BlockFi eyes bankruptcy as FTX fallout continues: report
BlockFi is once again preparing to lay off staff as the crypto lender considers a potential bankruptcy filing, The Wall Street Journal reported on Tuesday.
The move, by the newspaper reportis the latest contagion resulting directly from the sudden explosion of crypto exchange FTX – which has rattled digital asset markets and sparked a rush of large withdrawals from centralized exchanges to safer cold storage solutions.
In an ironic twist, FTX in July had planned to acquire BlockFi up to $240 million, depending on the startup’s performance triggers. This potential acquisition came with a precursor: a $400 million revolving line of credit designed to keep BlockFi afloat as the lender struggled to limit its exposures to the collapse of crypto borrowing markets following the implosion of Three Arrows Capital.
This was one of several large revolving lines of credit that FTX extended to struggling companies at the time, usually with the intention or the ability to later acquire those companies at rock bottom prices.
BlockFi suspended withdrawals last week amid developments that ultimately led to FTX and around 130 affiliates bankruptcy filing. Reuters reported on Sunday that at least $1 billion in customer funds were missing after Sam Bankman-Fried, then CEO of FTX, transferred $10 billion in FTX user funds to Alameda Research, a digital asset trading company founded by Bankman-Fried.
“Yet another victim of FTX,” a source said. “When does it end?
The source was granted anonymity to discuss sensitive prior business dealings with BlockFi.
“We are shocked and appalled by the news regarding FTX and Alameda,” BlockFi said in a November 10 tweet. “We, like the rest of the world, discovered this situation on Twitter. Given the lack of clarity on the status of FTX.com, FTX US and Alameda, we are unable to operate as usual.
In its latest bankruptcy filing, attorneys for FTX said Monday that the bankruptcy estate can have up to a million creditors.
BlockFi said in a blog post Monday that given the bankruptcy of FTX, it is “the most prudent decision” to continue to suspend many of its platform activities.
The company added: “We have significant exposure to FTX and related legal entities which includes obligations owed to us by Alameda, assets held on FTX.com and amounts not drawn on our line of credit with FTX.US. .”
A BlockFi spokesperson did not immediately return a request for comment.
Michael Bodley contributed reporting.
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