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BlockFi just filed for bankruptcy as FTX fallout spreads

Crypto firm BlockFi filed for Chapter 11 bankruptcy protection in the wake of FTX’s bankruptcy. It’s the latest in a series of crypto bankruptcies, following FTX, Voyager and Celsius.

In the wake of the FTX liquidity crisis, BlockFi said on November 10 that it was stopping withdrawals, why did the collapse of FTX have such a significant effect on BlockFi? Let’s go back.

After Luna Collapse BlockFi Lost $80 million

Founded in 2017, BlockFi, which offers a trading exchange and a safe custody service for cryptocurrencies that pays interest, was one of many that had serious liquidity problems after Three Arrows Capital went out of business. The company experienced about $80 million in losses.

Sam Bankman-Fried comes like superman after Luna Collapsed

In July, FTX came to the rescue of BlockFi and saved it from going out of business. The deal involved two things: A line of credit for $400 million. FTX has the option to buy BlockFi for as much as $240 million.

However, the deal was not worth $240 million at the time – that was just the highest it could possibly be if FTX exercised its option. CNBC reported the deal was worth closer to $25 million at the time.

This “rescue” of BlockFi is actually what helped Sam Bankman-Fried (SBF) become known as the “JP Morgan of Crypto” by the Bloomberg media.

BlockFi thought it was being rescued, but it just hitched itself to a different shaky creditor. When the deal happened in July, many believed FTX was in a strong liquidity position. Turns out, that wasn’t the case.

After FTX Collapsed

This Company obviously not good after huge losses from Three Arrows, Luna, and now the FTX collapse.

BlockFi said that it had more than 100,000 creditors and between $1 billion and $10 billion in debts when it filed for bankruptcy today. BlockFi has a cash balance of $256.9 million.

FTX is still owed $275 million by BlockFi. One of BlockFi’s top creditors is also the SEC. In February, the SEC fined BlockFi $100 million for not registering its crypto lending product in the right way.

“As part of its restructuring efforts, the Company will focus on recovering all obligations owed to BlockFi by its counterparties, including FTX and associated corporate entities (“FTX”). Due to the recent collapse of FTX and its ensuing bankruptcy process, which remains ongoing, the Company expects that recoveries from FTX will be delayed.” press release stated

In April 2019 SBF founded the FTX exchange and he become a more well-known personality in crypto in 2021 bull market saw the FTX exchange rise to prominence to become the second largest exchange in the world and overtaking the earlier establish competitors like Gemini, Coinbase, and Kraken. but on November 2 leaked balance sheet of Alameda by Coindesk collapsed from $32 billion to zero dollars overnight.

Lastly BlockFi Comment

We apologize that communication with our clients has not been as frequent as you have come to expect from us. We look forward to transparency through our reorganization and will work to keep clients and stakeholders informed as we make progress. You can find additional information about our Chapter 11 process and what this means for you in our FAQ.

 

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