Crypto Lender BlockFi filed for Chapter 11 bankruptcy protection on Monday, making it the latest crypto business to do so, just weeks after FTX’s collapse. The crypto lender admitted that it took a fall from FTX’s collapse earlier this month. FTX filed for bankruptcy protection in the US earlier this month after traders withdrew $6 billion in three days and Binance backed out of a rescue deal.
According to Monsur Hussain, senior director at Fitch Ratings, “BlockFi’s Chapter 11 restructuring underscores significant asset contagion risks associated with the crypto ecosystem.”
The bankruptcy filing was filed in a New Jersey court. BlockFi’s founder Zac Prince said in the filing that its exposure to FTX created a liquidity crisis. “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. Quite the opposite.” the bankruptcy filing by Mark Renzi, managing director at Berkeley Research Group, the proposed financial advisor for BlockFi said.
The crypto lender attributed its exposure to FTX via loans to Alameda (a crypto trading platform affiliated with FTX) and cryptocurrencies held on FTX’s platform as the reason for its doom. BlockFi listed its assets and liabilities as being between $1 billion and $10 billion.
On Monday, BlockFi also sued a holding company for FTX’s founder, hoping to recover shares in Robinhood Markets Inc. These shares were pledged as collateral three weeks ago before both FTX and BlockFi filed for bankruptcy.
According to Mark Renzi, BlockFi had sold part of its crypto assets earlier in November, hoping to fund its bankruptcy. $238.6 million was raised in cash from the sales, and the crypto lender now has $256.5 million in cash on hand.
BlockFi also listed FTX as its second-largest creditor on Monday. FTX owes an extended loan of $275 million. BlockFi also owes more than 100,000 creditors.
Crypto lenders experienced a boom during the pandemic period and have been seeing a decline as a result of current market conditions and the effect of the pandemic easing. BlockFi’s bankruptcy follows that of its competitors Celsius Network and Voyager Digital. Both lenders filed for bankruptcy in July as a result of market conditions that led them to incur irreparable losses.