Cryptocurrency lender BlockFi Inc filed for Chapter 11 bankruptcy protection on Monday, the latest casualty of the collapse of cryptocurrency exchange FTX.
New Jersey-based BlockFi had been struggling for much of this year, but was given a lifeline this summer in the form of an FTX line of credit.
However, FTX’s own bankruptcy all but sealed BlockFi’s financial fate. BlockFi suspended withdrawals after FTX’s failure and it had hired bankruptcy specialists in recent days.
Photo: AP
BlockFi was one of several cryptocurrency lenders to pop up in the past few years. The company gave loans to customers using their crypto assets as collateral. The severe drop in the value of bitcoin, ethereum and other cryptocurrencies made the collateral that BlockFi had secured often worth less than the loans it had outstanding.
In addition, this summer’s line of credit from FTX ended up being an albatross around the company’s neck. FTX’s financial rescue package was no longer available to BlockFi once it ran into its own financial trouble, and BlockFi said any attempts to get additional funds in the days before the bankruptcy were not honored.
“This exposure created a liquidity crisis” for the company, its lawyers said in a court filing.
In its bankruptcy filing, BlockFi claimed more than 100,000 creditors and liabilities ranging from US$1 billion to US$10 billion.
It said bankruptcy protection would allow it to stabilize the company and restructure.
It has US$256.9 million in cash on hand, which it expects would provide enough cushion to support some operations during the restructuring.
One creditor among BlockFi’s debts is the US Securities and Exchange Commission. Back in February, BlockFi settled with the commission over its crypto lending products, agreeing to pay US$100 million in fines and penalties. About US$30 million of that is still owed to the US government.
Separately, Bitfront, a cryptocurrency exchange that is backed by Japan’s Internet giant Line Corp, is shutting down amid “rapidly evolving” challenges in the industry.
The company has “regretfully determined that we need to shut down Bitfront in order to continue growing the Line blockchain ecosystem and Link token economy,” it said in a statement on its Web site.
The US-based firm added that its closure is not related to recent issues related to “certain exchanges that have been accused of misconduct,” a pointed reference to the collapse of FTX that has roiled the digital assets industry.
Bitfront has stopped new sign-ups and credit card payments as of Monday, it said.
It is to suspend all withdrawals on March 31 next year and asked customers to withdraw all their assets by then, the statement said.
Line opened Bitfront in 2020, with an aim to bring the cryptocurrency industry into the mainstream.
Additional reporting by Bloomberg
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