BlockFi Files For Bankruptcy As FTX Fallout Spreads

BlockFi was entangled in FTX, and its stability was thrown into uncertainty after FTX collapsed.

BlockFi, a cryptocurrency lender that targeted mainstream investors hungry for a piece of the crypto mania, filed for bankruptcy on Monday, battered by its financial ties to FTX, the embattled exchange whose the recent fall has shaken the crypto industry to its core.

Jersey City, N.J.-based BlockFi has marketed itself primarily to retail investors, offering them cryptocurrency-backed loans in minutes with no credit checks , as well as accounts that paid high interest on crypto deposits. As of last year, the lender claimed to have more than 450,000 retail customers.

On Monday, BlockFi, which was founded in 2017, filed for protection from the Chapter 11 in New Jersey. . Its implosion is the latest example of an industry built on shaky foundations, with companies so intertwined that a single swing can trigger financial chaos.

BlockFi n is not the first crypto lender to file for bankruptcy. In July, two of its rivals, Celsius Network and Voyager Digital, collapsed within a week of each other. They were struggling to recover after a market panic in the spring, when the value of many top cryptocurrencies fell. Bitcoin alone fell 20% in one week.

BlockFi has been in shock ever since. To stabilize, the lender struck a deal with FTX in June, which was seen as a safety net at the time given the exchange's credibility and dominance in the crypto industry. FTX agreed to provide the company with a $400 million line of credit – essentially a loan that BlockFi could draw upon as needed.

In announcing the funding, Zac Prince, BlockFi's chief executive, said it would provide "access to capital that would further strengthen our balance sheet." The deal also gave FTX the option to buy BlockFi.

BlockFi then borrowed $275 million from an FTX subsidiary, according to its bankruptcy filings. This financial entanglement meant that when FTX flipped and was forced to file for bankruptcy amid revelations of corporate missteps and suspicious management, BlockFi also began to struggle.

Days after the exchange collapsed, BlockFi told customers they couldn't withdraw their deposits because it had "significant exposure" to FTX, including additional funds the company hoped to tap into the deal and other assets held on the FTX platform.

In its Monday filing, BlockFi said it has approximately $257 million in cash to help support its business through bankruptcy. The company said in court filings that it had more than 100,000 creditors, as well as $10 billion in assets and liabilities. He also said he would significantly reduce expenses, including labor costs. It employed 850 people last year.

BlockFi also said it would focus on collecting all obligations owed to the company, including those of FTX. However, he warned of delays in recovering FTX's assets given the exchange's bankruptcy.

John J. Ray III, the new director FTX's general, who previously ran Enron when it went bankrupt, called the corporate dysfunction at FTX "unprecedented." Legal experts say it could take years to unwind and recover the assets.

Regulators had previously reviewed BlockFi. In February, Security...