BlockFi files for bankruptcy in the US

Posted: 30 November 2022 12:29 pm

BlockFi has filed for Chapter 11 bankruptcy protection in the US.

The shock collapse of FTX continues to send ripples through the crypto market. It was announced this week that BlockFi, a crypto lending company that had previously signed a deal with FTX, has filed for bankruptcy in the US.

The lender had already stopped most activity on its platform following the news of FTX’s failure and has now filed for Chapter 11 bankruptcy protection.

How did BlockFi get here?

BlockFi began having issues back in the summer of 2022 when the value of the crypto market fell sharply. Before then, it had been one of the leading crypto lending platforms.

However, it was a major creditor to Three Arrow Capital, a crypto hedge fund which collapsed. It also saw high numbers of user withdrawals in mid-June following reports of problems at another crypto lender, Celsius.

In July 2022, FTX signed a deal that gave it the “option to acquire” BlockFi. However, jump forward a couple of months, and FTX filed for bankruptcy itself.

BlockFi is suing Emergent Fidelity Technologies, a holding company of former FTX CEO Sam Bankman-Fried, in an attempt to recover shares in Robinhood Markets Inc that were pledged as collateral to BlockFi before FTX filed for bankruptcy.

BlockFi’s bankruptcy filing

In its filing, BlockFi said it owed money to more than 100,000 creditors and listed FTX as its second-largest creditor. It has assets and liabilities of $1 billion (£834 million) to $10 billion (£ billion). It also said it had almost $257 million (£ million) in cash on hand, which it would use to continue certain operations during the bankruptcy process.

BlockFi is planning to develop a “reorganisation plan that maximises value for all stakeholders”.

Customer withdrawals are still frozen. However, BlockFi’s financial advisor Mark Renzi said that the lender intends to seek authority to honour client withdrawal requests from its customer wallet accounts.

*Cryptocurrencies aren't regulated in the UK and there's no protection from the Financial Ombudsman or the Financial Services Compensation Scheme. Your capital is at risk. Capital gains tax on profits may apply.

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