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BlockFi Files for Chapter 11 Bankruptcy Amid Crypto Market Turmoil

BlockFi's Chapter 11 filing highlights the challenges faced by crypto lenders amid the collapse of FTX and plummeting digital currency values.
Published on 2022-11-29

BlockFi's Bankruptcy Filing

Cryptocurrency lender BlockFi has filed for Chapter 11 bankruptcy protection, marking a significant setback in the crypto lending industry. The filing in New Jersey comes after BlockFi was adversely affected by its exposure to the collapse of the FTX exchange. This event has sparked a liquidity crisis for the firm, exacerbated by the plunging prices of cryptocurrencies, with Bitcoin dropping over 70% from its peak in 2021.

Causes and Consequences

BlockFi's bankruptcy is largely attributed to its financial entanglements with FTX, including loans to Alameda, a crypto trading firm affiliated with FTX, and significant crypto holdings trapped on the FTX platform. The company has listed its assets and liabilities between $1 billion and $10 billion, with FTX as its second-largest creditor.

Strategic Moves and Financial Status

In an effort to stabilize its financial situation, BlockFi sold a portion of its crypto assets earlier this month, raising $238.6 million in cash, leaving the company with $256.5 million on hand. Furthermore, BlockFi is pursuing legal action against a holding company for FTX's founder, Sam Bankman-Fried, to recover pledged shares in Robinhood Markets Inc.

Impact on Employees and Clients

BlockFi plans to lay off two-thirds of its workforce, totaling 292 employees. The firm has also paused withdrawals but intends to seek court approval to honor client withdrawal requests from its customer wallet accounts.

Industry Context and Future Plans

BlockFi's struggles echo the challenges faced by other crypto lenders like Celsius Network and Voyager Digital, both of which filed for bankruptcy earlier this year. These firms, acting as de facto banks in the crypto space, have been severely impacted by the volatile market conditions. Despite these challenges, BlockFi aims to maximize value for stakeholders and stabilize its operations through its Chapter 11 cases.

Company Background

Founded in 2017 by Zac Prince and Flori Marquez, BlockFi has grown with offices in multiple countries. The company's leadership remains committed to prioritizing client interests as they navigate the path forward in a tumultuous crypto market.

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