The troubled crypto lender has filed a motion in court to allow its customers to withdraw funds from their accounts on the platform. BlockFi filed for bankruptcy in November following its exposure to the now collapsed crypto exchange FTX.
After Celsius, crypto lending platform BlockFi, who declared insolvency at the U.S Bankruptcy Court for the District of New Jersey, has filed a petition in court asking permission to allow its customers to withdraw their funds held in BlockFi Wallet Accounts. At the time BlockFi said that it was moving forward with the decision in order to stabilise its business operations with an opportunity to “consummate a comprehensive restructuring transaction” for its customers and other stakeholders.
However, this request is not applicable to customers that deposited assets in the BlockFi Interest Accounts – that allow users to lend their crypto and make revenue by earning yield, or borrow funds against their collateralized assets. According to the statement made in court, withdrawal of funds in those accounts are to remain paused. BlockFi filed a similar petition to the Supreme Court of Bermuda, where BlockFi International Ltd – the firm’s global subsidiary – is registered, with regards to Wallet Accounts managed by the foreign entity.
“The Debtors have no legal or equitable interest in cryptocurrency that was present in the Wallet Accounts as of Platform Pause, and clients should be able to withdraw such assets from the platform if they choose,” read the document presented in court.
On January 9, the Bankruptcy Court of New Jersey will hold a hearing to decide whether to approve BlockFi’s motion. A similar hearing will be held in the Supreme Court of Bermuda on January 13 for BlockFi International Ltd.
The company’s troubles began in the summer after crypto markets crashed to its lowest point in over two years, leading to many of its competitors, including Celsius and Voyager Digital filing for bankruptcy after facing liquidity crunches. In July, BlockFi had to lay off 20% of its workforce in order to stabilise its operations. The crypto lender got a glimmer of hope when Sam Bankman-Fried, co-founder and former CEO of now collapsed crypto exchange FTX, bailed out the company by promising $675 million (£554 mn) with a $240 million (£196 mn) option to acquire next year.
However, all hopes for the company once valued at $5 billion (£4.1 bn) dashed following the spectacular implosion of its bailer. FTX was accused of misusing and mismanaging almost $10 billion (£8.2 bn) worth of customer funds in a complicated business relationship with hedge fund, market maker and sister company Alameda Research. On November 10, after FTX filed for bankruptcy in the Bahamas and the United States, where FTX and FTX.US are registered, BlockFi put out a statement on Twitter announcing that it was limiting activity on the platform and pausing all withdrawals until further notice.
On November 28, BlockFi filed for Chapter 11 bankruptcy.
“With the collapse of FTX, the BlockFI management team and board of directors immediately took action to protect clients and the company. From inception, BlockFi has worked to positively shape the cryptocurrency industry and advance the sector. BlockFi looks forward to a transparent process that achieves the best outcome for all clients and other stakeholders,” said Mark Renzi of Berkeley Research Group, the financial advisor leading BlockFi’s bankruptcy procedure.
Court documents showed that BlockFi has $265.9 million (£210mn) in cash in hand which it claimed would provide sufficient liquidity for continuing restructuring operations. The company owes between $1 billion (£820mn) and $10 billion (£8.2bn) in liabilities to 100,000 creditors, of which $729 million (£598mn) was borrowed from its biggest lender Ankura Trust Company, and while $275 million (£225mn) is owed to FTX, $30 million (£24mn) is due in penalties to the US Securities and Exchange Commission (SEC) for violating securities law.
According to BlockFi, the main cause for its liquidity crisis was the exposure to FTX, where $400 million (£328mn) worth of crypto assets are stuck. Now the crypto lender is suing SBF and his holding company Emergent Fidelity Technologies for breaking their terms of agreement. Before his crypto companies filed for bankruptcy, Bankman-Fried had promised his 7.6% stake in online brokerage platform ‘Robinhood’ as collateral to BlockFi. The company is now trying to claim this.
BlockFi is one among the prominent crypto companies that are currently facing financial trouble following the collapse of FTX. Other firms with direct exposure to the once second largest crypto exchange are; lending platform Voyager Digital and crypto investment bank Genesis.