BlockFi Eyes Bankruptcy as FTX Fallout Continues: Report

Ben Strack
Ben Strack November 16, 2022
Updated 2022/11/16 at 8:05 AM
3 Min Read

BlockFi is preparing to once again to lay off staffers as the crypto lender considers a possible bankruptcy filing, the Wall Street Journal reported Tuesday.

The move, per the Journal’s report, is the latest contagion directly stemming from the sudden blow-up of crypto exchange FTX — which sent digital asset markets reeling and triggered a rush of big-money withdrawals from centralized exchanges into safer cold storage solutions.

In an ironic twist, FTX in July had planned to acquire BlockFi outright for up to $240 million, depending on the startup’s performance triggers. That potential acquisition came with a precursor: a $400 million revolving line of credit designed to keep BlockFi afloat as the lender worked to limit its exposures to the meltdown in crypto borrowing markets following the implosion of Three Arrows Capital.

It was one of a number of substantial revolving credit lines FTX floated to embattled firms at the time, typically with the intent, or the option, to later acquire those businesses at rock-bottom prices.

BlockFi suspended withdrawals last week amid developments that ultimately led to FTX and roughly 130 affiliated firms filing for bankruptcy. Reuters reported Sunday that at least $1 billion of customer funds were missing after FTX then-CEO Sam Bankman-Fried transferred $10 billion of FTX user funds to Alameda Research, a digital assets trading firm Bankman-Fried founded.

“Yet another FTX casualty,” one source said. “When does it end?”

The source was granted anonymity to discuss sensitive previous business dealings with BlockFi.

“We are shocked and dismayed by the news regarding FTX and Alameda,” BlockFi said in a Nov. 10 tweet. “We, like the rest of the world, found out about this situation on Twitter. Given the lack of clarity on the status of, FTX US and Alameda, we are not able to operate business as usual.”

In its latest bankruptcy filing, FTX lawyers on Monday said the bankruptcy estate may have as many as one million creditors.

BlockFi said in a blog post Monday that given FTX’s bankruptcy, it is “the most prudent decision” to continue pausing many of its platform activities.

Added the company: “We do have significant exposure to FTX and associated corporate entities that encompasses obligations owed to us by Alameda, assets held at, and undrawn amounts from our credit line with FTX.US.”

A BlockFi spokesperson did not immediately return a request for comment.

Michael Bodley contributed reporting.

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The post BlockFi Eyes Bankruptcy as FTX Fallout Continues: Report appeared first on Blockworks.

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