The Story Behind Blockfi Filing for Bankruptcy:
BlockFI officially announced its Chapter 11 bankruptcy filing on November 28, following “significant exposure” to FTX exchange and its sister crypto hedge fund, Almeda. Indeed, it has been a hectic year for the crypto exchange platform, starting with the liquidity crisis and collapse of crypto hedge fund Three Arrows Capital in early summer.
The liquidity crunch resulted from the implosion of the TerraUSD stablecoin, leading to a major loss of about half a trillion dollars in market capitalization. Things quickly settled after FTX stepped in and offered a $250 million credit line to bail out BlockFI. It gave FTX the rights to buy out the exchange firm and shored up the liquidity distress.
Unfortunately, the crisis peaked after FTX filed for Chapter 11 bankruptcy only a few weeks before the BlockFI bankruptcy statement. Apart from FTX, about 130 crypto exchanges have filed for bankruptcy in the past months. Earlier this year, Voyager and Celsius began bankruptcy proceedings following the total collapse of TerraUSD.
BlockFI’s bankruptcy filing points out the firm’s assets and liabilities average total as between $1 billion and $10 billion. It also highlights that the exchange platform has over 100,000 creditors. Trouble looms for similar crypto exchanges, and investors are wondering what this collapse can mean for the crypto world.
What Does The BlockFI Bankruptcy Filing Mean For Its Customers?
According to the BlockFIs financial investor, Mark Renzi, the firm’s bankruptcy filing was an immediate action “to protect clients and the company.” Meanwhile, the BlockFI bankruptcy proceedings also focus on “recovering all obligations owed to BlockFi by its counterparties, including FTX and associated corporate entities.”
The company has also declared $257 million cash in hand, which can provide enough liquidity to support future restructuring. Nevertheless, the restructuring plan may include layoffs to reduce labor costs and other expenses. In addition, customer deposit withdrawal has been halted, and “clients’ claims will be addressed through the Chapter 11 process.”
Although much anticipated BlockFi bankruptcy strategy after FTX’s announcement, there’s nothing their customers can do now but wait. Withdrawals have been halted, and the firm has also advised clients not to make deposits to BlockFi wallet or interest accounts. The only option left is to remain patient as we await further updates from the crypto exchange.
What’s Next For Crypto Investors?
BlockFi’s bankruptcy filing following FTX’s insolvency has created a sense of doom throughout the crypto industry. Many crypto exchanges have tumbled in the past year, and investors are looking for more assurance. “BlockFI’s Chapter 11 restructuring underscores significant asset contagion risks associated with the crypto ecosystem”, said Monsur Hussain, senior director at Fitch Ratings.
Crypto exchanges like Binance have started to provide proof of reserves to make the industry more transparent and assure customers. However, industry critics have called for proof of liabilities in addition to the research. There is also a lot of uncertainty for investors due to the limited regulation concerning digital assets.
BlockFi bankruptcy proceedings have shown how customers can be put in a vulnerable position after a contagion. Crypto investors may need to also prepare for more fallout for several top crypto exchanges following the FTX implosion. Nevertheless, this crisis can lead to much stricter regulations for crypto exchanges.
