BlockFi, a cryptocurrency lender and financial services company, filed for bankruptcy on Monday, becoming the latest company in the crypto industry to be hampered by the implosion of the embattled exchange FTX.
BlockFi had been reeling since the spring when the collapse of several influential crypto companies sent the market into a frenzy, causing the value of cryptocurrencies like Bitcoin to plummet. In June, FTX agreed to provide the company with a $400 million line of credit, which BlockFi CEO Zac Prince said would “provide access to capital that further strengthens our balance sheet”. The deal also gave FTX the option to buy BlockFi.
But that deal meant that BlockFi was financially entangled with FTX, and its stability was pushed into uncertainty this month after a series of revelations about business missteps and suspicious management at FTX. A few days after the stock market crashed, BlockFi suspended withdrawals, explaining that it had “significant exposure” to FTX, including undrawn amounts from the credit line and assets held on the FTX platform.
BlockFi is not the first cryptocurrency lender to collapse in a devastating year for the industry. After the spring crash, which saw Bitcoin drop 20 percent in a week, two other lenders, Celsius Network and Voyager Digital, have filed for bankruptcy.
Based in Jersey City, NJ, BlockFi was founded in 2017 and last year claimed more than 450,000 retail customers who can get loans in minutes, with no credit checks. “We are only at the beginning of this story,” Flori Marquez, a BlockFi co-founder, told The New York Times in September. But his activities have received close scrutiny from regulators.
The Securities and Exchange Commission reached a $100 million settlement in February with BlockFi’s lending arm over registration errors, the first since the regulator warned it would take action against cryptocurrency companies offering loans that failed to register them as securities or register themselves. as investment companies. The SEC also found that BlockFi was making false and misleading statements about the level of risk in its loan portfolio and lending business.
The settlement was intended to give BlockFi a path to register with the SEC, which would set an example for other cryptocurrency lenders as well. But cryptocurrency advocates responded, saying the deal supported their claim that regulation had pushed companies like FTX offshore to places where rules are looser, putting consumers at risk.
