Crypto lender BlockFi files for Chapter 11 bankruptcy as dominoes fall from FTX failure
blackdovfx
Cryptocurrency lender BlockFi said Monday that it filed for Chapter 11 bankruptcy protection in the U.S. in an effort to stabilize and restructure its business following the abrupt downfall of crypto exchange FTX.
Major digital tokens, in turn, extended their losses as the ripple effect from FTX's fallout drags on. Bitcoin (BTC-USD) dipped 2.6% to $16.09K at 11:13 a.m. ET, and ethereum (ETH-USD) slid 4.4% to $1.15K.
The company, which is still operating its business, said it will focus on recovering all obligations by its counterparties, though recoveries from FTX are expected to be delayed given its ongoing bankruptcy process, according to a release.
An internal plan was also started to "considerably reduce" BlockFi's expenses such as labor costs, the release said, while noting it has $256.9M in cash on hand. Bloomberg reported that the lender sent a layoff warning to two-thirds of its employees as it seeks to better manage costs. BlockFi did not immediately respond to Seeking Alpha's request for comment.
BlockFi, meanwhile, is estimated to have over 100K creditors, its petition showed. One of its largest creditors included FTX US's business name, West Realm Shires, with a $275M unsecured claim. Ankura Trust Company was BlockFi's largest creditor by a wide margin with a $730M unsecured claim.
The move comes after BlockFi, which received an outsized credit line from FTX earlier in 2022, was forced to suspend client withdrawals earlier in November due to the uncertainty surrounding the status of Sam Bankman-Fried's crypto empire at the time. But even before the collapse of FTX, BlockFi was struggling to keep afloat following regulatory troubles and a broader market downturn.
FTX US reached an agreement with BlockFi in July that gave FTX the option to bail out the embattled crypto lender for up to $240M, though the deal never went through due to FTX's recent liquidity crisis. Crypto lender rival Nexo reportedly offered to buy BlockFi for $850M in July, too, but BlockFi turned down that offer and moved forward with FTX US.
“It is unfortunate for BlockFi that the white knight [FTX] that had offered them a lifeline back in June, hasn’t managed to stay solvent themselves, in part because of the massive losses accumulated at Alameda Research stemming from the same event - the collapse of Terra Luna and Three Arrow Capital," said Bradley Duke, founder and co-CEO at ETC Group.
Previously, (Nov. 16) Bloomberg reported that BlockFi eyed bankruptcy protection.
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Cause if you trade that ponzi
That coked-out Madoff ponzi
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