(Commonwealth Union) BlockFi, a cryptocurrency lender, filed for Chapter 11 bankruptcy protection on Monday, becoming the market’s latest failure after being exposed to the catastrophic collapse of the FTX exchange earlier this month. The New Jersey court petition comes as bitcoin values have plummeted dramatically. Bitcoin, by far the most popular digital currency, has dropped in price by more than 70% from its peak in 2021.
“BlockFi’s Chapter 11 restructuring reveals significant asset contagion risks associated with the crypto ecosystem,” says Monsur Hussain, senior director at Fitch Ratings. BlockFi, a New Jersey-based firm founded by former finance professional turned cryptocurrency entrepreneur Zac Prince, alleged in a bankruptcy filing that it was suffering from a liquidity crisis.
BlockFi claimed that the liquidity crisis was brought on by its exposure to FTX through loans to Alameda, an organization linked to FTX that deals in cryptocurrencies, as well as by cryptocurrencies held on FTX’s platform that got stuck there. In its financial statements, BlockFi said that its assets and liabilities ranged from $1 billion to $10 billion. When BlockFi and FTX filed for bankruptcy protection three weeks ago, they pledged shares of Robinhood Markets Inc as collateral. On Monday, BlockFi sued a holding company for Bankman-Fried in an effort to recoup those shares.
In order to finance its bankruptcy, BlockFi had liquidated a portion of its cryptocurrency holdings earlier in November. Through those sales, $238.6 million in cash was raised, bringing BlockFi’s total cash on hand to $256.5 million. BlockFi cited FTX as its second-largest creditor in a court statement on Monday, with $275 million owing on a loan made earlier this year. It claimed to owe more than 100,000 debtors money. Additionally, the business revealed in a separate filing that it intends to fire two-thirds of its 292 staff members.
