On Monday, cryptocurrency lender BlockFi filed for bankruptcy at the U.S. Bankruptcy Court in Trenton, New Jersey. It is the latest digital assets company to fail, following the collapse of FTX, earlier in the month. BlockFi is financially interlinked with FTX and its ties with the crypto firm have also led to its unraveling.
In its filings, the Jersey City based crypto lender said that its top ten creditors are owed roughly $1.2 billion. The total liabilities will be much larger. The Financial Times reported that BlockFi has at least 100,000 creditors as well as assets and liabilities of about $1 billion to about $10 billion, as per the court filing.
In 2017, Zac Prince and Flori Marquez founded BlockFi with capital from Valar Ventures, a spinout of Thiel Capital, which holds 19 percent. PitchBook Data Inc. said that equity investors in BlockFi included Bain Capital, Tiger Global Management and a fund by the Winklevoss twins.
Early in November, BlockFi has stopped withdrawals and had limited activity on its platform, after a disclosure that the company had “significant exposure” to FTX. The Wall Street Journal had reported that BlockFi’s problematic relationship with the second largest crypto exchange FTX could result in the crypto lender also filing for bankruptcy.
The WSJ had also reported that the lender was exposed to both FTX and well as its sister company Alameda Research LLC. It included a credit line from FTX USA that gave the exchange the option to buy BlockFi.
The Chapter 11 petition filed on Monday also said FTX was one of the largest creditors and BlockFi owed it $275 million dollars. However, the lender also has assets in FTX and it made loans to Alameda, the crypto trading partner of FTX that were partly secured by FTT tokens of FTX.
BlockFi’s largest creditor is Ankura Trust, based in New Hampshire. BlockFi owes the trustee $729 million. According to its court filing, BlockFi also owes the SEC $30 million for failing to register the offers and sales obtained due its crypto lending products.
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The Financial Times reported that BlockFi had $257 million in cash. This would be used to continue some of its operations during the bankruptcy process.
Earlier in July, two of BlockFi’s largest competitors: Celsius Network and Voyager Digital had already filed for bankruptcy as a result of extreme market conditions that led to losses in both the companies.
Tangent: On Monday, after the filing, cryptocurrency prices including Bitcoin plummeted by more than 70 percent, when compared with its peak price in 2021, during the pandemic. Despite the popularity of cryptocurrency and it being touted by celebrities including Kim Kardashian, Snoop Dogg, Elon Musk, Mark Cuban, Logan Paul, Gwyneth Paltrow, Tom Brady and others, many of the currencies have now collapsed.
Popular cryptocurrencies like Bitcoin and Ethereum saw a dramatic fall in value, while some of the smaller coins collapsed completely, while others were termed as pump and dump schemes, after celebrity endorsements.
Last month, celebrity Kim Kardashian was fined $1.26 million for unlawfully touting crypto security, according to a press release by the SEC site.
The Washington Post reported that it was pocket change for the reality star, Kim Kardashian. However, it also sent a warning across to other influencers who might consider doing the same through their popular social media pages on various platforms.
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