BlockFi, FTX-linked cryptocurrency lender, files for bankruptcy

On the same day it filed for bankruptcy, BlockFi made a legal effort to obtain collateral for a loan Alameda Research had taken out from BlockFi, the Financial Times reported. reported. BlockFi is specifically suing Bankman-Fried’s holding company, which is called Emergent Fidelity Technologies.

Bloomberg

Emergent struck a deal with BlockFi to get a loan for Alameda Research, the also-disgraced trading company related to FTX. The collateral for the loan was Sam Bankman-Fried’s stock in Robinhood, a retail day trading company. Sam Bankman-Fried bought a 7.6% share this year.

BlockFi asks that Emergent, the holding company, sell the shares and give the cash or essentially hand over the shares. The FT also reported that Bankman-Fried had apparently tried to sell those Robinhood shares while he was working to bail out FTX, per two people close to the matter.

Original story below.

The contagion has come home to sleep.

Cryptocurrency fintech BlockFi filed for bankruptcy on Monday, the company reports announced in a press release.

The company noted on its website that all operations on the platform have been paused (but it had already stopped withdrawing users earlier this month) and said in a release that Chapter 11 proceedings will allow it “to stabilize its business” and “bring about a comprehensive restructuring transaction that maximizes value for all customers and other stakeholders.”

BlockFi has been linked to the now-disgraced crypto lender and its affiliates, FTX and Alameda Research, which collapsed earlier this month following revelations about its liquidity. According to BlockFis website statement, it has “the necessary liquidity to explore all options.”

BlockFi was founded in 2017 by Zac Prince and Flori Marquez as a link between the crypto and traditional finance world, for example with a crypto-backed loan product. It was appreciated at a peak of about $3.8 billion in 2021.

Related: “I’m sorry. That is the most important.’ Sam Bankman-Fried and Cryptoworld Lose Big in FTX Meltdown, Company Files for Bankruptcy

But things went sour for the company when a previous wave of market contagion hit cryptocurrency in june. Along with a fall in the share price of major technology companies, the value of several non-traditional currencies fell. Financial “contagion” generally means the movement of market failures from one place to another. But it hit especially hard in the more volatile world of crypto, exposing holes in companies like Celsius Network, which stopped all user withdrawals in June and filed for bankruptcy in July.

Related: Celsius network files for bankruptcy, customers unlikely to get money back

Bitcoin has lost 66% of its value since the beginning of the year.

Amid the chaos over the summer — during which fellow crypto fintech Voyager Digital also filed for bankruptcy — crypto exchange FTX appeared to be a “white knight” of sorts, lending a $400 million line of credit to BlockFi, according to the New York Timesand giving it the option to buy the company.

As such, BlockFi was inseparable from FTX, which was found to have poor corporate controls, according to bankruptcy documents, and massive holes in its balance.

“We have significant exposure to FTX and related corporate entities that include liabilities to us by Alameda, assets held on FTX.com, and undrawn amounts of our line of credit with FTX.US,” the BlockFi statement said.

“While we will continue to work to collect all obligations to BlockFi, we expect that collection of the obligations owed to us by FTX will be delayed as FTX progresses through the bankruptcy process,” it added.

A crypto brokerage, Genesis, also stopped withdrawals on the platform in mid-November because it had $175 million in financial links to FTX, the NYT noted.

Related: ‘A Complete Failure of Corporate Control’: FTX Corporate Attacks Sam Bankman-Fried in Bankruptcy Filing

BlockFi also suffered a $100 million fine from the SEC for not registering his crypto lending product.

Whether or not (and how) crypto holders recover money from a string of successive industry disasters remains to be seen.

“We know the past few days have been incredibly difficult for you. We are deeply saddened to see the devastation that has come upon the lives of so many people across an industry we love and believe in. Our top priority remains to do the best we can for our customers,” the company added.