Crypto Crisis Deepens as Blockfi Files for Bankruptcy After Being Bailed Out by Collapsed FTX Earlier This Year
Another crypto firm has filed for bankruptcy as the fallout from the FTX crash continues.
Blockfi, which was bailed out by Sam Bankman-Fried’s FTX earlier this year, owed money to more than 100,000 clients.
It allowed users to buy and trade cryptocurrencies such as bitcoin on its platform.
Blockfi, which was bailed out by Sam Bankman-Fried’s FTX earlier this year, owed money to more than 100,000 clients
Similar to how a traditional bank operates, it would then lend its money to businesses and individuals, and pay interest to its crypto depositors.
But it stopped allowing customers to withdraw their money and suspended lending following the implosion of crypto exchange FTX this month.
Now it has filed for bankruptcy in the United States as part of a “reorganization plan that maximizes value for all stakeholders, including our valued customers”.
Monsur Hussain of credit rating agency Fitch said the bankruptcy “underscores significant asset contagion risks associated with the crypto ecosystem and, potentially, flawed risk management processes.”
Blockfi floundered after loans to hedge fund Three Arrows Capital turned sour when the company collapsed amid falling crypto markets.
Bankman-Fried, who was considered the “king of crypto” at the time, stepped in, providing a loan of up to £333m to Blockfi in exchange for the option to buy it. But after the fall of FTX, Blockfi remained faltering.
Earlier this month, he said he had “significant exposure to FTX and related legal entities that encompasses obligations owed to us by Alameda, assets held on FTX.com and amounts not drawn from our line of credit with FTX.US”.
Blockfi’s collapse will be a blow to even more prominent investors. Valar Ventures, a venture capital firm backed by billionaire Peter Thiel, held a 19% stake.
Court records show Blockfi owed £230m to FTX and £25m to the US financial regulator, which this year found it failed to properly register products and mislead users about risk levels .