Mr. Kattner didn’t respond to a request for comment.
BlockFi is one of several companies that signed deals to be rescued by FTX over the summer after a sharp plunge in crypto prices upset the balance sheets of several lenders, exchanges and bitcoin mining companies. In July, BlockFi obtained a $400 million revolving credit facility from FTX in a debt deal that also gave FTX an option to purchase the company.
BlockFi drew down most if not all of the facility, people familiar with the matter said. It also extended millions of dollars in loans partly collateralized by FTX’s FTT tokens to FTX’s sister company Alameda, other people familiar with the matter said.
BlockFi’s co-founder and chief operating officer, Flori Marquez, had said last week on Twitter all of the company’s products were fully operational and that it was processing client withdrawals. Two days later, it froze customers’ withdrawals.
As of 2021, BlockFi had between $14 billion and $20 billion of customer deposits and had lent out $7.5 billion, according to people familiar with the matter. Those deposits are likely worth much less given the decline in cryptocurrency prices this year, one of the people said.