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BlockFi, a cryptocurrency lender, declares bankruptcy in New Jersey

BlockFi, a major cryptocurrency lender, and eight of its affiliates have filed for Chapter 11 bankruptcy protection, the company announced on Monday. BlockFi is the latest cryptocurrency victim following the spectacular collapse of the FTX exchange earlier this month.

The court action in New Jersey comes as cryptocurrency prices are falling, with bitcoin down more than 70% from its peak in 2021.

BlockFi, situated in New Jersey, had connections to FTX, which sought US protection earlier in November after traders withdrew $6 billion from the platform in only three days and rival exchange Binance abandoned a rescue plan.

BlockFi cited FTX as its second-largest creditor in a court statement on Monday, with $275 million owing on a loan made earlier this year. It claimed to owe more than 100,000 debtors money.

BlockFi was to receive a $400 million revolving credit facility as part of a contract inked with FTX in July, and FTX was given the option to purchase it for up to $240 million.

BlockFi also filed for bankruptcy after two of its biggest rivals, Celsius Network and Voyager Digital, did so in July, citing adverse market conditions that had caused to losses at both businesses.

During the pandemic, crypto lenders—the de facto banks of the cryptocurrency world—exploded, luring ordinary clients with double-digit rates in exchange for their cryptocurrency deposits. The lenders made money from the differential when institutional investors like hedge funds who wanted to make leveraged bets paid higher rates to borrow money from them.

Unlike traditional lenders, crypto lenders are not allowed to keep capital or liquidity buffers, and several of them found themselves exposed when a lack of collateral forced them—and their customers—to bear significant losses.

Ankura Trust, a business that defends creditors in challenging circumstances, is the largest creditor of BlockFi and is due $729 million. 19% of the equity shares in BlockFi are owned by Valar Ventures, a venture capital fund associated with Peter Thiel.

The US Securities and Exchange Commission was mentioned by BlockFi as one of its biggest debtors, with a $30 million demand. A BlockFi subsidiary agreed to pay $100 million to the SEC and 32 states in February to resolve allegations relating to a retail cryptocurrency loan program the company provided to almost 600,000 investors.

The company's Chapter 11 cases, according to a blog post by BlockFi, will allow it to stabilize its operations and maximize value for all stakeholders.

"Acting in the best interest of our clients is our top priority and continues to guide our path forward," according to BlockFi.

Withdrawals from its platform had already been halted by BlockFi, which stated it had "significant exposure" to FTX and its related companies due to "obligations owed to us by Alameda, assets held at, and undrawn amounts from our credit line with FTX.US."

BlockFi stated in its bankruptcy filing that it had retained Berkeley Research Group as a financial advisor, along with Kirkland & Ellis and Haynes & Boone as bankruptcy counsel.

According to the business, a third of BlockFi's $1.8 billion in outstanding loans at the end of June were unsecured.


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