BlockFi, a cryptocurrency lender, is preparing to file for bankruptcy, according to the Wall Street Journal. Its “significant exposure” to the bankrupt cryptocurrency exchange FTX is the reason.
BlockFi is Preparing for Chapter 11 Bankruptcy
Cryptocurrency lender BlockFi Inc. intends to file for bankruptcy after suspending customer deposit withdrawals and admitting it has “significant exposure” to insolvent exchange FTX. BlockFi halted withdrawals and restricted activity on its platform last week, claiming that it was unable to conduct business as usual due to the FTX uncertainty.
— Tamjone Marcus (@Tamjone3) November 14, 2022
BlockFi announced that it would maintain the withdrawal restriction. According to people familiar with the situation, BlockFi is also considering firing some of its employees as the struggling company prepares to file for bankruptcy on its own.
BlockFi Suffers as a Result of FTX Crises
Last week, the crypto exchange FTX plunged dramatically, losing $32 billion in value and declaring bankruptcy. Only two days before, BlockFi COO Flori Marquez assured investors that business would continue as usual. The lender had denied that the majority of its assets were held at FTX. It has recently admitted, however, that it has an undrawn line of credit with FTX as well as obligations with FTX.
1) All @BlockFi products are fully operational.
— Flori Marquez (@FounderFlori) November 8, 2022
In a post, the company stated that it has “substantial exposure to FTX and associated corporate entities.” FTX bailed out BlockFi in July of this year by providing the lender with a $400 million revolving credit line and the option to purchase the company for up to $240 million. It was the root of the problem.
BREAKING: BlockFi says because of FTX collapsing they are “not able to operate as usual” and are “pausing withdrawals”.
This is a disaster lmao. https://t.co/rpGUQ3ukr6
— Coffeezilla (@coffeebreak_YT) November 11, 2022
According to the newspaper’s research, the site’s user assets last year ranged between $14 billion and $20 billion. However, now that the cryptocurrency market has crashed, these assets are worth much less. Furthermore, due to FTX uncertainties, BlockFi halted withdrawals and curtailed activities last week, stating that the company could not function as usual.
Fears of Further Repercussions Following Court Filing
Concerns in the cryptocurrency market have grown after FTX claimed in its bankruptcy filings that it may have more than one million creditors and described a significant liquidity situation. The founder of FTX, Sam Bankman-Fried, and his surviving staff spent the weekend calling investors to secure funding for a potential $8 billion shortfall, but they have so far been unsuccessful.
Furthermore, now that BlockFi is moving into cryptocurrencies, the consequences could be much worse. In short, things don’t look good for BlockFi because FTX saved it from a crash when the cryptocurrency market was still reeling from the news of an impending crisis.
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