BlockFi bankruptcy: Can troubled crypto lender resume withdrawals despite FTX exposure?
The crypto lender BlockFi has declared in a statement that it “can no longer operate business as usual” in the aftermath of the cryptocurrency derivatives exchange FTX filing for bankruptcy on 11 November 2022
In June 2022, FTX bailed out BlockFi with an injection of $250m (£209m) and then partnered with the crypto lender.
At the time Sam Bankman-Fried, CEO of FTX, revealed in a series of tweets that he had chosen to financially aid BlockFi because it “has careful risk management and great leadership”.
He said: “sometimes leadership means acting decisively and that’s what BlockFi did”. Bankman-Fried concluded his tweets:
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‘Most prudent decision’ is to pause activities
After the collapse of FTX, BlockFi said the “most prudent decision” for all its clients was to “pause many of our platform activities”.
The crypto lender dismissed what it said were false rumours that a majority of BlockFi assets are custodied at FTX.
However, BlockFi admitted that it did have “significant exposure to FTX and associated corporate entities that encompasses obligations owed to us by Alameda Research, assets held at FTX.com, and undrawn amounts from our credit line with FTX.US.”
The company also said it expected the “obligations owed to them” by FTX will now be delayed because of the Chapter 11 bankruptcy announcement.
Withdrawals continue to be paused and BlockFi said it had asked clients not to submit or deposit to the BlockFi wallet or interest accounts.
BlockFi originally paused withdrawals last week because of the uncertainty surrounding FTX and its liquidity issues prior to it announcing bankruptcy.
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Bankruptcy filing could come within days
BlockFi could file for bankruptcy within the next few days, people with knowledge on the matter have told Bloomberg.
This is because of the issues FTX exposure has brought to the crypto lender.
Regardless of whether the company does indeed file for bankruptcy, it is planning to lay off some staff, the Wall Street Journal reported.
Firm learnt of FTX’s bankruptcy via Twitter
Despite being partnered with FTX, BlockFi said it learnt about the cryptocurrency derivatives exchange’s situation via Twitter, like the rest of the world.
BlockFi said that despite everything it had achieved during the summer to protect the company after FTX stepped in to save it, the “unexpected” news about Bankman-Fried’s firm had made things “incredibly difficult”.
In its statement, BlockFi stressed it was “working around the clock to evaluate all of its options”. It added that “there are a number of scenarios” available and it was working out what was the best path forward.
The crypto lender said it had the “necessary liquidity to explore all options” and had gone to external expert outsiders for advice about what steps to take next. BlockFi said:
Bitcoin.com launches programme to assist troubled crypto platforms
Bitcoin.com, a bitcoin (BTC) exchange and cryptocurrency wallet developer is launching a programme to help and compensate the victims of crypto companies filing for bankruptcy such as FTX and companies who could be facing bankruptcy like BlockFi.
The CEX Education Program also promotes the adoption of decentralised finance (DeFi) and self-custody, Finance Feeds reported. The scheme will be financed by giving 5% of the total supply of verse (VERSE), a rewards and utility token for the Bitcoin.com ecosystem.
BlockFi wants to allow users to withdraw assets
BlockFi has asked the US Bankruptcy Court for the District of New Jersey to allow customer withdrawals so they can access their crypto held by the crypto lender.
BlockFi described this move as an “important step toward our goal of returning assets to clients.”
On 9 January 2023, a hearing will be held to decide if this motion should be passed or not.
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