BlockFi bankruptcy: It has not been a great year for cryptocurrency, even before the FTX collapse. However, when the massive crypto exchange went under, people knew it would have broader effects on the industry. BlockFi has become one of the casualties in the wake of the disaster, which the company announcing its decision to file for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the District of New Jersey.
Weeks of trouble: The FTX collapse caused trouble at BlockFi from the start, with the company pausing withdrawals due to a “lack of clarity” around the fall. According to BlockFi, it could not operate as usual. The reason for that appeared to be a deal between FTX and BlockFi, which involved BlockFi receiving a $400 million revolving credit facility under certain conditions.
Around that time, BlockFi said, “We do have significant exposure to FTX and associated corporate entities that encompasses obligations owed to us by Alameda, assets held at FTX.com, and undrawn amounts from our credit line with FTX.US.”
- The deal would have given BlockFi the option to buy the credit facility for up to $240 million.
- Clients of BlockFi could not withdraw money and were asked not to deposit to BlockFi wallets or interest accounts.
Bankruptcy decision: The BlockFi bankruptcy announcement included information about the company’s plans. According to BlockFi, bankruptcy will allow it to restructure, bringing stability to the business and maximizing value for its clients and stakeholders.
- BlockFi plans to focus on recovering obligations owed to it as part of the restructuring, which will include going after FTX and associated corporate entities.
- In a court filing tied to the BlockFi bankruptcy, the company stated that it had more than 100,000 creditors across a massive range of $1 billion to $10 billion in liabilities and assets.
- Motions were filed to allow BlockFi to continue operating its business during the transition, which will include paying employee wages and continuing employee benefits.
Preparations: The BlockFi bankruptcy decision came after the company thoroughly prepared. BlockFi Inc. sold around $239 million in cryptocurrency assets recently. The liquidity will be used to continue certain operations during the restructuring process. The company also warned workers before the bankruptcy filing, telling them they might lose their jobs.
- As the BlockFi bankruptcy filing approached, the company warned nearly 250 of its employees, which accounted for two-thirds of over 370 workers.
- The company does not plan to take out a loan to fund itself while under court protection. That is why it sold its holdings, and it is also the reason BlockFi began to cut costs.
BlockFi is not alone: The BlockFi bankruptcy is not the first seen this year. Aside from FTX, crypto companies like Voyager and Celsius are also undergoing bankruptcy proceedings. Moreover, a number of companies are currently struggling and might soon join BlockFi or shut their doors for good.
- FTX’s fall has left people concerned about who will collapse next, and the BlockFi bankruptcy proceeding will likely reignite those fears.
- The backlash will extend to VCs who have invested in these companies. BlockFi raised $350 million in Series D funding last March, reaching a valuation of $3 billion.
Other trouble: BlockFi faced trouble earlier this year as well, finding itself under the scrutiny of the US Securities and Exchange Commission (SEC). The SEC charged BlockFi for failing to register its retail crypto lending product. The charges also included violating the registration provisions of the Investment Company Act of 1940.
BlockFi settled the matter by agreeing to pay $50 million to the SEC and an additional $50 million to 32 US states for similar charges. However, it appears that BlockFi still owes the SEC $30 million.