Cryptocurrency deepens as Blockfi files for bankruptcy after being bailed out by collapsed FTX earlier this year
Another crypto company has filed for bankruptcy as the fallout from FTX’s crash continues.
Blockfi, bailed out earlier this year by Sam Bankman-Fried’s FTX, owed money to more than 100,000 customers.
It enabled users to buy and trade cryptocurrencies such as bitcoin on its platform.
Blockfi, bailed out earlier this year by Sam Bankman-Fried’s FTX, owed money to more than 100,000 clients
Similar to the way a traditional bank works, it then lends their money to businesses and individuals and pays interest to its depositors in crypto.
But it stopped allowing customers to withdraw their funds and lending was paused in the wake of crypto exchange FTX’s implosion this month.
Now it has filed for bankruptcy in the US in a “reorganization plan that maximizes value for all stakeholders, including our valued customers.”
Monsur Hussain, of credit rating agency Fitch, said the bankruptcy “underscores the significant risks of asset contamination associated with the crypto ecosystem, and potentially flawed risk management processes.”
Blockfi continued to flounder after loans to hedge fund Three Arrows Capital turned sour as the company collapsed amid sliding crypto markets.
Bankman-Fried, then seen as the ‘king of crypto’, stepped in, extending a loan of up to £333 million to Blockfi in exchange for the option to buy it. But after FTX’s demise, Blockfi continued to falter.
Earlier this month, it said it had “significant exposure to FTX and related corporate entities, including liabilities to us by Alameda, assets held on FTX.com and undrawn amounts of our line of credit with FTX.US.”
Blockfi’s collapse will be a blow to even more high-profile investors. Valar Ventures, a venture capital firm backed by billionaire Peter Thiel, owned a 19 percent stake.
Court filings show that Blockfi owed £230 million to FTX and £25 million to the US financial regulator, which this year found it failed to properly register products and misled users about risk levels.