The contagion has come home to roost.
Cryptocurrency fintech BlockFi filed for bankruptcy on Monday, the company announced in a press release.
The company noted on its website all operations on the platform have been paused (but it had already stopped user withdrawals earlier this month) and said in a release that Chapter 11 proceedings will allow it “to stabilize its business” and “consummate a comprehensive restructuring transaction that maximizes value for all clients and other stakeholders.”
BlockFi has been linked to now-disgraced crypto lender and its affiliated companies, FTX and Alameda Research, which collapsed earlier this month after revelations about its liquidity. According to BlockFi’s 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 worlds, with a crypto-backed loan product, for example. It was valued at highs of around $3.8 billion in 2021.
Related: ‘I’m Sorry. That’s The Biggest Thing.’ Sam Bankman-Fried and Cryptoworld Lose Big in FTX Meltdown, Company Files For Bankruptcy
But things went sour for the company when an earlier wave of market contagion hit cryptocurrency in June. Along with a rout in stocks of large tech companies, the value of various nontraditional currencies sank. Financial “contagion” generally means the movement of market fallout from one place to another. But it hit particularly hard in the more volatile world of crypto, exposing holes in companies like Celsius Network, which paused 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 summer chaos – wherein 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, per the New York Times, and giving it the option to buy the company.
As such, BlockFi was inextricably linked to FTX, which turned out to have poor corporate controls, according to bankruptcy filing documents, and massive holes in its balance sheet.
“We do have significant exposure to FTX and associated corporate entities that encompasses obligations owed to us by Alameda, assets held at FTX.com, and undrawn amounts from our credit line with FTX.US,” BlockFi’s statement said.
“While we will continue to work on recovering all obligations owed to BlockFi, we expect that the recovery of the obligations owed to us by FTX will be delayed as FTX works through the bankruptcy process,” it added.
A crypto broker, Genesis, also paused withdrawals on the platform in mid-November, as it had $175 million of financial linkage to FTX, the NYT noted.
Related: ‘A Complete Failure of Corporate Control’: FTX Corporate Attacks Sam Bankman-Fried in Bankruptcy Filing
BlockFi also faced in February a $100 million penalty from the SEC for not registering its crypto lending product.
Whether or not (or how) crypto holders will get money back from a series of cascading disasters in the sector 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 is cascading across an industry that we love and believe in, touching the lives of so many people. Our top priority remains doing the best we can for our clients,” the company added.
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