Celsius, Voyager, and now BlockFi is the latest hedge fund to join the cemetery of former crypto titans. As the fallout from FTX continues to spread across markets, BlockFi, once a trusted lender, is filing for bankruptcy this winter season.
Just last June, BlockFi fell to the effects of the Celsius collapse. During this time, FTX was in a great stance financially, and so they came in like the crypto superheroes that they are and saved BlockFi from utter collapse. This saving grace only lasted for a short time, as the recent bank run on FTX, meant their loan to BlockFi turned to sand. And BlockFi is left right back where it began when Celsius initially collapsed earlier this summer season.
Where Did It All Go Wrong?
BlockFi CEO Zac Prince blamed the firm’s circumstances on its “substantial” exposure to FTX, in addition to the rocky climate of the cryptocurrency market. At the time of FTX’s downfall, the two companies were engaged in a $275 million credit line entanglement.
Founded in 2017, BlockFi provided small investors with multiple financial products, such as low-interest loans backed by cryptocurrency and accounts that paid high interest on cryptocurrency deposits. BlockFi reported more than 450,000 retail clients, as of last year.
BlockFi filed for Chapter 11 protection in New Jersey, where it’s headquartered. The lender’s financial woes emphasized the fragility of the cryptocurrency industry, with FTX serving as the first domino to fall, triggering a chain of related bankruptcies.
Bitcoin Also Has a Rough Week
Voyager Digital and Celsius Network, two of BlockFi’s rivals, collapsed within a week of each other in July. In the spring, both firms reeled from a market panic that caused the value of cryptocurrencies to plummet. Bitcoin, among the most popular digital currencies, fell 20% in a single week.
To stave off its rivals’ fate, BlockFi brokered a deal with FTX in June, a time when the exchange was still widely regarded as a credible and dominant player in the cryptocurrency industry. FTX agreed to give the lender a $400 million credit line extension, which would essentially serve as a loan BlockFi could access as needed.
The deal also gave FTX the option to buy BlockFi. Prince tweeted that the credit line would grant the company “access to capital that further bolsters our balance sheet and platform strength.”
BlockFi subsequently borrowed $275 million from an FTX subsidiary, according to its bankruptcy filings.
From $257 Million in Cash Assets to Bankruptcy…
The cryptocurrency lender reported having nearly $257 million in cash on hand, to be put toward providing “sufficient liquidity to support certain operations during the restructuring process.”
To prolong business operations, the company also initiated a range of “first-day” motions, such as expense reduction schemes that cut labor costs and employee benefit programs. BlockFi still owes $30 million to the Securities and Exchange Commission and $275 million to West Realm Shires Sevices Inc…
“From inception, BlockFi has worked to positively shape the cryptocurrency industry and advance the sector,” -Mark Renzi, Director of Berkley Research Group
Where Does BlockFi Go From Here?
Will we see BlockFi sold off in pieces, or will the bankruptcy court and its new financial advisors steer the ship off from its road to perdition?
One thing is for certain. There is hope for the crypto industry so long as regulation is introduced to safeguard investors from this ever occurring again. This may hurt right now, and people may be upset, but ultimately this will cut the extra fat from the crypto markets with the bad actors going out the door first.
Merry Christmas, folks!
