Crypto lender BlockFi files for bankruptcy in New Jersey

Major cryptocurrency lender BlockFi has filed for Chapter 11 bankruptcy protection along with eight affiliates, it said on Monday, the latest crypto casualty to follow the spectacular collapse of the FTX exchange earlier this month.

The filing in a New Jersey court comes as crypto prices plummet, with bitcoin down more than 70 per cent from a 2021 peak.

New Jersey-based BlockFi had links with FTX, which filed for protection in the United States earlier in November after traders pulled $6 billion from the platform in three days and rival exchange Binance abandoned a rescue deal.

In a court filing on Monday, BlockFi listed FTX as its second-largest creditor, with $275 million owed on a loan extended earlier this year. It said it owes money to more than 100,000 creditors.

Under a deal signed with FTX in July BlockFi was to receive a $400 million revolving credit facility while FTX got an option to buy it for up to $240 million.

BlockFi’s bankruptcy filing also comes after two of BlockFi’s largest competitors, Celsius Network and Voyager Digital, filed for bankruptcy in July citing extreme market conditions that had resulted in losses at both companies.

Crypto lenders, the de facto banks of the crypto world, boomed during the pandemic, attracting retail customers with double-digit rates in return for their cryptocurrency deposits. On the flip side, institutional investors such as hedge funds looking to make leveraged bets paid higher rates to borrow the funds from the lenders, who profited from the difference.

Crypto lenders are not required to hold capital or liquidity buffers like traditional lenders and some found themselves exposed when a shortage of collateral forced them – and their customers – to shoulder large losses.

CREDITOR LIST

BlockFi’s largest creditor is Ankura Trust, a company that represents creditors in stressed situations, and is owed $729 million. Valar Ventures, a Peter Thiel-linked venture capital fund, owns 19 per cent of BlockFi equity shares.

BlockFi also listed the US Securities and Exchange Commission as one of its largest creditors, with a $30 million claim. In February, a subsidiary of BlockFi agreed to pay $100 million to the SEC and 32 states to settle charges in connection with a retail crypto lending product the company offered to nearly 600,000 investors.

In a blog post, BlockFi said it its Chapter 11 cases will enable the company to stabilize its business and maximize value for all stakeholders.

“Acting in the best interest of our clients is our top priority and continues to guide our path forward,” BlockFi said.

BlockFi had earlier paused withdrawals from its platform and acknowledged it had “significant exposure” to FTX and its associated entities, including “obligations owed to us by Alameda, assets held at FTX.com, and undrawn amounts from our credit line with FTX.US”

In its bankruptcy filing, BlockFi said it had hired Kirkland & Ellis and Haynes & Boone as bankruptcy counsel and Berkeley Research Group as a financial advisor.

At the end of June, a third of BlockFi’s $1.8 billion outstanding loans were unsecured, according to the company.