BlockFi, a troubled crypto company, has filed for bankruptcy in the US. The dramatic fall of FTX continues reverberating across the industry.
It had already stopped all activity on its platform due to “significant exposure” by FTX.
BlockFi stated that it sought court protection in order to restructure, settle debts, and recover money from investors.
BlockFi received a rescue package from FTX in April as cryptocurrencies fell to record lows.
However, FTX, a cryptocurrency exchange ran into problems this month as people rushed money out of the platform amid doubts over its finances.
Sam Bankman-Fried, former boss and so-called “crypto-king”, resigned. The firm filed for bankruptcy.
The crypto industry’s collapse has shaken trust and brought scrutiny from regulators.
BlockFi, which provided financial services and loans backed by crypto assets of borrowers, described the collapse in FTX as “shocking.”
BlockFi, a New Jersey-based company, stated in a court filing that it owed money more than 100,000 creditors. BlockFi listed crypto exchange FTX, which was its second largest creditor, as $275m owed on a loan that it extended earlier in the year.
The firm also owes the US financial regulator, Securities and Exchange Commission $30m. This was after the Securities and Exchange Commission found that the firm had not properly registered its products and misled customers about the risks in its loan portfolio and lending activities.
BlockFi stated that the Chapter 11 bankruptcy filing would enable the firm to create a “reorganization strategy that maximizes value all stakeholders, including our valued clientele”.
According to the company, it had $257 million in cash on hand.
BlockFi was founded in order to shape and promote the cryptocurrency sector. BlockFi is looking forward to a transparent process that results in the best outcomes for clients and other stakeholders,” stated Mark Renzi, Berkeley Research Group’s financial advisor.
BlockFi was founded in 2017 and promoted itself as a bridge between traditional financial products and cryptocurrencies.
In recent years, it has received hundreds of millions in investment from top-tier tech investors like Tiger Global and Bain Capital Ventures. It managed over $15bn of assets last year as crypto prices soared.
This isn’t the only company that has been affected by cryptocurrency prices falling earlier in the year. Bitcoin’s most popular digital currency fell from $64,000 in 2012 to $20,000 in June.
Voyager Digital and Celsius Network are two other companies that have filed for bankruptcy.
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 was founded by Sam Bankman Fried. In three days, traders pulled $6 billion off the platform and Binance, a rival exchange, abandoned a rescue agreement.
“Although debtors’ exposures to FTX are a major reason for this bankruptcy filing,” stated Mark Renzi, the managing director of Berkeley Research Group and proposed financial advisor to BlockFi. “Quite the contrary.”
BlockFi stated that the liquidity crisis resulted from its exposure to FTX via loans made to Alameda (a crypto trading company affiliated with FTX), as well as cryptocurrencies stored on FTX’s platform and then trapped there. BlockFi listed assets and liabilities at between $1 billion to $10 billion.