BlockFi on the Brink of Bankruptcy? Another Victim of FTX Collapse

BlockFi Inc., a popular cryptocurrency lender, is currently preparing for alleged bankruptcy proceedings, the Wall Street Journal (WSJ) said yesterday, quoting anonymous sources familiar with the matter.

BlockFi halted customer deposit withdrawals and acknowledged its significant exposure to the recently fallen FTX last week, citing the uncertainty of the current situation of the crypto exchange. The digital assets lender received a $400 million credit facility from FTX US in June, giving the platform rights to purchase the company.

According to WSJ, most of these funds have already been used. Sources connected to the matter say BlockFi is currently working with Kenric Kattner, a bankruptcy partner at Haynes & Boone. The cryptocurrency lender and the corporate law firm have not responded to the reports.

However, if these turn out to be accurate, then BlockFi will join the growing list of victims of the collapsing cryptocurrency empire that Sam Banmkan-Fried (SBF) built. It includes FTX, Alameda Research, FTX.US and more than 100 related companies.

“Given the lack of clarity on the status of FTX.com, FTX US, and Alameda, we are not able to operate business as usual. Our priority has been and will continue to be to protect our clients and their interests,” BlockFi stated in a blog post last Friday.

In 2021, the cryptocurrency lender held as much as $20 billion in customer deposits and had lent out $8 billion, sources familiar with the matter confirmed. The price of Bitcoin (BTC) lost more than 60% of its value this year, putting additional pressure on altcoins. In a prolonged ‘cryptocurrency winter’ environment, the value of funds deposited by BlockFi customers is now undoubtedly lower.

FTX Saga Continues

FTX filed for bankruptcy protection in the United States last week, while SBF resigned from his role as the CEO. In less than two weeks, the exchange status was reduced from a cryptocurrency giant to bankruptcy, and problems began to multiply beyond FTX in more jurisdictions.

The Cyprus Securities and Exchange Commission (CySEC) has suspended the license of FTX (EU) Ltd, which was obtained just two months earlier. Finance Magnates suggested it may start broader regulatory audits and bring further implications for the industry.

The Australian Securities and Investments Commission (ASIC) suspended the license of FTX Australia Pty Ltd the day after. The suspension will last until 15 May 2023.