The already volatile cryptocurrency market just took another hit. BlockFi, a US cryptocurrency lender, has pulled a FTX and filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the District of New Jersey.
As per an official release, BlockFi Inc. and eight of its affiliates filed for bankruptcy on Monday in order to “stabilize its business and provide the Company with the opportunity to consummate a comprehensive restructuring transaction that maximizes value for all clients and other stakeholders.”
The release added that the New Jersey-based firm – which was last valued at $4.8 billion – will now focus on recovering all the obligations that are owed to it, while those owed by FTX will be delayed due to the ill fortunes of the floundering cryptocurrency exchange. BlockFi also indicated that it has over 100,000 creditors, whole its liabilities and assets range between $1-10 billion, including an outstanding loan of $275 million to FTX US (its second-largest creditor). Currently, it has around $256.9 million in cash on hand to provide sufficient liquidity to support certain operations during the restructuring process.
“With the collapse of FTX, the BlockFi management team and board of directors immediately took action to protect clients and the Company. From inception, BlockFi has worked to positively shape the cryptocurrency industry and advance the sector. BlockFi looks forward to a transparent process that achieves the best outcome for all clients and other stakeholders,” Mark Renzi of Berkeley Research Group, the Company’s financial advisor, said.
BlockFi, which offers services such as cryptocurrency trading, a crypto wallet, and lending, and lets users earn interest on their existing crypto balances, had been struggling long before it filed for bankruptcy. It was one of many firms to face liquidity problems issues cryptocurrency hedge fund Three Arrows Capital suffered a dramatic collapse and lost billions in funds. Later, as the crypto market continued to face ill fortunes and the prices of cryptocurrencies like Bitcoin were sent plunging to new lows, BlockFi got a lifeline after it was bailed out by Sam Bankman-Fried and FTX.
FTX in June agreed to provide BlockFi with a $400 million credit line and an option to buy it for up to $240 million, which further entangled the fortunes of the two crypto players. Thus, after FTX went from being a $32 billion crypto exchange giant to drowning in debt and filing for bankruptcy as it collapsed, BlockFi halted all withdrawals on November 11 and explained that it had “significant exposure” to FTX, including undrawn amounts from the credit line and assets held on the FTX platform.