BlockFi seeks protection as FTX collapse rattles crypto

By Michelle Chapman, The Associated Press on November 28, 2022.

Cryptocurrency lender BlockFi is filing for Chapter 11 bankruptcy protection as the fallout from the collapse of crypto exchange FTX spreads outward.

In a Monday filing for bankruptcy protection in New Jersey, where it is based, BlockFi claimed more than 100,000 creditors, with BlockFi’s liabilities ranging from $1 billion to $10 billion.

“Chapter 11 is a transparent process and we will continue to communicate with our clients to ensure they hear directly from us,” BlockFi said in a tweet.

Cryptocurrencies were in retreat Monday in what has already been a disastrous year. Bitcoin, among the most widely traded cryptocurrencies, has plunged almost 70% in 2022 to below $16,000 apiece.

BlockFi Inc., which was founded in 2017, said bankruptcy protection will allow it to stabilize the company and restructure. That restructuring will include an attempt to recover all obligations that it is owed by its counterparties, including FTX and associated corporate entities. BlockFi, which was bailed out by Sam Bankman-Fried’s FTX early last summer, said it anticipates recoveries from FTX will be delayed.

FTX filed for bankruptcy protection earlier this month. At the time, BlockFi announced on Twitter that it wasn’t able to do business as usual and was pausing client withdrawals as a result of FTX’s implosion.

“With the collapse of FTX, the BlockFi management team and board of directors immediately took action to protect clients and the company,” Mark Renzi of Berkeley Research Group, BlockFi’s financial advisor, said in a prepared statement Monday.

The implosion of FTX is still being sorted out and it is unknown how much collateral damage it could inflict.

There are already comparisons to the collapse of the storied Wall Street bank Lehman Brothers in 2008. The bank trafficked heavily in subprime mortgages that lost almost all of their recognized worth and shook the U.S. and global economy.

BlockFi has $256.9 million in cash on hand, which it expects will provide enough cushion to support some operations during the restructuring.