Crypto lending giant BlockFi has filed for bankruptcy, the company announced Monday, becoming the latest casualty in the crypto industry after the company was hit by exposure to its spectacular crash earlier this month.
The filing of the request in a New Jersey court comes at a time when crypto prices are plunging. The price of the, by far the most popular digital currency, is down more than 70% from its 2021 peak.
“Blockpay’s debt settlement within the bankruptcy framework emphasizes the significant risks of contagion to assets related to the crypto world,”
said Monsur Hussain, senior manager at the rating company Fitch Ratings.
New Jersey-based Blockpay, founded by fintech executive-turned-crypto entrepreneur Zach Prince, said in the bankruptcy filing that its significant exposure to the FTX exchange created a liquidity crisis. The FTX exchange, founded by Sam Bankman Fried, filed for bankruptcy in the US this month after traders withdrew $6 billion from the platform in three days, and the rival exchange abandoned a deal intended to save the .
“While creditor exposure to the FTX exchange is a major reason for the bankruptcy petition, the creditors do not have to deal with the variety of problems that the FTX exchange is facing,” said the bankruptcy petition filed by Mark Renzi, CEO of the Berkeley Research Group, Blockpay’s proposed financial advisor. On the contrary”.
Blockpay said the liquidity crisis was caused by its exposure to the FTX exchange, through loans it made to Alameda, a crypto trading company that has a business partnership with the FTX exchange, as well as due to cryptocurrencies being held on the FTX platform and becoming locked up there. Blockpay listed its assets and liabilities as between $1-10 billion.
BlockPay also sued Bankman-Fried Holdings on Monday, seeking to get back shares in stock trading app Robinhood Markets (NASDAQ: ) that were pledged three weeks ago, before BlockPay and FTX filed for bankruptcy.
Renzi said that BulkPay sold some of its crypto assets earlier in November, in order to finance its bankruptcy. Those sales generated $238 million in cash, and Blockchain now has $256.5 million in accessible cash.
In a Monday court filing, Blockpay listed it as its second-largest creditor, owed $275 million on a loan that was extended earlier this year. She says she owes money to more than 100,000 creditors. The company also announced in a separate filing that it plans to lay off two-thirds of its 292-person workforce.
As part of a deal signed with the FTX exchange in July, Blockpay was supposed to receive a revolving credit facility in the amount of $400 million, while the FTX exchange received the option to purchase it in the amount of up to $240 million.
Blockchain’s bankruptcy filing also comes after Blockchain’s two biggest competitors, Celsius Network and Voyager Digital, filed for bankruptcy in July, citing extreme market conditions that led to losses for both companies.
The first hearing in Blockpay’s bankruptcy is set for Tuesday.
Blockpay’s largest creditor is the Ankura Trust, which represents creditors in distress, and the debt to it is $729 million. The venture capital fund Valar Ventures, which is related to Peter Thiel, has a 19% holding share in Blockpay shares.
BlockPay also listed the US Securities and Exchange Commission as one of its largest creditors, holding $30 million in debt. In February, a subsidiary of BlockPay agreed to pay $100 million to the Securities and Exchange Commission and 32 US states in order to reach a settlement on charges related to a retail loan product for the crypto market that the company offered to nearly 600,000 investors.
Bain Capital Ventures and Tiger Global co-led BlockPay’s March 2021 funding round, BlockPay said in a press release issued at the time.
As part of its bankruptcy filing, Blockpay said it hired the services of law firms Kirkland & Ellis and Haynes & Boone to advise on the bankruptcy process.
Earlier, BlockPay suspended withdrawals from its platform.
In the filing, Renzi said BlockPay intends to seek authority to honor customer withdrawal requests from its customers’ wallet accounts, where crypto assets are deposited for safekeeping. However, the company did not provide plans for how it might treat requests to withdraw funds from its other products, including interest-bearing accounts.
“Blockpay customers may end up getting back a significant portion of their investments,” Renzi said in the filing.
Blockchain was founded in 2017 by Prince, who currently serves as the company’s CEO, and by Flore Marks. Although the company’s main offices are in New Jersey, Blockchain also has offices in New York, Singapore, Poland and Argentina, according to the company’s website.
In July, Prince tweeted that
“The time has come to put BlockPay in the same bucket as Voyager and Celsius.”
“Two months ago we looked ‘the same’. They closed the activity and have expected losses for their customers,”
Prince grew up in San Antonio, Texas, and financed his studies at the University of Oklahoma and Texas State University through his winnings in online poker tournaments. Before co-founding BlockPay with Marks, he worked at broker-dealer Orchard Platform, and at Zibby, a buy-to-lease loan company now called Catapult (NASDAQ: ). Marks previously worked at Bond Street, which dealt in small business loans, and was absorbed by Goldman Sachs (NYSE: ) in 2017.
- – Reuters contributed content to this article