BlockFi has filed for Chapter 11 bankruptcy, just weeks after it suspended withdrawals due to the collapse of FTX, one of the largest crypto exchanges in the world. According to The New York Times, BlockFi had to be propped up with a $400 million credit line from FTX in the spring, this entanglement has now led to the bankruptcy of BlockFi.
The collapse of BlockFi is concerning because it shows that other companies that had financial exposure to FTX are vulnerable. Many companies in the crypto space had exposure to FTX, and more could collapse and seriously knock confidence in crypto assets. As more companies topple, it increases the chance that other firms financially linked to them could collapse too, this is referred to as contagion.
“Since the pause, our team has explored every strategic option and alternative available to us, and has remained laser-focused on our primary objective of doing the best we can for our clients.” BlockFi said in a statement. “These Chapter 11 cases will enable BlockFi to stabilize the business and provide BlockFi with the opportunity to consummate a reorganization plan that maximizes value for all stakeholders, including our valued clients.”
In an FAQ published by BlockFi, it addressed rumours that the majority of its assets were held on FTX. It said that this is not the case but that it does have significant exposure to FTX and is owed “obligations” from Alameda Research, FTX.com, and undrawn amounts from its $400 million credit line with FTX.US. Under the Chapter 11 bankruptcy, BlockFi’s job now is to reorganize and maximize value for all stakeholders.
Going forward, BlockFi requests that users keep its app installed and keep their accounts open. Withdrawals remain paused and customers are asked not to deposit any more money to their BlockFi Wallet or Interest Accounts. According to the company, customers will most likely be able to put claims in for access to their funds through the bankruptcy process, but there’s no guarantee that the full amount of the assets will be retrievable.
Aside from the collapse of FTX, the tougher economic conditions will also be weighing on crypto firms. With all these risks, anyone with assets on exchanges should withdraw them to a cryptocurrency wallet that they have the private keys or seed phrase to.