Lender BlockFi filed for bankruptcy, the latest digital-asset firm to collapse in the wake of crypto exchange FTX’s rapid downfall.
BlockFi said in a statement Monday that it will use the Chapter 11 process to “focus on recovering all obligations owed to BlockFi by its counterparties, including FTX and associated corporate entities,” adding that recoveries are likely to be delayed by FTX’s own bankruptcy. Chapter 11 bankruptcy allows a company to continue operating while working out a plan to repay creditors.
Following investigations into FTX by the U.S. Securities Exchange Commission and Commodity Futures Trading Commission over potential misuse of customer funds, it became unclear to BlockFi where funding for a credit line from FTX U.S. and collateral on loans to Alameda, which included Robinhood Markets Inc. stock, came from, Bloomberg News reported earlier this month.
“BlockFi’s Chapter 11 restructuring underscores significant asset contagion risks associated with the crypto ecosystem, and, potentially, deficient risk management processes,” said Monsur Hussain, senior director of Financial Institutions at Fitch Ratings. He said that that these restructing processes can be “notoriously lengthy” and noted that creditors owed money by Mt. Gox are only getting closer to be paid eight years after the Bitcoin exchange failed.
The company grew during the pandemic years and had offices in New York, New Jersey, Singapore, Poland and Argentina, according to its website. Co-founder Prince in a March 2021 interview with Bloomberg said BlockFi was using proceeds from a US$350-million funding round to expand into new markets and fund new products. Bain Capital Ventures and Tiger Global were among the investors in the that round.
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