Toni Dimaano Tech 11.28.2022 23:Nov PM EST

BlockFi Declares Bankruptcy Following The FTX Collapse

The crypto lender BlockFi has filed for bankruptcy protections on Monday, amid the spread of the effects of FTX's fallout.

Coin Desk reports that the company announced that it filed for Chapter 11 bankruptcy, which indicates its hope to restructure and continue their operations despite the crypto crisis.

BlockFi Become The Latest Casualty Of The Cryptocurrency Exchange Slump

Another crypto company has fallen with the collapse of cryptocurrency exchange, as BlockFi becomes the latest firm to file for Chapter 11 bankruptcy after weeks of pausing withdrawals.

The New Jersey-based company cited the lack of clarity around the financial circumstances surrounding FTX and its collapse as it goes through accusations of fraud and faulty record-keeping.

The bankruptcy filing was submitted in New Jersey, and it names Ankura Trust Company as its largest creditor with $792 million, followed by FTX US at $275 million.

According to Greenwich Time, BlockFi, which has been struggling all 2022, was saved by an FTX line of credit in the summer.

However, since the slump of FTX, the future of the crypto lender can be affected as collateral to the bankruptcy FTX has also filed earlier this month.

Additionally, the loaning of crypto assets while there is a severe drop in the value of bitcoin and other cryptocurrencies secured BlockFi less than its outstanding loans.

Moreover, the line of credit FTX extended to the company only ended up to be more of a burden as FTX financial rescue package is no longer available once BlockFi faced troubles of its own.

Because of this, BlockFi claims that its attempts to get additional crypto funds days before the bankruptcy were not granted by the FTX, Greenwich Time writes.

Nevertheless, BlockFi reportedly still has $256.9 million in cash on hand, which will suffice to keep the company up and running as it restructures the business.

This restructuring will highlight significant risks within the cryptocurrency ecosystem, as well as the potential mismanagements of said risks, according to NPR.

At the moment, the crypto firm is focusing on recovering all obligations owed to the company by counterparties like FTX, although it might be delayed due to the FTX slump.

The Crypto Finance Company Plans To Layoff Staff Amid The Market Downturn

Aside from the fate FTX has suffered, BlockFi blames the current situation of the company to the volatility of the crypto market as of recent.

In response to the issues it is facing, The Verge says that the company is also planning to cut off a large portion of its workers to reduce expenses on labor.

In June, BlockFi already laid off 20% of its employees due to the condition of the market, and has since agreed to $100 million penalties to its regulators.

This is based on interest accounts of the company that were unregistered or not properly registered as an investment company.

However, the woes of the company do not end there as earlier this month, the California Department of Financial Protection and Innovation suspended the company's license to make and broker loans.

According to NPR, the company has since settled these charges by agreeing to pay $50 million, and an additional $50 million to state regulators in February.