BlockFi Had ‘Significant Exposure’ To Embattled FTX. Now, It’s Filed For Bankruptcy.
BlockFi filed bankruptcy proceedings the same day. BlockFi attempted to obtain collateral for a loan Alameda Research borrowed from BlockFi. The Financial Times reported . BlockFi is specifically suing Emergent Fidelity Technologies, the holding company of Bankman-Fried.
Emergent arranged a loan agreement with BlockFi for Alameda Research. This was a disgraced trading company that is closely tied to FTX. The collateral for the loan was Sam Bankman Fried’s shares in Robinhood (a retail day-trading firm). Sam Bankman-Fried bought a 7.6% share in Robinhood this year.
BlockFi wants Emergent, the holding firm, to either sell the stock or give the funds to it. Two people close to the matter reported that Bankman Fried had tried to sell Robinhood stock while he was trying to save FTX.
Original story below.
The contagion has come home to roost.
Cryptocurrency fintech BlockFi filed for bankruptcy on Monday, the company announced in a press release.
The company noted on its website all operations on the platform have been paused (but it had already stopped user withdrawals earlier this month) and said in a release that Chapter 11 proceedings will allow it “to stabilize its business” and “consummate a comprehensive restructuring transaction that maximizes value for all clients and other stakeholders. “
BlockFi was linked to the now-disgraced cryptocurrency lender and its affiliated companies FTX, Alameda Research, and which collapsed earlier in the month after revelations about their liquidity. According to BlockFi’s website statement, it has “the necessary liquidity to explore all options. “
BlockFi was founded in 2017 by Zac Prince and Flori Marquez as a link between the crypto and traditional finance worlds, with a crypto-backed loan product, for example. It was valued at highs of around $3.8 billion in 2021.
But things went sour for the company when an earlier wave of market contagion hit cryptocurrency in June. Along with the stock market crash, many non-traditional currencies also fell. Financial “contagion,” which is the movement of market fallouts from one place to the next, generally refers to financial “contagion”. It was particularly severe in the volatile crypto world, where it exposed holes in companies such as Celsius Network. They stopped all withdrawals in June and filed bankruptcy in July.
Bitcoin has lost 66% of its value since the beginning of the year.
Amid the summer chaos – wherein fellow crypto fintech Voyager Digital also filed for bankruptcy — crypto exchange FTX appeared to be a “white knight” of sorts, lending a $400 million line of credit to BlockFi, per the New York Times, and giving it the option to buy the company.
As such, BlockFi was inextricably linked to FTX, which turned out to have poor corporate controls, according to bankruptcy filing documents, and massive holes in its balance sheet.
“We have significant exposure to FTX, as well as associated corporate entities. This includes obligations owed by Alameda, assets at FTX.com and undrawn amounts from the FTX.US credit line,” BlockFi stated.
“While BlockFi will continue to pursue all of its obligations, we expect that the FTX bankruptcy process will delay the recovery of any obligations owed to it.
A crypto broker, Genesis, also paused withdrawals on the platform in mid-November, as it had $175 million of financial linkage to FTX, the NYT noted.
BlockFi also faced in February a $100 million penalty from the SEC for not registering its crypto lending product. It remains to be seen if and how crypto holders will receive their money back after a series of sector-wide disasters.
” We are sorry for the difficulties you have experienced in recent days. We are deeply saddened by the devastation being caused by the industry we love and believe is important for so many people. The company stated that our top priority is to do the best for our clients.”