UNITED STATES: BlockFi, a cryptocurrency lender, filed for Chapter 11 bankruptcy protection on Monday, becoming the latest casualty of the collapse of the offshore cryptocurrency exchange FTX.
Due to “significant exposure” to FTX, the company had already stopped the majority of activities on its platform. The court filing in New Jersey comes amidst a steep decline in bitcoin values. The cost of bitcoin, by far the most widely used digital currency, has decreased by more than 70% since its peak in 2021.
BlockFi declared that it needed court protection so the company could restructure, pay off its debts, and get money back for investors. Earlier this year, as the value of cryptocurrencies fell, FTX offered a rescue deal to BlockFi.
However, FTX, a cryptocurrency exchange, saw its own issues this month as users hurried to withdraw money from the system amid concerns about its financial stability.
Sam Bankman-Fried, the so-called “crypto king” and former boss, quit, and the business filed for bankruptcy. The downturn has eroded faith in the cryptocurrency sector and drawn regulators’ scrutiny to the bitcoin industry.
The collapse of FTX was “shocking,” stated BlockFi, a company that offered loans and other financial services backed by the crypto assets of its clients.
In court filings, the New Jersey-based company BlockFi claimed that it had debts to more than 100,000 creditors. With $275 million owed on loan made earlier this year, it listed cryptocurrency exchange FTX as its second-largest creditor.
Additionally, it owes $30 million to the Securities and Exchange Commission, a US financial watchdog, after it was discovered earlier this year that the company had failed to properly register its products and had misled the public regarding the risk levels in its loan portfolio and lending activity.
BlockFi said that by filing for Chapter 11 bankruptcy, the company would be able to create a “reorganisation strategy that maximises value for all stakeholders, including our devoted clients.” As per the company, it had almost $257 million in cash.
“Since its start, BlockFi has worked to advance and enhance the bitcoin industry,” said Mark Renzi of Berkeley Research Group, who serves as the company’s financial advisor. He also added that “BlockFi anticipates a transparent strategy that produces the best benefits for all clients and other stakeholders.”
The 2017 startup BlockFi promoted itself as bridging the gap between cryptocurrencies and conventional financial products.
In recent years, it has garnered hundreds of millions of dollars in investment from prominent tech investors, including Bain Capital Ventures and Tiger Global. It claimed to manage more than $15 billion in assets last year as the value of cryptocurrencies skyrocketed.
It wasn’t the only business that suffered when the value of cryptocurrencies fell at the beginning of this year. The most popular form of digital currency, bitcoin, saw a decline in value from more than $64,000 a year ago to less than $20,000 in June.
Other companies that have also filed for bankruptcy include Celsius Network and Voyager Digital.