The submitting in a New Jersey courtroom comes as crypto costs have plummeted. The value of bitcoin, the most well-liked digital forex by far, is down greater than 70% from a 2021 peak.
“BlockFi’s Chapter 11 restructuring underscores significant asset contagion risks associated with the crypto ecosystem,” mentioned Monsur Hussain, senior director at Fitch Ratings.
New Jersey-based BlockFi, based by fintech government-turned-crypto entrepreneur Zac Prince, mentioned in a chapter submitting that its substantial exposure to FTX created a liquidity disaster. FTX, based by Sam Bankman-Fried, filed for safety within the United States this month after merchants pulled $6 billion from the platform in three days and rival change Binance deserted 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,” mentioned the chapter submitting by Mark Renzi, managing director at Berkeley Research Group, the proposed monetary advisor for BlockFi. “Quite the opposite.”
BlockFi mentioned the liquidity disaster was on account of its exposure to FTX by way of loans to Alameda, a crypto buying and selling agency affiliated with FTX, in addition to cryptocurrencies held on FTX’s platform that turned trapped there. BlockFi listed its property and liabilities as being between $1 billion and $10 billion.
BlockFi on Monday additionally sued a holding firm for Bankman-Fried, in search of to recuperate shares in Robinhood Markets Inc pledged as collateral three weeks in the past, earlier than BlockFi and FTX filed for chapter safety.
Renzi mentioned BlockFi had bought a portion of its crypto property earlier in November to fund its chapter. Those gross sales raised $238.6 million in money, and BlockFi now has $256.5 million in money readily available.
In a courtroom submitting on Monday, BlockFi listed FTX as its second-largest creditor, with $275 million owed on a mortgage prolonged earlier this yr. It mentioned it owes cash to greater than 100,000 collectors. The firm additionally mentioned in a separate submitting it plans to put off two-thirds of its 292 workers.
Under a deal signed with FTX in July BlockFi was to obtain a $400 million revolving credit score facility whereas FTX received an choice to purchase it for as much as $240 million.
BlockFi’s chapter submitting additionally comes after two of BlockFi’s largest rivals, Celsius Network and Voyager Digital, filed for chapter in July, citing excessive market situations that had led to losses at each corporations.
Crypto lenders, the de facto banks of the crypto world, boomed in the course of the pandemic, attracting retail prospects with double-digit charges in return for their cryptocurrency deposits.
Crypto lenders aren’t required to carry capital or liquidity buffers like conventional lenders and a few discovered themselves uncovered when a scarcity of collateral compelled them – and their prospects – to shoulder massive losses.
BlockFi’s first chapter listening to is scheduled to happen on Tuesday. FTX didn’t reply to a request for remark.
BlockFi’s largest creditor is Ankura Trust, which represents collectors in pressured conditions and is owed $729 million. Valar Ventures, a Peter Thiel-linked enterprise capital fund, owns 19% of BlockFi fairness shares.
BlockFi additionally listed the US Securities and Exchange Commission as one of its largest collectors, with a $30 million declare. In February, a BlockFi subsidiary agreed to pay $100 million to the SEC and 32 states to settle fees in reference to a retail crypto lending product the corporate provided to just about 600,000 traders.
Bain Capital Ventures and Tiger Global co-led BlockFi’s March 2021 funding spherical, BlockFi mentioned in a press launch issued on the time. Both companies didn’t instantly reply to a request for remark.
In a weblog put up, BlockFi mentioned its Chapter 11 instances will allow the corporate to stabilize its enterprise and maximize worth for all stakeholders.
“Acting in the best interest of our clients is our top priority and continues to guide our path forward,” BlockFi mentioned.
In its chapter submitting, BlockFi mentioned it had employed Kirkland & Ellis and Haynes & Boone as chapter counsel.
BlockFi had earlier paused withdrawals from its platform.
In a submitting, Renzi mentioned Blockfi intends to hunt authority to honor shopper withdrawal requests from its buyer pockets accounts, through which crypto property are held in custody. However, the corporate didn’t disclose plans for the way it may deal with withdrawal requests from its different merchandise, together with curiosity-bearing accounts.
“BlockFi clients may ultimately recover a substantial portion of their investments,” Renzi mentioned within the submitting.
BlockFi was based in 2017 by Prince, at the moment the corporate’s chief government officer, and Flori Marquez. Though headquartered in Jersey City, BlockFi additionally has places of work in New York, Singapore, Poland and Argentina, in keeping with its web site.
In July, Prince had tweeted that “it’s time to stop putting BlockFi in the same bucket / sentence as Voyager and Celsius.”
“Two months ago we looked the ‘same.’ They shut down and have impending losses for their clients,” he mentioned.
According to a profile of BlockFi revealed earlier this yr by Inc, Prince was raised in San Antonio, Texas, and financed his faculty schooling on the University of Oklahoma and Texas State University with winnings from on-line poker tournaments. Before beginning BlockFi with Marquez, he held jobs at Orchard Platform, a dealer seller, and at Zibby, a lease-to-personal lender now referred to as Katapult.
Marquez beforehand labored at Bond Street, a small enterprise lending outfit that was folded into Goldman Sachs in 2017, in keeping with Inc.