BlockFi’s bankruptcy was a long time coming, as the company was bailed out by a $400 million credit line from FTX earlier this year.
In a move that everyone saw coming, BlockFi filed for bankruptcy on Monday.
Court records for the distressed cryptocurrency lender reveal it has more than 100,000 creditors and blame “significant exposure” on insolvent exchange FTX. This is another dark mark in the cryptocurrency notebook, which is quickly running out of space.
Imminent and Inevitable Bankruptcy of BlockFi
BlockFi had suspended withdrawals, following the FTX collapse nearly three weeks ago. As investors on Celsius, Voyager Digital, and many other platforms can assert, it’s usually the last straw. It’s hard to gain the trust of customers when they are not allowed to take their money.
Thus, this week’s presentation is not a surprise. BlockFi said it expected a resurgence. It has disclosed cash of $257 million, which it says is enough to get through bankruptcy proceedings, allowing it to avoid debtor-in-possession financing.
It is difficult to understand, under these circumstances, how the company is recovering from this. BlockFi adviser Mark Renzi claimed that BlockFi is “well positioned to move forward despite 2022 being a particularly terrible year for the cryptocurrency industry.”
How customers will ever trust BlockFi with their funds again remains to be seen, not to mention that big glaring hole in their balance sheet and the small matter of literally declaring bankruptcy.
BlockFi Sues FTX
BlockFi is suing FTX to seize the Robinhood shares that the lender says Sam Bankman-Fried pledged as collateral against the loans he has now defaulted on. Bankman-Fried had bought 7.6% of Robinhood’s shares earlier this year.
Much of this has to do with Luna’s collapse earlier this year, which was supposed to be when FTX’s sister trading firm, Alameda, took out a lot of loans, after getting caught up in the fray. FTX shipped client assets from the exchange, with the now-defunct FTT token, created by FTX, as collateral.
BlockFi had its own problems, being forced to sign an agreement with FTX for a credit line of 400 million dollars, in order to keep the doors open. The deal also gave FTX the right to acquire BlockFi at any time through July 2023.
Ironically, it’s Sam Bankman-Fried who is now unleashing the latest batch of contagion, having said that’s exactly what he was trying to counter with all his bailouts earlier this year. This time, BlockFi fell.
Unfortunately, customers are now facing a long wait. It is becoming more obvious by the day that the cryptocurrency space needs a complete regulatory overhaul.
At this point, a little common sense would also be nice.
By Audy Castaneda